GASB 96 | Visual Lease https://visuallease.com Lease Software By Lease Professionals Thu, 07 Dec 2023 20:08:13 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.3 4 Reasons to Stop Using Excel Spreadsheets for Lease Accounting https://visuallease.com/4-reasons-to-avoid-excel-for-lease-accounting/ Thu, 07 Dec 2023 16:00:58 +0000 https://visuallease.com/?p=7226 Is Excel good for lease accounting? 1. Lease terms constantly change, and it’s hard to keep up 2. Lease accounting calculations are complex and time consuming 3. Excel spreadsheets are...

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Your business already uses Excel for many accounting calculations, including for ASC 840 lease accounting, so it’s understandable that you may want to consider continuing to use it as an option for lease accounting under ASC 842. And although it’s inexpensive to use and there’s comfort in using it, it may only get you so far in ensuring accurate lease accounting reports and calculations.

Is Excel good for lease accounting?

The reality is Excel will create challenges supporting large lease portfolios and the complex calculations that are required to comply with the new lease accounting standards. Ideally, the lease accounting solution you select should make it easy to view every lease – and address any changes made during the lease term, something that will be more difficult using Excel. Improperly tracking your leases and performing manual calculations using Excel puts you at risk of inaccurate data and reports.

In this blog, we will discuss why Excel is not a sustainable choice to accomplish lease accounting compliance, and why lease accounting software is critical to ensure accurate, confident compliance.

1. Lease terms constantly change, and it’s hard to keep up

As leases change (expire, terminate, etc.), it’s virtually impossible to keep track of each change using Excel. One of the main reasons this is so difficult to do manually is due to the large volume of leases held by organizations. Businesses often have hundreds, even thousands of leases, each with their own unique terms that regularly need to be tracked to ensure accurate lease accounting reports.

Unlike Excel, a fully integrated lease management and accounting technology solution is designed to centralize lease data in one location and, therefore, support ongoing lease maintenance. This enables you to view and maintain lease clauses and options under one single source of truth – without having to manually sift through data. Lease management software simplifies and streamlines the process of updating lease data, which ensures always accurate, reliable lease financials required for compliance.

For example, technology like Visual Lease provides automated critical date alerts so you can always know when leases require action. Excel lacks these built-in tools, which therefore puts you at risk of missing important options within your leases.

2. Lease accounting calculations are complex and time consuming

The calculations required to generate journal entries and disclosure reports for ASC 842 must be accurate to achieve and sustain compliance. Automated lease accounting technology is the only way to confidently create reliable, accurate reports.

Excel doesn’t have the capability to support the unique nuances required for lease accounting calculations. Utilizing Excel for lease accounting will likely take a lot of time and resources to produce calculations, and you may not be able to rely on those calculations, as there isn’t an efficient, sustainable way to validate accuracy. Even if only one element of your Excel formula is off base, it can negatively impact your calculated numbers – and you may not even realize the error before it’s too late. Additionally, Excel has a limit on the number of transactions that can be tracked and reported.

Lease accounting technology automates these otherwise complex reports and calculations, which saves you significant time that would be spent manually producing them in Excel, and also ensures the calculations are trustworthy. In fact, lease accounting software like Visual Lease provides proven calculations that are backed by a SOC I Type II audit.

3. Excel spreadsheets are prone to human error

Lease accounting is too important to risk manual errors. Just one mistake could lead to a failed audit, which is why lease accounting automation is so critical.

Using Excel to produce disclosure reports will typically raise red flags during your audit. Your lease data is already subject to a much higher degree of scrutiny by your auditors due to the new lease accounting standards, especially for initial adoption, so when it’s time for your audit, auditors appreciate a defined, reliable process that eliminates the room for human error within calculations.

An auditor knows if you utilize a lease accounting solution that is backed by a SOC I Type II report, your financial reporting and calculations should be reliable, and they won’t need to spend as much time testing the detailed transactions as they would with manual spreadsheets.

If you use Excel, auditors will most likely need to take a different approach to their auditing process, which can be time-consuming and costly. For instance, they may need to select a larger sample size of transactions to reliably test the details of your Excel calculations.

It begs the question, are you really saving money (and time) by using Excel instead of proven lease accounting technology? A failed audit can lead to increased fees and fines, along with damage to your business’ reputation. Why put yourself in a position where this can easily happen with Excel when you don’t have to?

4. Excel lacks historical data required for audits

Imagine inputting lease data into an Excel spreadsheet and the next day there are numerous changes to the data – you don’t know who made the changes and when. As leases change throughout the year, there needs to be an effective, reliable way for departments to capture any lease modifications to their portfolio, so that their lease data stays up to date. Doing this in Excel requires constant manual intervention and upkeep and can lead to a lot of questions raised by auditors and other stakeholders across your organization.

Providing transparent updates – with a complete audit trail of which update was made and when – will be incredibly important at the time of your financial audit. In Excel, there isn’t a reliable way to track who’s making changes and when the edits take place. This puts your business at risk of producing inaccurate, outdated information.

