Manhattan's Secret Sauce for FASB/IASB Lease Accounting Changes: The General Ledger

Nancy Johnson Sanquist's picture

One of the most significant differences between Manhattan and its competitors is the leverage which it gains due to its embedded General Ledger functionality. Now that IASB is released and FASB has approved the final Lease Accounting guidance known as Topic 842, there needs to be a different mindset when evaluating the roles of Lease Administrators, Lease Accounting professionals as well as the role of the general ledger for the new regulations.

There are many advantages and efficiencies possible when both the Lease Administrator and Lease Accounting professionals work on the same platform, which has been overlooked until now. Today, most traditional Corporate Real Estate departments include Lease Administrators who are responsible for abstracting the terms and conditions of a lease into a Lease Management system. Unfortunately, most of the systems on the market today are just that: lease management systems that focus only on dates and other static terms and conditions. They fall short when the information contained in the lease lends itself to Lease Accounting in the strict sense. We are not talking about the payment of rents, insurance, real estate taxes and common area maintenance because they support those payments. We are referring to the hard core debits and credits related to Normalized Rent used to update the ERP system and significantly impact the financial statements.

Under the current Lease Accounting standards also known as FAS 13, adjustments are recorded which reflect the difference between the cash rent paid and the normalized or straight line rent expense. Most of the Lease management systems on the market today merely produce a report on a monthly basis which contains cash rent paid, straight line or normalized rent expense and the difference between the two. The Lease Accountants refer to this data when creating a Journal Entry (JE) to update the GL on the ERP system. Automating the task of generating the JE in the Lease management system for an interface requires significant configuration which is costly and therefore not often pursued. Consequently, in many instances the JE for the entire portfolio is summarized for ease which makes the annual audit more complicated and requires retention of multiple monthly Normalization reports. Manhattan software on the other hand contains General LGL) functionality as part of the core system which makes creation of the JE for an interface less burdensome and retention of the detail easier.

Additionally, under the new lease accounting rules, companies will be required to implement the guidance for fiscal years beginning after December 15, 2018 which for most companies translates to fiscal year beginning Jan 1, 2019. When issuing the 2019 financial statements these companies will be required to present results for fiscal years 2017 and 2018, as if the guidance had been implemented, for comparative financial statements. This poses an additional work load for the Lease Accountants because they will then have 2 years for which they need to manage JE creation under the current guidance Topic 840 (FAS 13), upcoming FASB guidance (Topic 842), IASB guidance (if international) and local GAAP (for statutory reporting requirements)…try doing that on a spreadsheet.

Manhattan is the leading IWMS which was originally designed to support multiple GL’s and can definitely meet the challenge!!       

Nancy Johnson Sanquist and Al Dente, CPA     

 

 

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