skip to Main Content
Practical Variation Testing For ASC 842 And IFRS 16 Lease Accounting

Practical Variation Testing for ASC 842 and IFRS 16 Lease Accounting

In today’s complex accounting environment, companies have adopted different accounting practices to manage their business. Companies interpret GAAP in many ways and apply it to suit unique business needs. As companies implement updated practices necessary to comply with the new lease accounting standards, testing software systems to ensure that correct reporting results are produced is an essential part of the process.

CoStar’s lease accounting software has undergone a rigorous, CPA-directed testing process to prove its capabilities for handling real-world scenarios under current and new lease accounting guidance. Results proved that CoStar’s solution is robust enough to meet compliance requirements and yet flexible enough to support most organization’s practical and varying needs.

Testing included manual verification in Excel, comparison to the examples provided in ASC 842, comparison to Big 4 lease accounting examples, and predicted variations based on industry experience.

A partial list of the tested scenarios for the CoStar lease accounting solution includes, but is not limited to, the following:

  • Testing scripts produced correct results under ASC 840, ASC 842, and IFRS 16 testing the following major variations:
    • With and without escalations
    • With and without a free rent period
    • With payment on the first day of the month and on the last day of the month
    • With partial first month’s rent requiring proration
    • Renewal (option exercise)
    • Modified Retrospective (transition approach)
    • Assuming renewal options from commencement
    • Mid-term Termination
    • Modified key components of the above examples to verify proper Finance Lease calculations
    • Smaller variations too numerous to list
  • Non-lease components – Tested functionality for Utilities, CAM, Insurance including:
    • Monthly payments
    • Annual payments in advance
    • Annual payments mid-year requiring accrual and prepaid functionality
  • Percentage rent (variable rent) functionality
  • CPI (or other index driven) increases
  • Workflow triggers for approval process (Lease Admin => Accounting for example)
  • System has flexibility built in based on interpretation and accounting policy

CoStar has provided the industry-leading lease management system that consolidates real estate and equipment leases into a single platform since 2010. Not only has CoStar’s solution been reviewed and tested by highly respected CPAs and accounting firms, it also offers enterprise security with rigorous annual SSAE SOC 1 and SOC 2 audits, data-encryption at rest and other sophisticated security features. These are just a few of the reasons why 99% of CoStar’s customers renew their contracts every year.

Contact CoStar today to explore how its solutions meet the requirements of the most demanding lease accounting variations.