Lease accounting software provides full audit trail functionality that enables you and your auditors to see who, what, where and when every change to your lease data has been made. Having the history of every change to your leases is necessary to create a reliable lease accounting process.

Benefits of lease accounting software

Excel is one of the most accessible tools in an accountant’s arsenal. However, it wasn’t built to handle the thoroughness and accuracy required for lease accounting. To achieve and maintain lease accounting compliance, you’ll need to invest in a solution that was designed to set your business up for success.
Lease accounting isn’t just a one-and-done disclosure, it demands consistent upkeep of your entire lease portfolio. Lease accounting software is an integral part of conducting complex calculations with confidence, ensuring all your leases are up-to-date and achieving (and maintaining) lease accounting compliance.

Ensuring ASC 842 compliance

Lease accounting standards and constantly changing. This means spreadsheets need to be constantly reformatted to ensure you are remaining compliant with the latest regulation changes, requiring a robust software solution.

When it comes to ensuring your leases are compliant, don’t default to a spreadsheet. Make the move to a third-party verified, built-for-compliance lease accounting software solution.

Get Started!

Want to ditch the spreadsheets and learn how Visual Lease’s lease accounting software can help you sustain compliance? Click here to see our solution in action.

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ASC 842 Adoption: Avoiding the Pitfalls https://visuallease.com/asc-842-adoption-avoiding-the-pitfalls-2/ Thu, 08 Sep 2022 17:36:57 +0000 https://visuallease.com/?p=7521

On-demand webinar summary

How do you avoid the risks of improper ASC 842 adoption? Inaccurate lease accounting financials can result in a failed audit, additional fees and fines, so you need to ensure you do it right the first time.

To do so, you’ll want to make sure you have a reliable and complete lease portfolio, lease data, system and processes. But this isn’t easy to accomplish, and many companies still struggle with ensuring their lease data is reliable.

In our recent webinar, ASC 842 Adoption: Avoiding the Pitfalls, lease accounting experts from Visual Lease and Grant Thornton shared:

  • Answers to common lease accounting FAQs
  • How to circumvent common roadblocks during lease accounting adoption
  • Ways to avoid putting your business at risk and feel confident in your financial reports

Joe Fitzgerald

SVP of Lease Market Strategy
Visual Lease

Lisa Kaestle

Director, Accounting Advisory Services
Grant Thornton

To learn more, read the summary below or view the on-demand webinar.

Answers to Accounting, Operational and Software FAQs

Did you know that today, nearly all private companies (98%) have started the transition to ASC 842, but one-third (33%) are still not fully prepared to transition to the new standard? This points to the massive pressure businesses are under as they attempt to retroactively learn and organize the details of their leases in advance of their initial reporting period under the new lease accounting standard.

In this presentation, Lisa Kaestle of Grant Thornton answered some common FAQs related to the new lease accounting standard, such as:

  • Do I really have to gather all lease information, or can I estimate? Is there a materiality threshold?
  • What is an embedded lease? How do I know if I have an embedded lease?
  • What departments in my company will be affected? Can finance manage this transition alone? Who should be part of the team for this initiative?

How to Mitigate Operational and Accounting Risks

The new lease accounting standards open your business up to a much higher degree of scrutiny. There are major risks, including but not limited to:

Operational Risks

  • Staff, workflow and system requirements and expenses
  • Lease review, approval and classification across the company
    • Database of record, lease administration and accounting
    • Lease data/process workflows/calculations/reporting
  • Lease data management across the company
  • Lease-buy decisions (short-term leases, fixed-versus-variable payments, lease incentives)

Accounting Risks

  • Monitoring leasing activities
  • Accounting close cycle timeline and processes
  • Internal controls (systems, validation, lease portfolio changes, discount rates, lease re-assessment, disclosures)
  • Lease accounting calculations
  • Qualitative vs quantitative disclosures
  • Financial ratios and metrics (creditor and banking decisions)
  • Tax-to-book reconciliations
  • External and internal audits and reviews

For more information about lease management, view the on-demand webinar: ASC 842 Adoption: Avoiding the Pitfalls.

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How to Ensure Complete and Accurate Lease Data for Lease Accounting Compliance https://visuallease.com/how-to-ensure-complete-and-accurate-lease-data-for-lease-accounting-compliance/ Sat, 06 Aug 2022 00:38:28 +0000 https://visuallease.com/?p=7456

On-demand webinar summary

Before the new lease accounting standards, many companies lacked visibility into their lease portfolio. This cost many businesses millions of dollars in overpaid rent, missed lease options and more.

But now, leases are in the forefront as companies prepare for and maintain compliance with the new standards. However, many businesses struggle to ensure their lease data is comprehensive and up-to-date.

In our recent webinar, How to Ensure Complete and Accurate Lease Data for Lease Accounting Compliance, experts shared best practice tips to ensure a thorough lease portfolio.

Joe Fitzgerald

SVP of Lease Market Strategy
Visual Lease

Rosemary Courtney

Technical Accounting Director
Visual Lease

High-level key takeaways from the webinar include:

  • Common challenges and solutions for gathering and auditing lease data
  • Key advantages of using dedicated lease accounting technology

To learn more, view the on-demand webinar or read the summary below.

