The Financial Accounting Standards Board (FASB) and its international counterpart (IASB) released the final version of their Lease Accounting Standards on February 25, 2016, with implementation required by 2018-2019. Essentially the standard requires lessees to recordleases on the balance sheet as both liabilities and assets (Right of Use or "ROU" Assets). These include both real estate as well as equipment leases.
This change will have a profound impact on a company’s capital structure, leasing practices, and operational processes. It has been estimated that the accounting change will add no less than 1.35 trillion dollars of assets and liabilities to company balance sheets. In a recently published survey by IBM, 92% of companies surveyed indicated that they were not prepared to implement the standard, either in terms of lease information systems, employee training, or leasing practices and policies.
Visual Lease Has You Covered
Visual Lease is ready to ease your adoption of the new lease standard. The calculations and depreciation schedules required are all automated with our fully integrated FASB/IASB Module:
- Automated Finance Lease vs. Operating Lease Testing
- Instantaneous calculation of all Right of Use, Liability, Principle Payment and Interest Payment schedules.
- Report based upon FASB and/or IASB rules
- Ad hoc reports can be saved and used over and over for all FASB/IASB data
- Automatic generation of Balance Sheet General Ledger entries
Questions to Ask
Here are some questions you should be asking now to get prepared for the transition:
- How does the new standard affect the current lease portfolio? Specifically, what is the total asset value (ROU) and liability value after recalculating the company’s lease portfolio?
- How will these new values affect the company’s key financial indicators such as ROA (return on assets), Debt to Equity Ratio, and related tax effects?
- What enhancements are needed to the lease management system to comply with the new standard?
- What methodologies should be employed to evaluate future lease/buy decisions in light of the new standard?
- What portion of the lease portfolio will be impacted by the international standards which differ slightly from the US FASB standard as it relates to Type A (capital leases) and Type B (operating leases)? The international standard does not differentiate lease types and requires all leases to be treated as Type A (capital) leases.
- What is the schedule and budget for implementing the necessary changes to lease management systems, lease accounting, and training of personnel?