Lease accounting standard

Achieve compliance and optimize your lease accounting under the new standards.

Changes are fast approaching. Are you ready?

New lease accounting standards contain dramatic changes that may affect the future of your organization’s balance sheet. The ASU No. 2016-02, “Leases (Topic 842)” and IASB-issued IFRS 16, “Leases” deadlines are quickly approaching, and any entity that enters into a lease will need to comply.
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

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
Changes will affect not only lease accounting 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
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
Changes will affect not only lease accounting 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
Accounting changes could affect the organization’s income tax reporting.

Four steps to prepare for the new compliance standards

Organizations that engage in leasing need to prepare for implementation. Early adoption is permitted, but being late is not an option. Additionally, companies should consider other ramifications of applying the new leases standard beyond the 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. 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.

 

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 – anywhere along the way

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