Common challenges and solutions when gathering and auditing lease data

 

1. Ensuring a comprehensive lease portfolio is time-consuming 

Many businesses have hundreds, if not thousands, of leases. To achieve and sustain lease accounting compliance, you need to have complete visibility into all your leases.

However, gathering all your leases is time-consuming and laborious, and involves various departments.

The sooner you begin, the better, to give your team enough time to identify and locate every lease across your business. If needed, you may want to hire third-party advisors experienced in lease accounting preparation to assist in this effort.

2. Gathering lease data requires cross-departmental resources

Because leases are typically scattered throughout various departments, you should identify all key stakeholders responsible for identifying leases up-front, including real estate, procurement, legal, IT and more.

From there, this cross-functional team can work together to develop a reliable and sustainable process for data collection and maintenance to ensure your lease portfolio is complete and always up-to-date.

3. Lease information is often not located in one location

Prior to the new lease accounting standards, leases weren’t commonly tracked. And any leases that were tracked were likely inconsistent across the business.

Once you’ve gathered all your leases for lease accounting compliance, it’s best to enter them in one single source of truth.

A centralized lease portfolio enables you to track lease data in real time – and result in much faster, efficient lease accounting.

4. Leases change often and must be maintained

Maintaining compliance is a continuous effort, given leases’ dynamic nature. Staying compliant requires ongoing attention and a reliable process to identify and capture any financial changes to your lease portfolio.

Without the right lease management software or tools, this can be extremely difficult to do.

Robust technology, like Visual Lease, enables businesses to maintain one single source of truth for their lease portfolio and set internal controls for ongoing lease data maintenance, therefore supporting data integrity and accurate, up-to-date information.

For more information, view the on-demand webinar, How to Ensure Complete and Accurate Lease Data for Lease Accounting Compliance.

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Lease Management: The Key to Successful Lease Accounting https://visuallease.com/lease-management-the-key-to-successful-lease-accounting/ Wed, 06 Jul 2022 14:48:32 +0000 https://visuallease.com/?p=7213 Written by: Robert Michlewicz, President at Visual Lease I was drawn to Visual Lease for several reasons, one of the biggest is how the company is leading the market in...

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Written by: Robert Michlewicz, President at Visual Lease

I was drawn to Visual Lease for several reasons, one of the biggest is how the company is leading the market in addressing big areas of exposure and risk for public, private companies and government entities.

What exactly do I mean by that?

I’m proud to say that in June, Visual Lease was the only software provider named a Leader in both Lease Accounting and Lease Administration categories by G2.

Keeping in mind that this recognition is solely based on customer feedback, it is a direct reflection of the decades of work and expertise behind our software and services.

Visual Lease has been around for 25+ years, and was first developed as a world-class lease management solution, serving the real estate departments of some of the largest U.S. corporations. Anticipating the introduction of the new lease accounting standards, the company expanded the platform in 2018 to include robust lease accounting capabilities. Today, we help 1,000+ organizations get compliant, stay audit-ready all year long, take advantage of cost-savings opportunities and make better-informed operational decisions.

A reason I was drawn to Visual Lease is the same reason it’s been recognized by G2 (and a few others like Capterra, Deloitte, Inc.). As a business, we know the risks associated with complying with the new lease accounting standards without first implementing a proper lease management strategy. Further, we’ve seen time and time again just how valuable it can be for an organization to have accurate and complete lease data. We’ve built our platform on these insights, and our efforts are backed by some of the most experienced and well-informed experts in the industry.

But please, don’t take my word for it…. check out what our customers had to say when asked what they like best about Visual Lease:

  • “Visual Lease streamlines our accounting for leases and completely replaces our existing Excel solution (for both GAAP and IFRS).” – Adam B.
  • “I like being able to view the details for all of our various leases in one place. It’s nice to have a one-stop shop that everyone (who needs the details) can access.” – User in Consumer Goods
  • “The simplicity of asset management is the best part of VL. It is very scalable lease accounting and management software. You can solve major lease accounting challenges with automated calculations and full integrations.” – Internal Consultant in Information Technology & Services
  • “Visual Lease gets the job done. The thing I like the most is that it does what we need it to do. It meets all of our needs from ASC 842 implementations, to rent payments, to tracking renewals, it does it all. Multiple departments use Visual Lease, and it does a good job at meeting our collective needs.” – Administrator in Healthcare
  • “I have used Visual Lease with two different companies now, and both times they have been positive experiences. I have managed a smaller lease portfolio of 30-50 leases. While I don’t utilize all of the tools that are available within Visual Lease, the tools themselves are well thought out. I recently completed our first year-end audit after implementing the ASC 842 lease standard, and the Standard Lease Reports were simple to pull and provide to our audit team. Visual Lease is well aware that there is a learning curve with using their software, so they have a comprehensive training website called ‘VL University’ that has on-demand training videos that will walk you through the features of the website. There is also a User Guide that I can review to learn how every feature works within the website. I have also had my service tickets replied to within 24 hours of submitting them. I think Visual Lease cares about its customers and is an excellent partner for managing leases.” – Assistant Controller in Manufacturing
  • “I like the alerts that help you know in advance when the lease terms are slated to change. Also, it is easy to add people to a distro list for alerts.” – User in Retail

This recognition is exciting, and a testament to not only where we’ve been, but also, where we’re headed. After just one month of working with our amazing team and customers, I am even more encouraged, energized and inspired to be a part of Visual Lease.

