New accounting standards for leases

Is your company prepared for the new lease accounting standards?

Crowe delivers technology solution, framework to assist with new accounting standards for leases

4/9/2018
New accounting standards for leases

CHICAGO (April 9, 2018) – New lease accounting standards going into effect soon for many companies will impact how leases are reported on an organization’s balance sheet. Because deadlines are quickly approaching, Crowe Horwath LLP has developed a lease accounting software to complement its compliance framework and assist companies with preparation and ongoing compliance. Crowe is one of the largest public accounting, consulting and technology firms in the U.S.

The new lease accounting standards will impact all companies that lease or sublease property or equipment directly or through service contractors. In 2017, it was estimated that companies have about $3 trillion in operating lease obligations, according to Bloomberg data.

According to Bill Watts, Crowe Risk Consulting principal, organizations should prepare now for implementation and determine how best to automate compliance. Watts noted that while conducting a scoping and impact assessment is a crucial first step, many companies are also asking for a technology tool that will help them comply with the new lease accounting standards. “Companies that have begun preparing for lease accounting compliance are telling us that spreadsheets are not enough,” Watts said. “Financial and accounting executives are eager to find solutions that perform critical analyses and automate processes to not only help meet the compliance standards, but also run their day-to-day operations better.”

To assist those companies, Crowe developed the Crowe Lease Accounting Optimizer solution, which allows them to manage their lease accounting processes efficiently while complying with the new lease accounting standards. The Crowe Lease Accounting Optimizer solution:

  • Performs instant cash flow and lease analysis
  • Eliminates manual lease payment processes and duplicate data entry, making lease accounting compliance less labor-intensive
  • Provides built-in audit controls and lease payment traceability
  • Is embedded in Microsoft Dynamics 365 and Dynamics AX, and is compatible with most other companies’ ERP systems, such as SAP, Oracle and Infor
  • Is available on Microsoft AppSource, the Microsoft business app store

The new standards, Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842)” and International Financial Reporting Standard (IFRS) 16 “Leases,” are effective for public business entities with annual periods beginning after Dec. 15, 2018, and all interim periods, and one year later for all other companies. Early adoption is permitted for all entities.

“Some leases, such as office or retail locations, are fairly obvious, but others may be hidden or more complex,” Watts said. “If a company outsources part of its research and development, it may be subleasing equipment through its vendors. It’s important to pull in all of the departments that may be involved in leasing during the discovery process so companies have a complete picture of their leasing situations.”

For organizations just beginning to look into compliance for the new lease accounting standards, Crowe offers the Crowe Lease Accounting Framework to help them work through the information needed for compliance using the following steps:

  • Understand the new lease accounting standard: Recognize how the lease accounting changes will impact not only accounting policies but the systems used to manage leases. Consider other ramifications of applying the new lease standards beyond the organization’s financial statements, such as the impact on key financial ratios included in the debt covenants or key performance indicators used to manage the business.
  • Gather information: Obtain current and in-process lease agreements as well as relevant policies, procedures, data and systems involved.
  • Evaluate the impact: Establish a cross-functional team, inclusive of accounting, tax, purchasing, IT and legal, to evaluate the impact across the entire organization.
  • Select a transition approach: Plan for required system enhancements, such as updating financial accounting software or programs or purchasing add-on solutions like the Crowe Lease Accounting Optimizer solution.
  • Design a solution: Develop a project plan and timeline and secure necessary resources to meet the effective date.
  • Implement and monitor: Execute the project plan, monitor status and communicate with relevant stakeholders.

For more information on the recent lease accounting changes, please visit: www.crowe.com/insights/issues/lease-accounting-standard.

To request a demo of the Crowe Lease Accounting Optimizer solution, please visit: www.crowe.com/services/performance-consulting/erp/crowe-apps/lease-accounting-optimizer.

About Crowe Horwath
Crowe Horwath LLP (www.crowehorwath.com) is one of the largest public accounting, consulting and technology firms in the United States. Crowe uses its deep industry expertise to provide audit services to public and private entities while also helping clients reach their goals with tax, advisory, risk and performance services. Crowe is recognized by many organizations as one of the country's best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest global accounting networks in the world. The network consists of more than 200 independent accounting and advisory services firms in nearly 130 countries around the world.

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Be prepared for the new lease accounting standards. Contact Crowe today.
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