Lease Accounting Standard

Understanding the New Standards

New lease accounting standards contain dramatic changes that may affect the future of your organization’s balance sheet. The ASU No. 2016-02, “Leases (Topic 842)” and IASB-issued IFRS 16, “Leases” deadlines are quickly approaching, and any entity that enters into a lease will need to comply.

More Transparency
More transparency – stakeholders will gain a clearer view into an organization’s leasing activities and their effects on the financial statements
 
Bigger Balances
Bigger balances – lessees will be required to recognize most leases “on balance sheet”
Duel Effects  
Dual effect – changes will affect not only lease accounting policies but also the systems used to manage them
 
Limited Resources  
Limited resources – companies may experience resource constraints as they manage implementation while still supporting their regular accounting processes
Ongoing compliances
Ongoing compliance – processes and controls that govern lease acquisition and modification will need to be addressed
 
Tax Implications
Tax implications – accounting changes could affect the organization’s income tax reporting

“Leases” deadlines are quickly approaching. Any entity that enters into a lease will need to comply.

The Road to Compliance

Organizations that engage in leasing need to prepare for implementation. Early adoption is permitted but being late is not an option. Additionally, companies should consider other ramifications of applying the new leases standard beyond the organization’s financial statements, such as the impact on key financial ratios included in debt covenants or key performance indicators used to manage the business.

  1. Assess the scope. Companies need to identify their current and in-process lease agreements as well as relevant policies, procedures, data, and systems involved. Various departments – including accounting, finance, operations, logistics, legal, tax, and IT – should be represented.
  2. Select an approach. Significant planning should go into the selection of a transition approach and required system enhancements. This includes selection of practical expedients and organization of the lease accounting function.
  3. Plan for transition. Develop a project plan and secure necessary resources to meet the effective date.
  4. Implement and monitor. Execute the plan, monitor status, and communicate with relevant stakeholders with a goal of full compliance on or before regulatory effective dates.

Crowe Can Help – Anywhere Along the Way

Whether you have just begun your compliance journey or are well on your way down the path to compliance, our experienced accounting, consulting, and technology professionals are here to assist. We can help you through the process to help you optimize your compliance efforts.

  • Scoping and assessment
  • People, process, and controls
  • Technology enablement
  • Analysis and implementation
Lease Accounting Optimizer
Utilizing Technology

The Crowe Lease Accounting Optimizer can help you comply with the new standards and optimize your lease accounting processes. Companies need to prepare now to minimize the impact and take full advantage of process optimization opportunities.

cash flow analysis
Perform instant cash flow and lease analysis
 
automate processes
Automate lease accounting processes
 
increase payment
Increase lease payment efficiency
 
audit controls
Take advantage of built-in audit controls and traceability
 
ERP
Embedded in Microsoft Dynamics™ and compatible with most ERP systems
 
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Contact Us
Dan Edwards
Bill-Watts-150
William C. Watts
Principal, Manufacturing and Distribution Risk Consulting Leader