I’ll leave with two parting thoughts:

  1. First and foremost, thank you and congratulations to the entire team at VL for your relentless commitment to our customers.
  2. And to my network, if you’re interested in learning more about why lease management is so critical to your business, visit this page.

 

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The Impact of FASAB’s 2022 Proposed Lease Accounting Reporting Changes https://visuallease.com/the-impact-of-fasabs-2022-proposed-lease-accounting-reporting-changes/ Wed, 06 Jul 2022 13:22:28 +0000 https://visuallease.com/?p=7218 Have you ever wondered how the public can participate in the development of accounting standards? Do you have opinions you would like to share? Many accounting standards governing bodies, such...

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Have you ever wondered how the public can participate in the development of accounting standards? Do you have opinions you would like to share? Many accounting standards governing bodies, such as the Federal Accounting Standards Advisory Board (FASAB or the “Board”), provide some opportunities to do just that.

Why Exposure Drafts? 

Whenever an accounting governing body considers new standards, or changes to existing standards, they release exposure drafts for public comment. The FASAB’s exposure drafts, which affect hundreds of federal agencies and the associated public, are posted publicly for commentary. You can find these exposure drafts and the template to submit comments on their website. The FASAB usually offers between 45 and 90 days to submit comments. Visual Lease contributes opinions to many standards, including these recently proposed changes. 

The Board considers these comments when deciding whether to move forward with the proposed changes. If interested, you can access the FASAB’s list of active projects and drill into any associated drafts on the FASAB website.

Anyone can submit comments, and the FASAB appreciates all views but particularly looks for comments that include the reasoning behind an opinion (pdf). The Board also appreciates it when the reasoning/concerns include the expected benefits and/or perceived costs of implementing a proposal.

2022 FASAB proposed lease disclosure and reporting changes

As a lease administration and accounting platform, Visual Lease proactively tracks FASAB projects that impact lease reporting and meeting the standards. An exposure draft to provide clarification and amend SSFAS 54, Leases and SSFAS 60 Omnibus Amendments 2021, was published May 9, 2022 with a comment period that ends Jul 8, 2022. The background includes:

  • In November 2021, SFFAS 60 was published
  • SFFAS 60 did not address all concerns related to leases and the implementation of the SFFAS 54 and other standards
  • Clarification was needed relating to the discount rate for lease liabilities and receivables
  • Clarification was needed to add intragovernmental sale-leasebacks and disclosure requirements in specific paragraphs and footnotes
  • This proposal would amend SFFAS 54 paragraphs 42, 47, 48 and 59, and add new paragraphs 42 A-C and 59 A-C
  • The effective date for the proposed changes is for reporting periods beginning after September 30, 2023

Below is a summary of Visual Lease’s response to this FASAB exposure draft: 

Discounting lease liabilities and receivables 

For leases without a stated interest rate, originally paragraph 42 of SFFAS 54 and the issued amendment in SFFAS 60, par. 19, required lessees to use the discounted rate from the “lessee’s estimated incremental borrowing rate.” This proposal would require the lessee to use an interest rate “based on marketable Treasury securities with similar maturity to the end of the lease term.”

The added paragraphs 42B and 59B allow for rounding up or down when selecting a marketable Treasury rate term as follows:

“[…] round down to the nearest maturity term with a published rate, interpolate the rate for the period between two published rates, or round up to the nearest maturity term with a published rate. The methodology for selecting marketable Treasury rate terms and related rates, interpolating, and/or rounding up or down should be consistent from period to period.”

The added paragraphs 42C and 59C clarify what to do if the lease goes beyond the longest-published Treasury security term. In this case, the entity should select the longest-published Treasury security term rate.

Using rates based on marketable Treasury securities would help reduce complexity and inconsistencies versus using the estimated incremental borrowing rate. It may also reduce the cost of determining the incremental borrowing rate, which can be costly to ascertain per our experience with private clients adopting the ASC 842 standard. Although we believe using rates based on marketable Treasury securities would make it easier to meet compliance requirements, we also recognize that it may, in certain circumstances, overstate or understate asset values.

We also believe paragraphs 42A (lessee) and 59A (lessor) may need clarification. Under the proposed amendments, the reporting agency has two options to determine its rate. The rate can be either based on a recent Treasury rate or historical average rate if the Treasury security has a similar maturity as the lease term “on the date of initial liability recognition (or the date the liability is updated).” If it is meant that to approximate a rate if a date-specific rate is not available, we believe that in today’s internet environment, detailed historical information is easily available so there likely would not be a need for this.

