Multi-national companies need to comply with both IASB and FASB and are keeping a close eye on new lease accounting standards. Both IASB and FASB require nearly all leases to be reported on the balance sheets as assets and liabilities. Both capitalize all leases on the balance sheet. However, the entities do take a different stance on a few aspects of lease accounting methodology.
For example, the FASB offers two classification methods:
- Type A: Accelerated expense method for capital leases
- Type B: Straight line expense method for operating leases
Meanwhile, IASC requires one classification method for all leases;
- Accelerated expense
Other key differentiators between FASB and IASC include:
- low-value exemptions
- profit or loss on an income statement
- index-based variable payments
- transition approach
- initial right-of-use asset measurement
- practical expedients
There are similarities on Day 1 of lease accounting compliance. In other words, initial compliance with lease accounting standards represents similarities and efficiencies between compliance with the two entities. However, moving forward the difference methodologies may represent significant implementation issues for dual reporters. These entities will need to maintain different processes and controls for each to comply with the diverse reporting requirements.
For a successful approach to lease accounting compliance, international companies with an obligation to report using multiple methodologies need a comprehensive lease accounting software solution that can track and calculate the data necessary for compliance reporting. Accounting Today recommends including key IFRS 16 requirements in software evaluation to ensure support for IFRS 16 requirements, and recommends software vendors demo IFRS 16 features. This is a preventative measure to confirm functionality and identify software vendors that do not have a viable product offering yet. To schedule a software demo with CoStar today, click here or call 888-823-3209.