Issue link: https://resources.tangoanalytics.com/i/1465886
1 Copyright ©2021 Tango. All rights reserved. The focus on internal controls is especially important to ensure that reported financial information has the appropriate checks to ensure reliability and accuracy. It should be central to all financial reporting efforts. –John Ebner, KPMG's National Managing Partner of Audit FASB ASC 842 & IFRS 16 COMPLIANCE | LEASE CONTROLS " Introduction An internal control – as defined by accountants and auditors – is a process to ensure the achievement of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations, and policies. Internal control involves everything that regulates risk to an organization. In light of the new lease accounting standards, leases play a more significant role in your financial disclosure, which means there is increased risk around the accounting of those leases. Additional scrutiny in the design and effectiveness of internal controls is required to mitigate this risk. You now need to take a holistic view of the full lifecycle for all your leases and refine the controls and other processes related to identifying, calculating, and accounting for them. Numerous aspects of the new standards are causing concern among corporate executives, but it's safe to say the control issue is top of the list for many. What are the key areas of control consideration under the new standard? Lease Negotiation and Accounting While historically your company may have been negotiating leases and accounting for them on a decentralized basis, it may be worth reviewing. It may have made sense for you to control and monitor operating leases at the business unit or functional level when they were classified and treated as an expense along the lines of service agreements, but now that these leases are moving onto the balance sheet, centralizing these functions may ensure better controls. Data Whether you have a centralized or decentralized process, it may be wise to establish or enhance controls around capturing all needed information when new leases are signed and during the ongoing maintenance of the lease inventory. You'll need to consider the different types of leases and establish workflows with appropriate reviews and approvals, as well as maintain an audit trail for any decisions and interpretations made along the way.