Intragovernmental sale-leasebacks disclosure requirements

This proposal also amends SFFAS 54 footnote 11 to paragraph 89 and paragraph 92. The purpose of the amendment clarifies that intragovernmental sale leasebacks are included and must follow the lessee and lessor requirements. Added are references to SFFAS 7 paragraphs 314-315 (intragovernmental) in footnote 11 and the reference to SFFAS 54 paragraphs 37-38 to paragraph 92.

What are your thoughts on these changes?  

Although we think these suggested changes should add consistency and reduce the complexity of meeting compliance, while avoiding costly estimations of the incremental borrowing rate, we also believe it may overstate or understate the value of some assets. What is your opinion?

FASAB’s Questions & Visual Lease’s Responses

QFR* 1 

Do you agree or disagree with the proposed amendments to address discounting lease liabilities and receivables, as reflected in paragraphs 3-7 (amending par. 42, 47-48, and 59 of SFFAS 54), and the Board’s basis for such proposals? Please provide the rationale for your answer.

AFR* 1

Visual Lease, LLC supports the proposed amendments to address discounting lease liabilities and receivables. SFFAS 54’s requirement to use an explicit rate is unchanged; if no explicit rate is stated, an equivalent risk-free rate is expected to be utilized.  The terminology provided in the proposed amendments is “based on marketable Treasury securities with similar maturity to the end of the lease term,” in essence the definition of a risk-free rate.

Visual Lease, LLC has observed that in the current private sector implementation of ASC 842, Leases, the new lease accounting standard issued by the Financial Accounting Standards Board (FASB), the use of a risk-free rate rather than a higher incremental borrowing rate (IBR) may have resulted in higher liability values (and therefore asset values) on organizations’ financial position. Additionally, Visual Lease, LLC has observed that this effect could trigger debt service covenants and otherwise cause inconsistency in analytical comparability. However, Visual Lease, LLC believes that, while organizations may have to caveat their financing reporting requirements to lenders to highlight these factors in that QFR 1 may result in less accurate and consistent valuation of liabilities, the suggested methodology does reduce complexity and provides user prescriptiveness in ease of use and availability of input data, thereby facilitating compliance.

Additionally, Visual Lease, LLC observes two impacts regarding the valuation of the lease liabilities and assets in practice: the applicability and accuracy of a specific rate to the entity in question, and the timeliness of the application of that rate. Namely:

  • The discount rate applied could result in less accurate valuations if the entity has a higher cost of borrowing than the federal government rate.
  • Private-sector administration of ASC 842, Leases, has shown that reassessments of incremental borrowing costs can be costly to ascertain and therefore are not necessarily “kept current”.  In a stable interest rate environment that is not a significant matter, but in an evolving rate environment (such as 2022 is turning out to be), lack of updates can result in more frequent and severe errors that may not consider or sufficiently identify entity-specific risk.

Visual Lease, LLC notes that the original wording in SFFAS 54 authorizing entities to use rates based on their own borrowing authority is expressly deleted in this exposure draft, removing calculations from actual costs, and resulting in less accurate valuations. Given the transparency of the Treasury Securities market and rate, and its availability to those entities subject to the FASAB (Federal Accounting Standards Advisory Board) standards, Visual Lease, LLC believes that the suggested changes enhance the process of calculation and result in an” always having up to date information available” situation when creating new or remeasurement calculations for lease accounting.  Therefore, Visual Lease, LLC supports the use of risk-free rates.

Additionally, and as a practical matter regarding application of the risk-free rate, the revised guidance allows rounding up or rounding down to the nearest maturity date, or to interpolate between two dates.  Extrapolating from the longest term (30 years) would not be permitted.  Paragraph 42A references “historical average rates” and appears broad in context and may require further clarification.  If it is meant that to approximate a rate if a date-specific rate is not available, we believe that in today’s internet environment, detailed historical information is easily available so there likely would not be need for this.

QFR 2

Do you agree or disagree with the proposed amendments to clarify the applicability of paragraphs 89-92 of SFFAS 54 to intragovernmental sale-leasebacks and the disclosure requirements applicable to them, as reflected in paragraphs 8-9, and the Board’s basis for such proposals? Please provide the rationale for your answer.

AFR 2

Initially, SFFAS 54 was silent regarding sale-leaseback transactions intragovernmental in nature.   Visual Lease, LLC agrees with the proposed amendments to clarify the applicability of paragraphs 89-92 of SFFAS 54 to intragovernmental sale-leasebacks and the disclosure requirements applicable to them, as reflected in paragraphs 8-9, and the Board’s basis for such proposals as it clarifies the requirements apply both to public sale-leasebacks and intragovernmental sale-leasebacks for disclosure purpose.  Visual Lease, LLC supports this provision because, while not prescribing accounting treatment, it does add clarity and transparency to the amount of intragovernmental sale-leaseback for each reporting entity through disclosure.

As a result of our analysis, Visual Lease, LLC is supportive of both clarifications provided in this exposure draft.

