Lease accounting changes

Comply with the recent lease accounting changes before the deadline.

Lease accounting changes are here. Are you ready?

Deadlines for new lease accounting changes are quickly approaching, and any entity that enters into a lease will need to comply. That means now is the time to figure out how new standards in FASB ASC 842 and IFRS 16 will affect the future of your organization’s balance sheet. 
New lease accounting standards will have an estimated $3 trillion impact on companies’ balance sheets. Know how your ongoing processes will be impacted.” 1

What to expect from lease accounting changes

More transparency
Stakeholders will gain a clearer view into an organization’s leasing activities and their effects on the financial statements.
Bigger balances
Lessees will be required to recognize most leases “on balance sheet.”
Dual effect
Lease accounting changes will not only affect policies but also the systems used to manage them.
Limited resources
Companies may experience resource constraints as they manage implementation while still supporting their regular accounting processes.
Ongoing compliance
Processes and controls that govern lease acquisition and modification will need to be addressed.
Tax implications
Lease accounting changes could affect the organization’s income tax reporting.
More transparency
Stakeholders will gain a clearer view into an organization’s leasing activities and their effects on the financial statements.
Bigger balances
Lessees will be required to recognize most leases “on balance sheet.”
Dual effect
Lease accounting changes will not only affect policies but also the systems used to manage them.
Limited resources
Companies may experience resource constraints as they manage implementation while still supporting their regular accounting processes.
Ongoing compliance
Processes and controls that govern lease acquisition and modification will need to be addressed.
Tax implications
Lease accounting changes could affect the organization’s income tax reporting.

4 ways you can prepare for the lease accounting changes 

If your organization engages in leasing, you need to prepare for implementation now. Early adoption is permitted, but being late is not an option. 

  1. Assess the scope. Companies need to identify their current and in-process lease agreements as well as relevant policies, procedures, data, and systems involved. Various departments – including accounting, finance, operations, logistics, legal, tax, and IT – should be represented.
  2. Select an approach. Significant planning should go into the selection of a transition approach and required system enhancements. This includes selection of practical expedients and organization of the lease accounting function.
  3. Plan for transition. Develop a project plan and secure necessary resources to meet the effective date.
  4. Implement and monitor. Execute the plan, monitor status, and communicate with relevant stakeholders with a goal of full compliance on or before regulatory effective dates.

You should also consider other ramifications of the lease accounting changes beyond your organization’s financial statements, such as the impact on key financial ratios included in debt covenants or key performance indicators used to manage the business.

 

1 Chris Bryant and Andrea Felsted, “Say Hello to $3 Trillion in Forgotten Debt,” Bloomberg, March 20, 2017, https://www.bloomberg.com/opinion/articles/2017-03-20/say-hello-to-3-trillion-in-forgotten-debt

Crowe can help you navigate the recent lease accounting changes

Whether you have just begun your compliance journey or are well on your way down the path to compliance, our experienced lease accounting, consulting, and technology professionals are here to assist. We can help you through the process to optimize your compliance efforts.
people
Dan Edwards
William Watts - social
William C. Watts
Principal