Follow Manhattan to Compliance with the New Lease Accounting Regulations

Nancy Johnson Sanquist's picture

Believe it or not, Trimble’s Manhattan team has been following the global leasing standards project for more than half a decade, when one considers the first draft of the proposed Lease Accounting standard was issued for comment in 2010. After underestimating the volume and substance of responses, the Boards redeliberated and issued a second draft of the proposed standard in 2013. Finally, the IASB has issued their final standard in January of 2016 and the FASB is issuing their final Leases Accounting Standard tomorrow, February 25, 2016.

The Manhattan team has not been sitting idle during these deliberations and revisions. We would like to share our high level vision of the Manhattan solution to the Lease Accounting challenge…opportunity. This vison incorporates items in the second Leases draft which were not being debated, as well as subsequent deliberations and revisions. A careful detailed review of the final pronouncements is necessary and will be performed to confirm absolute alignment!

We are striving to capitalize on the integrated nature of the data in the software when building out the solution. Said differently, we will capitalize on the availability of data which has been entered into the system as much as possible, thereby reducing duplicative data entry and striving for maximum efficiency.

Manhattan will leverage the efforts of the Lease Administration team and utilize the rent payment data being abstracted to determine whether a Lease is classified as either Type A or Type B. A classification tool managed by the client will include all the required considerations outlined by the FASB in their deliberations. This distinction in classification is only applicable to clients who follow the FASB standard. Leases for clients who follow IFRS will be classified as Type A and accounted for accordingly. The solution will record the right of use asset and lease obligation on a separate Manhattan sub-ledger supporting the revised Lease Accounting standard. The classification template with all considerations will be retained and form audit trail support for year-end audit purposes.

Accretion schedules at the individual lease level will be generated, based on the lease terms and classification of the lease as either Type A or Type B, to systematically unwind the right of use asset and liability. This unwinding will update the dedicated Manhattan sub-ledger as well as the ERP in years 2019 and later.

To summarize, Manhattan will provide a solution and maintain multiple sub-ledgers for the 2017 and 2018 time period in order to process the results of those years under the revised guidance (for comparative financials in the 2019 footnotes) and support lease accounting under the current guidance for preparation of current financial statements.

A bit complicated, but possible through Manhattan…exciting times, more to follow! Be sure to visit our FASB/IASB Resources site for more information.

Nancy Johnson Sanquist and Al Dente, CPA

 

Google+ Comments