* QFR = Questions for Respondents

*AFR = Answer from Respondents

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The cross-functional power of centralized lease data https://visuallease.com/the-cross-functional-power-of-centralized-lease-data/ Thu, 30 Jun 2022 19:14:48 +0000 https://visuallease.com/?p=7205

On-demand webinar summary

Having accurate, reliable lease data is a necessary part of achieving lease accounting compliance. But beyond lease accounting, having visibility into lease data also supports businesses manage lease-related expenses and avoid potential overpayment.

In our recent webinar, The cross-functional power of centralized lease data, lease accounting experts (Joe Fitzgerald, SVP of Lease Market Strategy at Visual Lease, Zachary Forrest, Executive Director at Jackson Cross Partners, and Lou Battagliese, SIOR and Founding Partner at Jackson Cross Partners), covered how centralized lease data can unlock cross-functional business opportunities.

Joe Fitzgerald

SVP of Lease Market Strategy

Visual Lease

Zachary Forrest

Executive Director

Jackson Cross Partners

Lou Battagliese

SIOR and Founding Partner

Jackson Cross Partners

About Visual Lease

Visual Lease makes easy-to-use software to help organizations manage and account for their leases, and stay compliant with US-GAAP, IFRS and GASB lease accounting standards.

About Jackson Cross Partners

Jackson Cross Partners is a full-service corporate real estate company, providing services to support companies in every stage of their real estate maturity.

Here are some key takeaways from the webinar:

Today, businesses have more visibility into their leases

The new lease accounting standards require businesses to pay closer attention to their leases. To comply, they have developed cross-departmental processes to identify and keep track of each lease within their portfolio.

“It’s really important to be able to know what your rights and obligations are within your lease portfolio. Do you have an option to renew a contract or expand? Is there a termination option? If you’re forced to read leases while doing this analysis, you’re going to be behind the curve.” – Lou Battagliese, SIOR & Founding Partner, Jackson Cross Partners

Centralizing lease data in one location is an effective way to ensure each lease is represented – and provides businesses with a useful view of their leases. In turn, businesses can use this data to make better informed decisions, saving them time and money that may be otherwise left on the table.

How did we get here?

When businesses began preparing for the new lease accounting standards, they quickly realized how time-consuming it was to gather leases. It required accounting teams to work cross-functionally with departments such as legal, real estate, procurement and human resources. However, as the transition date loomed, accounting teams panicked and took over the project.

“It became a phase one project just to get the lease accounting in. Some companies also found alternative solutions and now these companies have multiple systems of truth [for their leases].” – Lou Battagliese, SIOR & Founding Partner, Jackson Cross Partners

Then, once the pandemic hit, businesses were forced to adapt to hybrid or work-from-home arrangements, which created even more challenges for how cross-departmental teams worked together to gather and organize lease data.

The ongoing effects of the pandemic also impacted office space utilization, industrial supply chain demands and retail storefront footprints. Now more than ever, businesses rely on having their lease data in a centralized location, so they can make better, more informed decisions about their leases.

How centralized lease data impacts businesses

Having centralized lease data enables your business to easily lean into lease terms and uncover opportunities to potentially reduce lease costs.

Lease data is incredibly powerful to use within:

    • Cross-functional workflows that encourage collaboration
    • Operational efficiencies with complete and accurate lease data
    • Timely, strategic decisions to efficiently react to economic changes
    • Cost-saving opportunities with Day 2 and beyond

To learn how to empower your business with centralized lease data, view our on-demand webinar: The cross-functional power of centralized lease data.

Visual Lease and Jackson Cross Partners provide a full end-to-end solution for ASC 842, IFRS 16, GASB 87 and GASB 96. Click here to download our one-pager for more information.

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What are the three main steps in effectively conducting your lease inventory? https://visuallease.com/how-to-conduct-a-lease-inventory/ Tue, 28 Jun 2022 17:09:12 +0000 https://visuallease.com/?p=7198 Do you know where all your leases are? If you don’t, chances are you haven’t conducted a lease inventory for your business. Conducting a lease inventory is a standard practice...

The post What are the three main steps in effectively conducting your lease inventory? first appeared on Visual Lease.]]>

Do you know where all your leases are? If you don’t, chances are you haven’t conducted a lease inventory for your business. Conducting a lease inventory is a standard practice in lease accounting and a very important step in achieving ASC 842 compliance. This process involves finding all your lease data from various departments, which is often a time-consuming cross-functional effort.  

What is considered a lease under ASC 842? FASB defines a lease as a contract or an element of a contract that conveys the right-of-use (ROU) of a physically distinct identified asset for a specified period of time in exchange for payment. This includes embedded leases which are typically leases that are part of larger contracts. These contracts need to be identified and accounted for on the balance sheet in order to achieve compliance.  

However, there is an exemption for short-term leases. These contracts have a lease term of 12 months or less and will not appear on the balance sheet. Additionally, they do not include options to purchase the asset from the lessor.  

