ASC 842 defines a lease as a contract – or part of a contract – that conveys the right to control the use of identified property, equipment or plant for a period of time in exchange for consideration. A voluminous amount of data about these leases is needed to make the calculations needed for transferring virtually every lease to the balance sheet for ASC 842 compliance. As part of that effort, companies need to create a comprehensive list of all leases, with safeguards in place to ensure the accuracy of the data points required for entry into lease accounting software solution selected for compliance.
Dependent upon the size and sophistication of the current lease management system, this list can be a starting point to use as a guide when determining the process of searching for potential sources of lease data:
- Legacy real estate system
- Repositories of scanned agreements, such as SharePoint sites
- Fixed asset records for existing capital leases
- Surveys sent out to the field asking for various departments/locations to identify leases siloed under their control
- Lease footage and disclosure work papers from previous years
- Vendor software, as some lessors offer online tools to track leases
- P&L, starting with the financial statements and tracing back to the source
- For companies still recording leases on paper, physical files in desks and cabinets
Once the lease data collection process has begun, companies are usually stunned at the number of leases they have, and the list can grow as the project continues and the scope of work widens. Critical lease data most often overlooked are in the form of embedded leases, when a lease is included as part of a larger agreement. A common example is security equipment which is leased under a larger security monitoring service agreement. When creating a centralized repository for lease data and management, companies are relying heavily on CoStar’s comprehensive lease accounting software that consolidates real estate and equipment lease management into one easy-to-use solution.
For more practical, real-world insight into ASC 842 compliance, see our 12 Step Guide.