The checklist: prepare for sweeping lease accounting standards changes

No matter what your business is – family-run or million-dollar enterprise – every industry in the world has the potential to be disrupted by the new lease accounting standards. The global FASB deadline requires public and private companies to adopt the massive changes by 2019 and 2020, with IASB compliance by 2019, and many are already struggling with developing a look-back approach.

To prepare for the new lease accounting standard, many organizations are simply focusing on compliance. But more forward-thinking organizations are using the new standard as a catalyst to focus on longer-term financial management – by evaluating lease accounting solutions to transform the way they manage their real estate, equipment, information technology and infrastructure assets.

The right solution can help you transform the way you manage your assets to achieve increased efficiencies, more effective utilization and greater financial return on assets.

In a previous post, we discussed how TRIRIGA can help organizations contend with the 2019 lease accounting change implications. In this blog, we’ve created a checklist of areas for you to consider when defining an effective technology strategy to tackle your lease accounting change compliance plans.

1. Lease abstraction, inventory and analysis

The use of lease accounting systems that are informal, incomplete and inaccurate have left many without a detailed understanding and easy access to critical terms such as rent, renewal/expansion/termination clauses, borrowing rates and fair market rental value (FMRV). The new standard requires companies to perform periodic analyses of dynamic financial and market conditions that create “significant economic incentive” to extend or terminate leases. The ideal solution would therefore be able to drill down and uncover details across all leases to deliver an accurate analysis of the impact on your balance sheets and income statements.

2. Lease administration and management

Currently, inadequate or home-grown systems and spreadsheets have tracked only a small subset of the information required under the new accounting standard, and many departments have been responsible for tracking and managing their own lease contracts. An integrated lease accounting solution reduces the inefficiency and expense of multiple lease administration systems, and provides a single point of control to increase visibility and control of the impact on the income statement. A single global lease accounting solution can also optimize lease administration and management processes such as index adjustments, payment processing and percentage rent processing, while providing critical date alerts, payment reconciliation and approval routing to help users avoid penalties and overpayments.

3. Lease accounting and compliance

In addition to requiring publicly traded companies to add huge amounts in new assets and liabilities to their balance sheets, the new standard will also increase lease accounting complexity, with new periodic reviews of financial and operational assumptions and strict auditing and reporting requirements. To comply with the upcoming new lease accounting standard, companies will need an integrated management solution that forecasts the balance sheet impact, simplifies the lease accounting processes and automates audit processes. The ideal solution should streamline lease accounting processes such as index adjustments, assumption reviews and balance sheet reporting, across all leases.

4. Security and audit compliance

To satisfy auditors, ensuring the integrity of their processes and data and carefully documented lease accounting records is critical. An ideal solution supports industry standards for system and information security, and goes beyond with settings that control which users can view, edit, create or delete any file or document set. A comprehensive document history and full audit trail is required, as well as enhanced security features specific to an organization’s accounting needs.

5. Transaction management

The proposed new lease standard limits grandfathering or reporting on existing leases, so management will need to apply the same analytical rigor to leases negotiated prior to the implementation date as those negotiated after it, and international operations introduce even more complexities. A closed-loop system will help evaluate lease transactions against purchase/planning scenarios, and automate leases and transactions driven by critical date notifications.

6. Strategic facility planning

The upcoming changes provide a catalyst to consolidate and eliminate under-utilized assets before they impede financial ratios or trigger debt covenants. To achieve this reduction, organizations need rigorous scenario modeling and analysis capabilities based on contract terms and market conditions to forecast impacts on balance sheets, profit and loss statements, and income statements for new leases and lease renewals. The right solution should simplify the complex facilities planning process and identify gaps in facilities supply and demand. It should be able to analyze scenarios against the status quo, goals and other planning scenarios.

