Who owns ASC 842 lease accounting?

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

Who owns ASC 842 lease accounting?

The first step for adoption ASC 842 is deciding who owns this new lease accounting compliance project initiative. An important lease accounting lesson learned for private companies is to recruit members of a cross-functional team from across the organization.

Some companies fail to realize the magnitude of this transition and the complex changes in the rules that are involved. Recording virtually every lease on the balance sheet is a massive undertaking and companies should make sure the appropriate lease accounting expertise is available, those who possess an in-depth knowledge of company-specific lease data.

Traditionally, a company’s leasing practices impact a diverse group of stakeholders across the organization. Departments often use leases with minimal impact on or involvement from other internal groups. Until now, existing accounting rules did not require the majority of leases to be capitalized, a large portion of leases was approved based on expense budgets in a decentralized process. However, under the new accounting rules, companies need to adopt a more centralized method of collecting, testing and recording leases for real estate and non-real estate assets.

At the very beginning, a core team should be established to work on the project. The accounting group is the best choice for a department to lead such an initiative due to the technical nature of lease reporting requirements. While many departments will be involved as stakeholders, a group of four or five key departments should be more heavily involved as project leads.

Establishing a core cross-functional project team of leasing stakeholders is critical to success.

•    Accounting – Due to the subject matter and the requirements for financial reporting

•    IT – Because the solution will likely involve implementing new software

•    Program and Project Management – To add expertise in keeping the project on track/budget

•    Property Management and Lease Administration – Because of interest in the solution selected and will most likely be responsible for some data input

Companies that have started compiling a list of leases are often stunned to realize just how many leases they have. In many cases, the list grows as the project continues. This is why it’s most effective to start compiling early, get the right cross-functional project team of leasing stakeholders in place, and get to a complete list as soon as possible. Gaining efficiencies in operations and providing visibility into spending patterns around leases can result in significant savings. The keys to success include understanding and developing accounting policy, careful project planning, staff training and importantly, making a strategic software selection. Implementing Costar’s proven lease management software will assist with sorting out the difficult decisions necessary to ensure continued growth in business and at the same time meet compliance standards.