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Remeasurements For Lease Accounting: A Bigger Headache Than Initial Compliance

Remeasurements for Lease Accounting: A Bigger Headache than Initial Compliance

Companies that have adopted ASC 842 and IFRS 16 lease accounting rules have quickly realized that the go-forward operational needs of lease accounting quickly overshadow the initial compliance event. This is because leasing operations and changes continue. Accountants can spend hundreds of hours throughout the year addressing remeasurements.

A company with an extensive portfolio is constantly making changes to its leases. From an accounting perspective, those changes result in remeasurements of the right of use asset and lease liability on the balance sheet. Different types of remeasurement include renewals, terminations, impairments, partial terminations, and exercising options. Anything that changes the terms of the lease generates a compliance-mandated remeasurement calculation.

Most of these remeasurement events require different accounting calculations. For example, an impairment requires the amortization pattern to be changed going forward. Because remeasurements require calculations, and the calculations are different based on the type of remeasurement, accountants can spend countless hours in spreadsheets making the calculations needed. Lease accounting amortization schedules may need to be remeasured upon one of the following events:

  1. Reducing or increasing lease terms or payments
  2. Exercising the option to purchase a leased property or to renew a lease
  3. Terminating or partially terminating a lease
  4. Adding or reducing space you’re leasing
  5. Subleasing an asset for a period beyond the end of the current lease term
  6. Significantly modifying an asset
  7. Assessing that you are reasonably certain to exercise a lease option
  8. Impairing a leased asset

Companies need to seek solutions like CoStar that fully automate remeasurements at the lease level and the portfolio (batch) level and fully automate the Lease Accounting process, saving accountants hundreds of hours.

Schedule a demonstration for your team today.