7. Management system architecture

In dealing with the added complexity from the proposed new lease accounting standard, organizations can save time – and money – by using an enterprise-class suite of business applications that can support lease accounting, real estate management and facilities management on a single technology platform and data repository. A solution based on an Integrated Workplace Management System can help provide this consistency while also helping reduce facilities operational costs, increase return on real estate assets and mitigate environmental and financial regulatory risks, all while supporting thousands of concurrent users without disruption or long response times.

IBM can help address your lease accounting needs

Don’t let compliance activities cripple your organization’s day-to-day operations or the productivity of you lease accounting staff. The IBM® TRIRIGA® lease accounting solution offers a comprehensive, compliant, and easily configurable system to help streamline and automate your lease accounting processes – from the initial data import to scenario planning, to ongoing audit and compliance reporting.

Watch the new on-demand webinar to discover in-depth about how an IWMS solution can help you tackle lease accounting changes.

Learn more

  • To learn more about how IBM TRIRIGA can help you address the upcoming changes to lease accounting rules, check out this buyer’s guide.
  • Explore the power of an IWMS solution for managing your real estate portfolio across the lifecycle.

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TRIRIGA tackles 2019 lease accounting change implications

Are you getting ready to address the implications of the new lease accounting changes with TRIRIGA? Although FASB’s ASC 842 and IASB’s IFRS 16 will take effect in 2019, many organizations are only now beginning to realize the amount of effort required to meet the new standards.

According to a recent article in the National Real Estate Investor, organizations may face significant ‘heavy lifting’ in order to prepare for the new standards. Sean Torr, Deloitte Advisory managing director at Deloitte & Touche LLP sums up the challenge:

‘Lease accounting changes will have the biggest impact on companies that have a large volume of leases and/or very complex leases. Many public companies that do have a bigger load of lease obligations have started the process and are realizing that there is a significant amount of “heavy lifting” that needs to occur over the next 12 to 18 months.’

What are the biggest challenge areas?

The biggest changes to businesses will be the new Right of Use (ROU) Assets and Lease liabilities that will hit balance sheets, as well as the intensely manual approaches and effort that many see before them. How many organizations are leveraging Integrated Workplace Management Systems (IWMS) to manage their real-estate holdings and automate these manual efforts?

New release of TRIRIGA helps reduce the effort required to meet new standards

In order to help organizations comply with the new standards, and understand the implications of these changes, IBM TRIRIGA continues to deliver a single integrated workplace management system with new enhancements planned in the next release. TRIRIGA supports the complete lifecycle of facilities management and will automate compliance activities to address changes that affect multiple teams and roles.

Here’s how TRIRIGA can help:

CFO and CAO:

  • The planned release of IBM TRIRIGA 10.5.3 will provide a sub-ledger system for real estate and asset lease accounting that is able to generate journal entries out-of-the-box for ASC 840 and ASC 842 under US-GAAP as well as for IAS 17 and IFRS 16. It also covers period closings and report generation for the most common reports required under the new standards.

Real Estate and Fixed Asset Managers:

  • The planned release of IBM TRIRIGA 10.5.3 separates the duties of a lease administrator and a lease accountant, allowing the lease administrator to enter contractual information, and then enabling the lease accountant to run classification tests, reassess lease decisions, and report on the ROU Asset and Lease Liability.

Facility Management, and Occupants:

  • There are also new capabilities to improve day to day and occupancy experience. They can leverage a new Workplace Services offering that engages every-day employees through new mobile web apps that provide access to services managed by IBM TRIRIGA, anywhere, and on any device. This includes: a new Service Request app to submit work requests, a new Reservation app to quickly create reservations for individual workspaces or multi-attendee meeting rooms, and a new location-aware Workplace Services Portal to provide a single, unified access point for launching the apps and tracking status of requests.

Learn more

  • To learn more about how IBM TRIRIGA can help you address the upcoming changes to lease accounting rules, check out this buyer’s guide.
  • Explore the power of an IWMS solution for managing your real estate portfolio across the lifecycle.

The post TRIRIGA tackles 2019 lease accounting change implications appeared first on Internet of Things blog.

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