STRATEGY POLICY INVENTORY DATA
SYSTEM PROCESS
CONTROL SUSTAIN
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ROAD TO LEASE COMPLIANCE
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PROCESS
To a smaller degree, the same can be said for the accounts receivable process
for those companies who are typically a lessee but find themselves in the role of
the lessor in the context of subleases. Here again, the lease administration and
accounting software calculates the pass through rent and variable expenses that
will be invoiced to the subtenant and transmits on a period basis to accounts
receivable, via integration, who in turn issue invoices. In some cases, this may
also occur with the subletting of equipment.
Lease Event Process
A lease event includes any time a modification to a lease occurs, such as
whether to exercise a renewal or purchase option, at which point the lessee
must reconsider certain assumptions made at the lease commencement date.
At the time of a modification, the lessee must remeasure the lease liability and
adjust the underlying right-of-use asset. An updated discount rate must also be
applied, except in special circumstances.
So, what does all that mean? It means your process will need to change
whenever, according to the ASC 842 Glossary, "a change to the terms and
conditions of a contract that results in a change in scope of or the consideration
for a lease." Examples include lease renewals, amendments, renegotiations,
early terminations and change in timing of payment, to name a few. To catch
all lease events that require lease modifications, and therefore remeasurement,
companies will need to insert process controls to trigger the assessment of a
change as defined by the new regulations. This will not be an easy task given
the nearly limitless changes that can happen to any given lease.
Tax Processes
To be clear, the new lease accounting standards will not materially impact U.S.
federal taxes. Instead, tax functions will likely benefit from the newly available
data for all leases – such as renewal options, lease terms, payment schedules,
PROCESS
