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Why Lease Accounting Projects Fail

Why lease accounting projects fail

The new FASB and IASB lease accounting standards are official and it’s time to create a compliance plan. Some 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 with many factors to consider, and there are consequences for failure.

Where should you begin? The answer: Begin with a plan. To avoid common pitfalls associated with lease accounting compliance implementation, it’s beneficial to start with a quick review of risks to avoid, such as: 

•    Failure to start the project early enough

•    Failure to establish a core team of crucial departments involved as stakeholders

•    Failure to communicate with and include all stakeholders to ensure the inclusion of decentralized leases

•    Failure to include audit team members who can add much-needed expertise

•    Failure to dedicate appropriate accounting staffing to meet increased compliance demands

•    Failure to emphasize that the new processes are being implemented due to changes in regulations, not to take away department control or autonomy

•    Failure to recognize embedded leases included in a broader agreement

•    Failure to convert all leases from manual tracking with multiple tools to one company-wide lease management and reporting software solution

•    Failure to select a single software solution that can manage and report on real estate, equipment, and other leased assets company-wide

•    Failure to develop a list of test scenarios to verify system functionality before software solution selection

•    Failure to collect the voluminous amount of data needed to make the calculations for transferring almost every lease to the balance sheet

•    Failure to adjust current accounting practices to meet new accounting rules

•    Failure to adopt stable corporate policies around lease accounting with no documentation on how accounting policies are set and why the policies comply with GAAP Now you know what not to do. Begin by starting your plan early and do your research. Spend the necessary time required to craft a well-developed plan with appropriate subject experts involved. The initial push toward compliance with new lease accounting standards is important, but ultimately companies must ensure that the lease accounting software and policies put in place will continue to be valuable for acquiring and accounting for business assets well into the future. A company should develop a sustainable environment to monitor, control and continuously optimize leasing practices. With CoStar as your partner, companies can meet the new accounting requirements and drive improved business results.

Dave Gibson

Vice President, Sales and Marketing