Common ASC 842 lease accounting issues

1 min read
April 17, 2019
CoStar Real Estate Manager Blog

Common ASC 842 lease accounting issues

Beyond the basic lease accounting compliance with ASC 842 and IFRS 16, companies need to address the logistical issues associated with implementation. In fact, less than half of companies report the accounting portion of the policies would be hard to implement. But to learn more about the extent of potential lease accounting issues, here are highlights from the survey conducted by PwC and CBRE:

Issue: Decentralized lease data

Almost 40 percent of companies surveyed reported currently decentralized management of lease agreements and lease accounting.  To fulfill compliance requirements, companies will need to pull lease data from decentralized locations from across the organization.  Not only can lease data potentially “live” in different places around the organization, it can exist in different formats such as Excel spreadsheets, PDF files and/or paper files.

Issue: Inconsistent lease data recordkeeping methods

Not only does lease data exist in different departments in different formats, oftentimes there is no uniform method for lease data recordkeeping.  As a consequence, once located, lease data may be inaccurate or incomplete. 

Issue: Unsustainable technology system for lease accounting

The survey revealed more than two-thirds of companies use spreadsheets to manage and account for leases, which is not a sustainable technology system.  Given the requirements for the new lease accounting standards, managing the lease data in spreadsheets would be extremely cumbersome and significantly increase the likelihood of errors.  That’s why most companies plan to implement lease accounting software solution from a vendor specializing in real estate and equipment lease data management and compliance solutions. To this end, the new ASC 842 and IFRS 16 lease accounting standards are fundamentally changing how leases are managed and accounted for, as 90 percent of companies surveyed in 2016 had not yet selected a lease accounting software solution for compliance purposes. The extent companies integrate new lease accounting software into existing systems can vary on a case-by-case basis.  Learn more about CoStar’s lease accounting software and set up options available to achieve compliance with ASC 842 and IFRS 16.