Now that the new FASB-IASB guidelines have finally arrived, it is critical to understand the timing implications. The start date is different for public and private companies.
The first reporting period for Public companies starts January 2019. Public Companies will be mandated by the SEC to provide:
- 3 years P & L (2019, 2018, 2017)
- 2 years balance sheet (2019, 2018)
This means that public companies will capitalize any lease on their books as of January 2017.
The first reporting period for private companies is January 2020. Private companies are not mandated by the SEC to provide historical comparables, however they will most likely need to give at least two years of comparables and possibly more, depending on the lender or whoever is requesting audited financial statements from them.
The Time to Prepare is Now
The timing noted above clearly indicates that 2016 is the year to prepare. Public and private companies will first want to bring together their real estate and accounting/finance departments to develop a game plan.
As part of that plan, it is critical to input real estate and equipment leases in a credible database that can generate capitalization schedules and interface with the company’s general ledger system. Once accurate lease term and expense data has been verified in a database, the company can then begin to generate capitalization schedules and transfer data to their general ledger system.
The Real Estate Department’s Role
Real Estate is typically one of the top 2 to 3 largest expenses for any company. Public and private companies are about to put all of our real estate operating leases on balance sheet for the first time. It is the RE department’s goal to optimize the real estate portfolio and minimize the impact on the balance sheet as much as possible. This means understanding the good clauses and bad clauses to negotiate and the impact they will have on the balance sheet. In addition, RE executives will need to review their current portfolio and figure out which leases should be renegotiated today to minimize the impact on the balance sheet. Understanding all the clauses that will affect the lease liability and ROU asset on the balance sheet is critical to negotiating and managing any portfolio of leases.
If you are interested in software solutions and consulting to help your company navigate this process, please Contact ProLease today.