FASB’s new lease accounting standard will take effect Jan. 1, 2019, for public companies and one year later for private companies. Here are steps financial statement preparers can take to implement the standard.
Plan ahead. Sealed Air, a multinational manufacturer of packaging material based in Charlotte, N.C., recognized early that implementing the revenue recognition and leases standards back-to-back would create challenges. So the company hired two accountants to assist with implementation, said Michael Leon, CPA, assistant corporate controller at Sealed Air.
"We, like many companies in our position, are attributing the preponderance of the resources to the revenue standard first," Leon said. "And then whatever time and efforts we have left, we put into the lease standard."
Understanding the changes required by the two standards has already taught the company one significant efficiency lesson, he said.
Take inventory. Sealed Air acts as a lessee and a lessor of equipment. Work done to adopt the revenue recognition standard turned out to represent the bulk of the work that needs to be done on the lessor side of the business to implement the lease accounting standard, Leon said. But the lessee side of the business will require taking inventory of lessee arrangements. This process could be troublesome for many organizations. Professionals participating in a Deloitte webcast in October said the top challenge in their organizations' lease accounting in the next 12 months would be collecting necessary data on all organizational leases in a centralized electronic inventory. The time and effort required by this data collection will vary from company to company. Depending on how many leases a company holds, how spread apart the lease portfolio is, and what systems are already in place, it may take three to 18 months to collect the data and establish the electronic depository, said Sean Torr, CPA, CGMA, lease accounting services leader at Deloitte Risk and Financial Advisory.
Create a strong governance backbone. Setting up diligent governance—such as steering committees, project management teams, and tracking and reporting of progress—can help organizations make the best use of the potentially vast resources needed to implement changes.
Make a plan for your own circumstances. Assess the changes the new lease accounting standard will bring to the business, and customize the implementation plan based on the assessment. For multinational companies, that should include assessing the differences between IFRS—used by subsidiaries—and GAAP.
Use tools and establish processes. Save valuable staff time by maximizing the use of technology to gather, analyze, and report data in the company's lease repository and calculate assets and liabilities. And it's important to establish the rigorous processes and internal controls necessary to ensure the lease repository is complete and any lease modifications are tracked and reported.
Keep everyone in the loop. Prepare and update all stakeholders on the changes to minimize disturbances caused by the implementation. This includes employee training and a communication strategy.
—By Sabine Vollmer (Sabine.Vollmer@aicpa-cima.com), a JofA senior editor.