New Lease Accounting Standards Are Here: Are You Ready?
After nearly a decade of planning and debate, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued new lease accounting standards in the first quarter of 2016. In general, the changes take effect in 2019 for public companies and 2021 for private companies and non-profits.
The new standards are designed to bring additional transparency to financial reporting by requiring organizations with leased assets to recognize the rights and obligations of those leases on the balance sheet. Since the reporting of operating leases is a rather substantial change from current GAAP principles, these changes will require modifications to your organization’s financial reporting. This applies to land, buildings, assets and equipment where the lease is over a year in length. Purpose-built software will pave the way for organizations to ensure departmental collaboration and compliance for ASC 842.
The new standards will require both capital leases and operating leases to be recognized on the balance sheet. Now is the time to identify all multi-year leases and make sure your company has a system in place to track operating leases and any modifications that need to be made prior to the effective date.
For those with international filing responsibilities, the IASB has issued similar updates as outlined in IFRS 16. Like the FASB changes, the IASB updates will also require lease reporting on the balance sheet; however, the IASB treats all leases as finance type leases instead of making a distinction between operating and finance. Read more at www.IFRS.org.
Be prepared to handle re-measurement and re-assessment scenarios, as well as transition period restatement transactions and financial system reporting. Put the right processes in place to track and record data to make reporting easier.
How MRI Can Help
The FASB and IASB lease accounting updates highlight the importance of using flexible software that can adapt to support the required changes. By integrating financials with CRE management tools such as MRI Horizon CRE, organizations are empowered to streamline compliance processes and analyze the impact of these changes.
Furthermore, companies that leverage business intelligence and analytics software, such as the MRI Analytix Portal, will be well positioned to model new scenarios quickly and make informed decisions that impact the future of the business.
While the document outlining the details of these FASB lease changes is quite long and thorough, the most impactful changes are regarding lease classification and financial reporting. Through ongoing collaboration with industry experts and accounting professionals, we at MRI Software strive to ensure that our solutions enable our clients to adopt these new standards.