Lease Accounting Post-Transition

After successfully transitioning to ASC 842 lease accounting, it is crucial to consider post-transition policies and procedures to ensure ongoing compliance with the new standards. These considerations will help facilitate efficient lease accounting processes and maintain accuracy. Here are the key areas to focus on:

Establish a lease accounting team:

Identify the individuals or departments involved in the end-to-end leasing process and form a cross-functional team responsible for lease accounting. This team may include accounting, accounts payable, treasury, real estate, and legal departments.

Create an efficient process:

Establish a centralized process and determine access levels for different parties involved. If using lease accounting software, define read-only access and change/approval rights. For manual spreadsheets, ensure data security and change tracking. Clearly define responsibilities for each department and document the procedures for lease accounting.

Provide training:

Implement training programs to build technical accounting expertise within the relevant departments. This ensures that employees understand the complexities of the lease accounting standard and the organization's internal processes. Keep employees updated on new guidance and provide ongoing education as needed.

Refine processes and policies:

Evaluate new contracts for hidden leases (embedded leases) and establish processes to identify and account for them correctly. Implement data abstraction procedures to capture accurate data points from lease agreements. Evaluate and refine discount rate determination processes, including the frequency of updating discount rates. Establish procedures for recording lease changes and designate personnel responsible for processing and approving those changes.

Ensure accurate calculations:

Leverage reliable lease accounting software to reduce the risk of human error in calculating lease accounting updates and amortization schedules. Regularly test system outputs and obtain SOC 1 Type 2 reports from software vendors to verify their internal controls over financial reporting.

Manage lease data:

Establish a centralized repository, such as a cloud-based storage or shared drive, to store lease contracts, amendments, and other necessary lease data. Utilize lease accounting software or a designated location to track critical dates and other important lease information. Track all payments, including variable payments, and report them in the notes disclosures.

Account for lease changes:

Develop proficiency in accounting for lease modifications, renewals, terminations, impairments, and other changes using either lease accounting software or accurate calculations in spreadsheets. Ensure regular communication between involved teams to stay updated on changes and apply appropriate accounting treatments.

Enhance financial reporting:

Leverage the benefits of the updated lease accounting standards to improve financial reporting, budgeting, planning, and forecasting. Use centralized lease accounting software to generate customized reports and provide auditors with easy access to necessary information.

By addressing these considerations and implementing robust post-transition policies and procedures, organizations can maintain compliance with lease accounting standards and streamline their lease accounting processes for ongoing operations.