Day 2: What Happens After Lease Accounting Compliance Implementation

1 min read
April 18, 2019
CoStar Real Estate Manager Blog

Day 2: What Happens After Lease Accounting Compliance Implementation

While busy preparing for new lease accounting standards and requirements for reporting, forward-thinking private companies are also thinking beyond the compliance deadline. In other words, accounting teams who are thinking past initial requirements and onto “Day 2” will be better prepared to weather the ramifications and embrace the opportunities presented by ongoing compliance.

Preparations for Day 2 of lease compliance falls into two categories: strategic and tactical.

Strategic aspect of “Day 2” lease accounting compliance

Lease accounting compliance offers opportunities for longer-term benefits that won’t be realized on Day 1. Namely, a holistic evaluation of all processes and procedures related to leased assets, viewed in in a new light as having potential for real gains.  

Fundamental shifts in lease management, such as the decision to centralize and manage leases in one repository, provide opportunities for strategic gain. Centralization results in better visibility and control over lease management, standardization and cost savings.

To get everyone on board with lease data centralization, the initiative will need buy-in from departments across the business. This is an integral part of turning tactical lease compliance into a strategic business initiative. The cross-functional team formed to centralize lease management should be positioned as a new center of excellence presented with opportunities to think strategically, not simply just a project implementation team.

This is also an opportunity to evaluate workstreams and processes. Ensure the software implemented to manage lease approval workflow allows accounting teams to control lease data changes and creates an audit trail at all stages of the approval process, including change history of who, what and when changes were made.

Tactical aspect of “Day 2” lease accounting compliance

The new IFRS 16 and ASC 842 standards introduce a higher level of complexity to select lease accounting practices. For example, lease classification is an important part of ASC 842 compliance and needs to be taken into consideration when a triggering event occurs, such as an unplanned lease extension or renegotiated modifications are made to an existing lease.