Meet the New Lease Accounting Standards with the Crowe Lease Accounting Optimizer

Webinar Recording

Key takeaways from the new lease accounting standards

  • There are several transparency issues that have made current lease accounting standards obsolete.
  • New lease accounting standards are being put into place to improve corporate transparency.
  • The Crowe Lease Accounting Optimizer can minimize or eliminate many of the common pain points associated with complying with the new lease accounting standards.

Current lease accounting standards

Dan Edwards, CPA with Crowe reviews the current international and domestic lease accounting standards. First, Dan explains the difference between a finance lease, also known as a capital lease, and an operating lease. Each of these leases is reported differently on an income statement and companies are not currently required to include an operating lease on their balance sheet. Due to the various reporting requirements for each lease type, it is difficult for investors and analysts to compare organizations effectively. Because operating leases are not being captured on a company’s balance sheet, there is limited transparency into the organization. As a result, two new leasing standards will come into effect to improve transparency.

New lease accounting standards

The new lease accounting standards, known as IFRS 16 and ASC 842, are set to begin for public companies on January 1, 2019 and for private companies on January 1, 2020.

On the international side, IFRS 16 will institute the following changes:

  • All leases will be recognized in the balance sheet as a financial lease.
  • All leases will have a depreciation and interest charge to the income statement.

In the United States, ASC 842 will mean:

  • All leases are recognized in the balance sheet either as financial or operating, which means that a company’s balance sheet will grow substantially.
  • Operating leases will still be recognized as a single-lease expense on a straight line basis.
  • Finance leases retain their interest and depreciation charge.

The lease accounting changes placed upon companies by IFRS 16 and ASC 842 will require a significant overhaul to how lease accounting is done internally. As a result, many organizations are facing process and resource allocation issues in trying to become compliant with the new lease accounting standards.

Compliance pain points and Crowe Lease Accounting Optimizer

Simon Little, CPA joins Dan to discuss potential pain points with the new lease accounting standards. Several issues are discussed:

  • Scoping: Knowing what all their leases are and gathering the information necessary to track them.
  • Manual process: Finding a sophisticated software solution to perform the accounting needed to be compliant.
  • Ongoing controls: Processes and controls for lease acquisition and modification will need to be addressed.
  • Resource burden: Companies must deal with resource shortages when trying to read through all contracts to identify current leases. 

The Crowe Lease Accounting Optimizer addresses these pain points with a user-friendly software solution. Using Microsoft Dynamics 365 software, processes are streamlined into a single platform that applies the new lease accounting standards and provides flexibility for companies to make any necessary changes going forward.

Contact us to learn more about  how the Crowe Lease Accounting Optimizer software can keep your business up to date when meeting industry standards.