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Copyright © 2023 Tango. All rights reserved. 2 2023 Lease Buyer's Guide to Lease Administration & Accounting The other side of the ledger (pun intended) is lease accounting. As the name suggests, lease accounting software ensures that leases are accounted for correctly and in accordance with Generally Accepted Accounting Principles (GAAP), the US standard adopted by the SEC, and International Financial Reporting Standards (IFRS), the international standard outside the US. GAAP standards are set by the Financial Accounting Standards Board (FASB), while IFRS is set by the International Accounting Standards Board (IASB). Don't get hung up on all the acronyms. The key here is companies, both public and private, need to ensure they are accounting for leases correctly. Historically doing so has been somewhat straightforward, or at least consistent, for decades. That all changed in 2016 when FASB and IASB dramatically changed the way companies must account for leases. Regulatory Compliance: The Game Changer Until recently, operating leases were "off-balance sheet" and were only disclosed in the notes to a company's financial statements. The introduction of ASC 842 (US) and IFRS 16 (international) as the new standard for lease accounting changed all that. Now almost every lease must be reflected on the balance sheet, which impacts liabilities and a whole host of financial ratios. The change in regulations is intended to improve transparency for investors but it is giving companies, and their accountants and auditors, fits. Compounding the situation is that the definition of a lease under the new standard has changed to include both equipment leases and embedded leases. This has dramatically expanded the number of leases that must Lease Accounting now be managed and accounted for correctly, further reinforcing the need for lease administration and lease accounting software, regardless of company size. The deadline for public companies to comply to the new lease accounting regulations has come and gone, as these organizations needed to report under the new rules by their first reporting period in fiscal 2019. Originally private companies had an additional year to comply – the beginning of 2020. But based on the challenges that public companies have to comply and added complications due to the pandemic, FASB extended the deadline to the beginning of 2022. See our Lease Compliance ebook series for helpful information about the transition and how to sustain compliance after your first reporting period. Achieving compliance presents many challenges. Starting with the new definition of leases, there is also subjective interpretation of the standard, a whole new set of processes required to both manage and inventory leases, and the need to track the relevant critical data contained within them. These challenges are then followed by the implementation of a lease accounting solution that can handle the new regulations, and the list goes on and on.

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