Let the countdown begin. Now that we’ve rung in a new year, it’s time for companies to get serious about complying with the new IASB and FASB lease accounting standards, which begin to take effect at the end of this year.
Although a number of companies have already taken proactive steps toward compliance, many still have questions about how these new standards will impact them.
iOFFICE has a partnership with Visual Lease, a leading lease accounting software with more than 20 years of expertise. We spoke with Isaac Heller, VP of Strategic Alliances at Visual Lease, to get answers to some of the most pressing questions about lease accounting.
What Can We Do Now To Prepare For The New Lease Accounting Standards?
Although the new standards don’t go into effect until Dec. 15, 2018 for public companies and private companies have until Dec. 15, 2019, you will need to include all leases from the past two years in your reporting. That means the time to prepare is now. Here are a few important steps we recommend:
- Form a project team with representatives from accounting, leasing specialists and information technology.
- Take an inventory of all your leases with terms of 12 months or more.
- Consider whether you need to make updates to your lease management system to include more complete reporting and whether you need to invest in lease accounting software.
- If you determine you do need lease accounting software, vet solutions providers carefully. Consider your asset portfolio, including the type of assets and how many you have. If you have more than 50 assets with varying terms, for instance, you will need a more robust solution. You also need to be sure the solution you are considering will integrate with your general ledger and whether it can handle day-to-day lease administration, as well as accounting.
Do We Need to Classify Operating Leases and Financing Leases Differently?
If your organization follows FASB guidelines, you will need to classify operating leases and financing leases differently. Under the new FASB standards, these are accounted for separately. If you don’t already have a way to track important details about each lease, including the type of lease, you’ll want to look into software that makes this as simple as possible in addition to lease accounting software. iOFFICE’s asset tracking software has this capability and integrates well with our lease accounting software.
However, the new IASB guidelines under the International Financial Reporting Standards use a single approach for both types of leases.
How Will The New Standards Impact Our Balance Sheets?
The new standards will significantly increase the liabilities and assets your company has on its balance sheets. Although they will have no impact on profit and loss values, it will affect ratios such as return on assets (ROA) and liability to equity ratios. Having all leases of a year or more reflected on your balance sheet may cause your organization to re-evaluate longer-term leases and consider whether ownership may be a better option. These standards may also change the way property managers negotiate when it comes to rental rates and lease terms. Over time, they may even reduce the demand for leasing.
While complying with these new lease accounting requirements is certainly a pressing concern, don’t let fears about FASB pressure your organization into investing in a software solution that’s insufficient or more than what you actually need.
iOFFICE’s asset tracking software can work in tandem with lease accounting solutions like Visual Lease’s for comprehensive lease management. To learn more, request a demo of our asset tracking software today.