Compliance is a difficult undertaking in the best of times. Add a global pandemic and resulting disruption to business norms, and it can seem impossible. One regulation affected by the pandemic, FASB ASC 842, has many organizations scrambling to keep up with its changes to lease accounting.
Often, the most challenging part about remaining compliant in lease accounting is organizing all your portfolio information. Most businesses experience a disconnect between real estate and finance. Real estate teams get so busy signing leases and managing properties that they fail to track lease changes, leaving finance to chase down pertinent information.
Commercial real estate technology has certainly helped. And a single software solution is almost a necessity when it comes to the new lease accounting standards in FASB ASC 842 that will go into effect in 2021. In fact, more than a few organizations run into problems when implementing new requirements due to complexities within current lease agreements. Having all portfolio information in one place eases some of the burdens.
All this is to say, compliance with FASB ASC 842 is complicated — and time is ticking. Don’t leave anything until the last minute, especially with the added obstacles from the current climate. There’s a lot of coordination ahead, but we can offer some advice to ease your compliance headaches and keep up with the coming changes. Here’s where you can start:
1. Establish a timeline for migration to the new FASB ASC 842 lease accounting standards.
Moving any type of information from one system to another can be a complex endeavor. With commercial real estate, complex doesn’t come close to covering it. You’re often migrating leasing information from multiple platforms, spreadsheets, and files to a centralized platform.
Setting some realistic expectations for how long this will take is essential. You’re not only making the move, but also establishing new operating procedures to ensure you remain compliant with these new lease accounting standards. Fortunately, the FASB offers helpful implementation resources and technical inquiry service.
2. Organize lease accounting information.
The majority of your compliance efforts will be devoted to manually pulling together all of your most critical lease details and documentation. Again, you’ll need plenty of lead time for this. Your team will be entering in lease terms, rent schedules, terminations fees, tenant improvements, tenant rights, rental options, and myriad other things — many of which have associated dates and costs.
While no small undertaking, commercial real estate accounting software improves informational organization. It puts everything you need to know about your entire portfolio in one place — no more sticky notes framing your computer. It’s all right there and easily accessible to ensure nothing will be missed. And if you standardize its use across all departments, everyone has access to the same information, making compliance with the new lease accounting standards much easier.
3. Help end-to-end stakeholders access key lease details from a single source.
Commercial real estate software should centralize pertinent information, making key lease details accessible to everyone in your organization — from lease administrators to accounting. This means the software functions as a single source of truth for everyone.
That access to your entire real estate portfolio is just one advantage. With an integrated lease management software, the real estate team can pull up detailed leasing information at a moment’s notice. At the same time, finance can capture portfolio performance and other relevant data on properties to determine next steps. Besides, these new lease accounting standards won’t be the last, and a single real estate technology platform will make it easier to respond to changes going forward.
All of this said, remember that change is also difficult. When switching lease accounting software, be sure to also include at least one person from every department in the onboarding process. Ask for their thoughts and opinions. Get their buy-in and encourage them to share the benefits with their teams.
Needless to say, start planning for FASB ASC 842 today. Find and invest in commercial real estate technology and lease accounting software that makes the most sense for your organization. Get to work on a timeline for the migration, start pulling together all the leasing information, and rally the troops for the inevitable change. Otherwise, fines and fees may be in your future. If you’d like to learn more about how Occupier Lease Accounting can ease your compliance needs, sign up for a demonstration.