FASB Wish List In-Depth Part 9 and 10

Toward the end of 2020, we published a Lease Accounting Holiday Wish List for organizations that still need to adopt ASC 842, IFRS 16, and GASB 87. This is the last in a series of articles to provide detail for each of those wish list items.

9 & 10: Complete and Accurate Document sets and Lease population

The accounting standards are hundreds of pages long and have been debated for over 10 years all to arrive at this simple conclusion: If you don’t have all your leases, you can’t comply. No amount of process, expert guidance, or system configuration can realistically make up for the absence of source data. It’s all about the leases.

The definition of a lease starts simply enough, “842-10-15-3: A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.” Once you start investigating your contracts, however, the scope can quickly grow. Traditional leases for real estate are obviously included, as are many leases for equipment or fleet. Companies have also discovered leases for cell phones, laptops, parking spaces, storage units, and even advertising billboards. These leases may be excluded as short-term or as under the capitalization thresholds, but to exclude something, you have to find it.

These additional contracts may either be leases or embedded leases (in which a portion of the contract contains a lease). They may be stored electronically or in file cabinets, but rarely have we seen all of these contracts in one place. Check with asset management, procurement, real estate, marketing, and legal for what they may have. Be sure to ask for “contracts” so that you can make the determination about whether they are leases.

Document management will be critical going forward. Under the new standards, the balance sheet will be updated as of the effective date of new leases and amendments. This means that the lag time between execution and posting will need to be dramatically reduced from what may today be a low priority task. But only with a complete listing of your leases and the documents themselves can you be prepared to meet these new deadlines.

We at Jackson Cross wish for your documents for all your leases, and we are available to help execute this critical project.