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FASB ASC 842 and IFRS 16 Compliance: Lease Data

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1 Copyright ©2021 Tango. All rights reserved. FASB ASC 842 & IFRS 16 COMPLIANCE | LEASE DATA Introduction Calculations under the new FASB ASC 842 and IFRS 16 standards can require up to 75 different data elements across all types of leases – including real estate, equipment, and embedded leases. Closing the data gap while making sure your lease data is accurate, complete, and clean is a challenge. Avoid these 7 data challenges to successfully navigate this stage of the lease compliance. ONE. Data is stored in multiple databases across your organization or in physical files Climbing the lease compliance mountain and operationalizing compliance requires a single database to store all lease administration and lease accounting data elements. Most companies have done a decent job of tracking real estate leases in a single database. The same cannot be said for non- real estate leases such as equipment leases, or the dreaded embedded lease. These leases are stored in Microsoft Access, Excel or even outside the enterprise with 3rd parties. Focus on cataloging all systems, their specific data sets, and invest the time necessary to map each data element to the new centralized database. TWO. An incomplete data picture for the new FASB ASC 842 or IFRS 16 calculations will require abstraction More complicated leases may involve upwards of 75 data points to run the necessary FASB ASC 842 and IFRS 16 calculations under the new standards. Multiply by all your leases and you could be drowning in data. Most legacy lease administration and accounting systems captured a sub-set of the required fields and are missing items such as fair market value, economic value, and residual values, to name a few. The bottom line is you'll need to touch all leases to abstract this missing data. Find a credible abstraction partner who has experience with the new FASB ASC 842 and IFRS 16 data need. THREE. Non-real estate leases, such as equipment leases and service contracts Combing through all enterprise contracts and agreements to determine if they should be classified as a lease, and then abstracting the necessary data elements to run the lease accounting calculations can be a daunting task. The best practice here is to develop a standardized contract assessment protocol to apply to each contract. The good news is non-real estate leases have less data to abstract, the bad news is you may have more non-real estate leases than real estate ones. Regardless, make sure to collect data consistently and in a singular structure that can be easily loaded into your centralized database. FOUR. Data in some systems may not have been subject to SOX compliant internal processes The new ASC 842 / IFRS 16 lease accounting standards require a centralized system to manage lease administration and lease accounting, which in turn provides Accounting with the opportunity to improve their process controls to meet SOX audit requirements. While this is something that might not concern you now, it may in the future. Real estate, equipment, and embedded leases often need different controls, which is one of the reasons why SOX §404 controls for leased asset accounting is challenging. Transform the challenges of meeting the new FASB ASC 842 and IFRS 16 lease accounting standards and your new lease accounting software system into an opportunity to improve SOX-compliant leasing processes.

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