How to collect data for your Lease Accounting
Apr 11, 2019
The new IASB and FASB guidelines on lease accounting define the new interpretations of the lease treatment from January 1st, 2019.
Many companies suddenly realized that the new regulation will have massive impact on their lease accounting and processes going even far beyond. During the implementation of the new lease accounting standard, the first question that will strike is how to localize the many leases through the company. They are dispersed all over the company’s departments, and all over the world for many international companies.
The company policy on lease management processes in some parts of the world may be followed differently according to the region – contracts existing only in paper version, and even oral agreements – and the task already seems insurmountable. But as the deadlines get closer, the effort can be broken down in several simple steps to simplify and organize the lease collection process.
Identify the lease responsible agents within the company
From the real estate to the car fleet and office furniture: leases are located everywhere in a company. One way to identify the responsible agents that know about the existing contracts is to follow the lifecycle of a lease in your company.
The procurement team is responsible to negotiate the contracts through the whole organisation. On another level, each department manages the leased goods: from the obvious one – the real estate department – to the multitude of other departments that may using leased material, the list of intermediaries can be long. In most cases, a visit to each department may be enough to pursue the lease collection process.
Finally, the account payable department is responsible to process and review transactions between the company and its suppliers and should already have a quite complete overview of the rent paid on a regularly basis.
These three areas should help to obtain a comprehensive overview of the agents that are able to collect all the leases in the organisation. But in the case of large companies that have decentralized leasing processes, this step will be extended to the different offices and regions around the world.
Identify the lease intermediaries outside of the company
The leasing companies should be contacted as well as they store their lease contracts in an organized way to be able to send you the invoice. Their data base is an interesting source of information to cross-check the lease collection performed in the company.
If your company is in business with a big car leasing company, they should be able to provide you a complete list of each asset that should now land on your Balance Sheet.
Collect the data, including additional information for a compliant lease accounting
Once the lease managers are identified, the data collection can begin. The way contracts information was stored until now may not match your needs entirely. Additional information is required to provide the requested transparency on lease assets and liabilities and enable compliance with the new regulation. Start and End date must be known. Contract terms that are likely to exercise like purchase and termination option, extensions, IDC, OTR, or incentive need to be clearly highlighted, as well as indexes that will apply to the rent.
All information may not be available in one single place, which support the verification effort between departments.
The new accounting rules are considered for most companies as a real challenge. The data collection is the step that will cost the most time and energy. Relevant spokesperson to identify, and data inconsistencies to track are amongst the main problems faced during the data collection and implementation process.
Most companies will rely on a lease accounting software to support the transition and make sure the important information is stored and validated during the lease accounting process.