The FASB/IASB Lease Accounting countdown has begun … are you ready?

“By failing to prepare, you are preparing to fail.”

― Benjamin Franklin

If your organization leases commercial real estate, your whole approach to lease accounting and financial reporting — and even the necessary capabilities of your accounting technology — will never be the same again after 15th December, 2018 and 1st January 2019. That’s when the new lease accounting standards set by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) respectively will come into effect worldwide.

According to some estimates, the new lease accounting rules could add as much as $2 trillion to the balance sheets of companies in the United States … and over £60 billion in the UK.

The new FASB/IASB standards (ASC842 & IFRS16) will fundamentally transform the rules that govern accounting for almost all types of leases, including real estate, vehicles and equipment leases. In addition to some low dollar value and short term leases, only service agreements — which sometime look and feel like leases — are excluded.

The changes are expected to have far-reaching implications in areas such as accounting, finance and reporting, real estate and tax.

Even lease accounting technology — such as financial management software — will be affected.

In a study by Deloitte, 88% of respondents predicted the new standard will place a “significant” reporting burden on lessees of real estate. This means you will not only have to increase the efficiency and accuracy of your data collection and data abstraction processes, your lease administration team will require far more sophisticated lease accounting skills in future.

Under the new rules, companies will no longer be able to treat operating leases as a period rent  expense. Instead, you’ll have to show them on the balance sheet as an obligation and its related right of use asset. Some experts believe this could make financial statements much more volatile in future – and may have a substantial impact on an organization’s Debt/Equity ratio. It could also affect a company’s overall credit worthiness.

  • Will your organization be ready to produce the more accurate financial reporting and forecasting required under the new rules?
  • Will you be ready to provide the pro forma statements that will be requested by investors and lenders in the months leading up to the reporting deadline?
  • And will your accounting technology be up to the task of implementing the new lease accounting best practices?

If you’re not ready to adopt and comply with the new standards by either December 15, 2018 or 1st January 2019 for FASB and IASB respectively, experts warn there could be severe consequences for your business – including a potential loss of shareholder confidence if auditors decide not to issue an opinion on your financial statements, or if they choose to deliver an adverse opinion.

Dedicated to helping you meet the new US GAAP and IFRS Lease Accounting Standards, the Trimble Manhattan team has been thoughtful and deliberate in its development of the new Manhattan FASB/IASB functionality.

To learn more, please visit 'Are you on the road to FASB/IASB compliance?

 

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