When it comes time for your audit, auditors want thorough, reliable and accurate data to examine. Completeness is key here, meaning that you’ve properly captured and identified all lease arrangements to be included in your calculations (including embedded leases). This will always be one of the items auditors test, which is why it’s important to conduct a thorough lease inventory.  

In this blog, we will share three essential tips to ensure you conduct a thorough lease inventory to support accurate lease accounting. By taking these steps, you will set your business up for lease accounting success and feel confident that you have every lease represented in your lease portfolio.  

1. Engage stakeholders from cross-functional departments 

To begin the process of conducting a lease inventory, you’ll need to identify what departments have lease contracts. Under ASC 842, leases can range anywhere from property, plant, equipment and even IT assets. Typically, we’ll see Real Estate and Legal departments heavily involved in leases, but there are also departments like IT that have unique lease contracts.  

Below are 5 recommended departments you should engage with and the types of leases they most likely handle.    

  • Accounting/Finance
    • This department is a great starting point for conducting a lease inventory as they are the gatekeepers of the prior year’s lease information.
  • Real Estate
    • The real estate department naturally handles all real estate and property leases, which may include things like office buildings and commercial real estate.
  • Procurement
    • The procurement department handles all non-real estate leases which can range from vehicles, equipment, furniture and even fixtures.
  • Legal
    • The legal department reviews all lease arrangements and is a great source of detailed information for embedded leases.
  • IT
    • This department handles all IT procurement and procures IT assets. This can range anywhere from computers, networks and servers.

2. Organize your leases in one location 

Once you’ve gathered all your leases, it’s important to centralize them in one location. The most effective way to do this is by utilizing lease accounting technology. This will allow your cross-functional team to work under the same system and have a comprehensive audit trail for all lease changes. It will also help your team analyze lease data more thoroughly – which can help reduce the risk of overpaying for leases and ultimately help your business save money.  

3. Thoroughly check for accuracy and completeness 

As your business prepares for ASC 842 compliance, it’s important to examine (and re-examine) your lease contracts thoroughly for accuracy and completeness. Auditors will want to make sure that all transactions have been recorded properly on the balance sheet. It never hurts to double and triple check your work.  

In fact, make sure you’ve also cross-referenced all lease contracts with the Accounts Payable department. You could be paying bills for other leases from other departments, which can lead to misreporting.  

The outlined steps above should help your business create a smooth process in conducting a lease inventory. Remember, the more accurate your lease portfolio is, the better chance you’ll have in successfully achieving ASC 842 compliance. It will also help significantly decrease the risks of misreporting lease data, which can result in fines, increased audit fees and potential legal action. That’s why conducting a thorough lease inventory is not only important but can also be highly beneficial for your business. Successful lease accounting isn’t just compliance, it’s saving money and creating opportunities to improve business operations, and that all begins with your lease inventory.   

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GASB Statement No. 99: The Impact on GASB 87 and GASB 96 Compliance https://visuallease.com/gasb-statement-no-99-the-impact-on-lease-accounting/ Tue, 07 Jun 2022 20:04:19 +0000 https://visuallease.com/?p=7131

Suppose you’re an accountant who manages leases or a lease administrator working for a state, country or local government. You may even work for a public entity such as a public university, college, hospital, utility or airport. In either case, you are affected by this new Statement No. 99 and we’ve provided this summary to help you to quickly understand the impact on lease accounting under GASB 87 and accounting for SBITAs under GASB 96.

Governmental Accounting Standards Board (GASB) Statement No. 99, Omnibus 2022 was released in April 2022. It started as an Omnibus project which GASB creates when enough issues and technical inconsistencies are identified across the existing body of Statements.

Statement No. 99 responds to practice issues raised as the statements were adopted and to address accounting and financial reporting for financial guarantees. The following covers the practice issues impacting lease accounting (GASB 87) and accounting for SBITAs (GASB 96).

Practice Issues

  1. Determining the lease term, also applies to the term of an SBITA (Statement 96)
  2. Classification of short-term leases, also applies to short-term SBITA (Statement 96)
  3. Recognition and measurement of lease liabilities and receivables, also applies to recognition and measurement of a subscription liability (Statement 96)
  4. Identification of lease incentives

Effective Dates

The requirements related to leases and SBITAs are effective for fiscal years beginning after June 15, 2022.

1. Lease Term: Clarification of Lease Termination and Purchase Options

GASB Statement 87 Paragraph 12

The issue was raised to the Board that in certain situations, a purchase option could result in a lease liability that includes the present value of payments that would never be realized due to exercising the purchase option. The result would be an overstated present value. The Board believed the purchase option should be considered as an option to terminate and used when considering the lease term. GASB 99 clarifies the lease term should exclude the period, if any, after the option is estimated to be exercised.

The Board also addressed the prescriptive nature of the last sentence in paragraph 12 of Statement 87. They believed it could lead accountants to view a lease termination due to the violation of contract terms and conditions as a termination option. GASB 99 clarifies what constitutes a lease termination option as an unconditional right in the lease contract. GASB 99 also clarified that this should only be applied to contracts that transfer ownership (paragraph 19 of GASB 87).

