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Are you struggling to maintain compliance with the new, complex, lease accounting standards? Careful, proactive planning can help your organization with successful implementation.

Regulations

Five Things to Know About Lease Accounting

  • Walker Wilkerson
  • 9/17/2020

Key insights

  • Implementing the new lease standards could take more time and money than most organizations realize.
  • Lease accounting software can help — make sure you pick the right option for your organization.
  • Preparing now can help position your organization for successful implementation of the new lease accounting standards.

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In 2016, the Financial Accounting Standards Board (FASB) and the International Accounting Standards board (IASB) issued standards (ASC 842 and IFRS 16) that change the way companies account for their leases. The Government Accounting Standards Board (GASB) issued a similar standard for all state and local governmental entities, including general purpose governments and other entities who report using GASB standards (GASB 87). As these new lease accounting standards continue to go into effect, they impact all types of organizations, including governments, nonprofits, and public and private corporations.

Implementation pitfalls with new lease standards

Implementing the new lease standards could take more time and money than most organizations realize. Carefully navigate potential traps as you journey through the standards. To help create a path to success, thoughtfully prepare in these five areas:

  1. Picking the right lease software solution — Buying lease software is like buying a car. Each has its own style and special features. Choosing the right one for your organization is the critical first step. Weigh the pros and cons thoughfully.
  2. Compiling a complete population of leases — Gathering the information together can be a daunting and time-consuming task if put off. Plan to tackle this early so that you can benefit later.
  3. Identifying imbedded leases — Watch for contracts where there is either an explicit or implicit identified asset that your organization controls. Imbedded leases are often found in maintenance or service contracts that generally do not use the word “lease” in the title.
  4. Recognizing shared use asset leases — If you lease part of a larger asset or pay for something that is attached to a shared asset, this category is important to capture.
  5. Determining the use of “RIIL” or “IBR” — If you are not able to determine the rate implicit in the lease (RIIL), compute your incremental borrowing rate (IBR).

New lease standard deadlines

Start designing and implementing lease accounting processes that meet the requirements of the new standards now. You’ll be better prepared for the accounting standards reporting timelines listed below.

ASC 842 - Public companies Years beginning January 1, 2019
ASC 842 - Private companies Years beginning December 15, 2021
IFRS 16 Years beginning January 1, 2019
GASB 87 Years beginning June 15, 2021

CLA can help navigate you though the standards and provide support along the way.

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