The effective date for the new accounting standards is looming ever closer – now less than a few months away. The one thing I've learned with certainty from over a year of working with companies on their compliance is this: there is a tremendous amount of confusion over how to best prepare for the standards change.
To understand why this is true, it is first important to consider all the parties involved:
1. The Companies: Who are looking to be compliant
2. The Consultants: Who are brought on to help 'the companies' figure out how to be compliant
3. The Data Extraction Teams: Providers like LEVERTON, who are brought on to figure out what information is contained within the thousands of leases in
'the company’s' files using the most advanced technologies available
4. The Accounting Systems: Who set up the database in which all the relevant information needs to be entered in order to be compliant
With all of these different parties involved, it is no wonder that things can get quite confusing. This confusion may be exacerbated by the fact that 'the companies' may not have prepared for this at all, and now must scramble to collect thousands of documents that have long been ignored. A task made all the more difficult for large multinationals with portfolios across different jurisdictions. Compounding to the problem is also the fact that there is no tried and true strategy that 'the consultants' can necessarily offer. It is not as though new accounting standards are implemented every year and require this level of organization and effort to meet.
'The accounting systems' have also been figuring out the various data fields that are necessary for compliance. This often involves significant back and forth between 'the companies' and 'the consultants' to ensure that the database is properly configured. This process can also be affected by the type of leases 'the companies' have. They need to answer questions such as, are we talking about equipment leases or real estate leases? Are there specific data fields that may be relevant for vehicles as opposed to another type of equipment? The questions are endless, and so is the back-and-forth.
These projects also very lengthy, that in many cases the individual team members from neither 'the consultants' nor 'the accounting systems' side have actually had the benefit of seeing a project through to completion. They may be working on two or three projects at the same time, figuring things out as they go.
Here's where 'the data extraction teams' can come in to play and provide some much needed stability. The primary focus for these teams is limited to the extraction part of the equation, allowing for more defined and repeatable processes to be established. This limited scope also allows 'the data extraction teams' to see their part of the project through to completion at an earlier stage, thereby allowing them to take those institutional lessons and learnings achieved using technologies like artificial intelligence onto the next project.
Considering the fact that the whole point of the exercise is to collect data from the documents themselves, it forms an important foundation of support. If this part of the process is uncertain, then the rest will surely struggle to fall in line.
In summation, here are some useful tips for all parties that are sure to ensure that the process operates smoothly:
1. Understand where your documents are stored and organize them as early as possible
2. Work with the Lease Accounting Systems to figure out the required fields sooner, rather than later. It takes time to set up projects, so
the longer that takes, the longer it will take for you to begin pulling information out of the leases
3. Figure out how you are getting the data out of the leases in an organized manner. An intelligent company, like LEVERTON, is not only
able to guide you through this entire process, but also apply their technology to speed up and bring greater accuracy to the process
4. Check the data as early and as often as possible. Members of your team should have a sense of the content of your leases and the fields required as
early as possible allowing you to bridge the gap between theory and practice
Join our webinar with PowerPlan: 60 Days Left to Comply with ASC 842 & IFRS 16 on Tuesday, 30 October 2018 at 2:00 PM EDT to learn more about how LEVERTON helps global companies comply with the IFRS 16 & ASC 842 new lease accounting standards.