2. Short Term Leases: Clarification of Cancellable Periods and Lease Extensions

GASB Statement 87 Paragraph 16

Cancellable periods in Statement 87 differed from Statement 96 and Implementation Guide 2019-3. Clarification provided by this Statement 99 aligns 87 and 96 with the same definition which includes that both parties to the lease have an option to terminate the lease without the need for permission, and/or both parties must agree to extend the lease term.

Another issue the Board responds to in this Statement is how to assess a short-term lease when an extension is created. The concern was that only considering the remaining term may influence entities to structure their leases to avoid recognition. The clarification is that the extension of a lease requires the lease to be reassessed and if the term (original lease term plus the modified term) is greater than 12 months, the lease needs to be reclassified. For a lease that is reclassified from a short-term lease, the measurement of the lease receivable or liability should be from the modification’s start date. This Statement also applies to paragraph 13 of Statement 96 for SBITAs.

3. Lessee and Lessor: Clarification of Variable Payments and Lease Remeasurements

Other Than Short-Term Leases and Contracts That Transfer Ownership
Lessee GASB Statement 87 Paragraphs 21, 22, 26 & 28
Lessor GASB Statement 87 Paragraphs 44, 45 & 50

Accountants raised concern over what variable payments should be included in the lease liability or receivable. To clarify, variable payments, per paragraphs 21, 22, 44 and 45 of GASB 87, that are calculated using an index or rate (such as the Consumer Price Index or a market interest rate) or that are fixed in substance should be included as part of the lease liability and receivable. All other variable payments, including those based on usage of the asset by the lessee, should not be included.

The Board also addressed a lease remeasurement issue. They noted that by including language that a lease is “not required” to be remeasured, the lease accountant believed this meant they had the option to remeasure. To clarify, GASB 99 states that a lease liability or receivable remeasurement should not be carried out solely due to a change in an index or the variable payment rate nor, for lessees, should the discount rate be reassessed solely due to a change in the incremental borrowing rate. This also applies to the remeasurement of a subscription liability in Statement 96.

4. Clarification of Lease Incentives

Paragraph 61 of GASB 87

The Board believes the original language in this paragraph needed to be adjusted given lease incentives paid to or on behalf of a lessee does not imply the lessor has legally assumed the preexisting lease obligation. To clarify GASB 99 adjusted the language to read:

“a lease incentive is equivalent to a rebate or discount and includes an assumption of, or an agreement to pay, a lessee’s preexisting lease obligations to a third party, other reimbursements of lessee costs, rent holidays, and reductions of interest or principal charges by the lessor.”

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Article: Government accountants procrastinating on GASB leases standard https://www.accountingtoday.com/news/government-accountants-procrastinating-on-gasb-leases-standard#new_tab Wed, 06 Apr 2022 13:53:36 +0000 https://visuallease.com/?p=7007 The standard in some ways parallels the ASC 842 leases standard for public and private companies and nonprofits from the Financial Accounting Standards Board and the IFRS 16 leases standard...

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The standard in some ways parallels the ASC 842 leases standard for public and private companies and nonprofits from the Financial Accounting Standards Board and the IFRS 16 leases standard from the International Accounting Standards Board in that it would put leases on the balance sheet for the first time for many entities. For companies in the private sector, many of them also procrastinated on implementing the leasing standard, despite extensions from both FASB and the IASB during the pandemic. Now state and local governments will be facing similar issues as they try to account for this past fiscal year.

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Article: Five Questions That Should Be On Every Financial Leader’s Mind https://www.forbes.com/sites/forbesfinancecouncil/2022/03/30/five-questions-that-should-be-on-every-financial-leaders-mind/?sh=75d3f5286880#new_tab Thu, 31 Mar 2022 20:57:51 +0000 https://visuallease.com/?p=7004 The introduction of new lease accounting standards (ASC 842, IFRS 16 and GASB 87) has had a significant impact upon accounting and reporting for U.S. publicly traded and private companies,...

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The introduction of new lease accounting standards (ASC 842, IFRS 16 and GASB 87) has had a significant impact upon accounting and reporting for U.S. publicly traded and private companies, as well as non-U.S. companies and government entities.

Now, all of these organizations must adhere to a much more robust and complex reporting process than they had been accustomed to under the prior lease accounting standards. Despite this change, many continue to underestimate just how challenging the lease accounting process truly is.

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Article: How To Maximize Your Lease Accounting Software Investment https://www.forbes.com/sites/forbestechcouncil/2022/03/17/how-to-maximize-your-lease-accounting-software-investment/?sh=71c702224285#new_tab Thu, 31 Mar 2022 20:56:09 +0000 https://visuallease.com/?p=7001 The past two years have shuffled business priorities and workflows, which has left many companies catching up on their transition to the new lease accounting standards (ASC 842, GASB 87,...

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The past two years have shuffled business priorities and workflows, which has left many companies catching up on their transition to the new lease accounting standards (ASC 842, GASB 87, IFRS 16 and, soon, GASB 96).

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