Lease Accounting Compliance Plan Fail

3 Ways Lease Accounting Compliance Plans Can Fail

Not Having the Right People, Preparation and Process Will Undermine Success

A survey on the progress of lease accounting standard adoption – published in July 2017 by PwC and CBRE – revealed that up to 75% of companies have not even started on lease accounting compliance yet or were just in the stage of assessing its organizational impact. The lack of progress is now becoming a big challenge, considering the reporting deadline is just 6 quarters away.

As companies rush to get compliance planning in gear, there are three big pitfalls that can cause the best-made plans to fail: Not involving the right people, not having adequate preparation, and not properly evaluating new processes.

Not Involving the Right People

Lease accounting impacts a diverse group of stakeholders across each organization. Ideally, companies should centralize real estate and non-real estate leases found throughout different departments. But any attempt at lease data consolidation will not be successful unless it has buy-in from stakeholders of all departments involved.

To avoid this pitfall, project managers must involve representatives from various departments early in the planning stages. A core project team should consist of a cross-functional group of stakeholders from the various departments housing lease data, while the accounting department is often the best choice for a project lead on this initiative due to the technical nature of lease reporting requirements.

A representative from IT should also be involved, as the solution will likely involve implementing new software.  HR should be available to evaluate and adjust staffing/training plans associated with the project.

When assembling the team and throughout the project lifecycle, it’s important to emphasize the changes are being implemented due to changes in regulations, not to take away departmental control or autonomy.

Not Having Adequate Preparation

Accounting experts identify lease data collection as one of the biggest preparation obstacle to compliance, as leases contain voluminous amounts of data that must be reviewed and properly organized to comply with the new guidance. Underestimating the size and scope of the data consolidation project will put all other compliance projects in a dire time crunch.

To prepare for compliance, start by building in more time than is even expected to assess the location of lease data. Consider that current lease “management systems” throughout the company may range from on-site software systems or off-site supplier databases to paper files in drawers or Excel spreadsheets in various departments.

The time needed to input critical lease data from various departments into a uniform system is an educated guess, so building ample time into the plan for data discovery and processing is essential for success.  Setting a compliance timeline with incremental goals can help keep the project team on track to meet critical deadlines.

Not Properly Evaluating New Processes

Another pitfall to avoid is not properly evaluating and scoping process changes. Questions to ask include: “How many processes do we need to change for basic compliance?” and “Do we have time for other ideal but not required process changes?”

When evaluating current processes, look for opportunities to streamline workflows, empower better decision-making and realize cost-savings. This includes the abilities of the new software solutions that can produce custom ad hoc reports and reduce the time required for redundant functions like 10-K preparations. Ultimately, the goal is to set up an efficient, accurate and sustainable process for managing all types of leasing data across the organization.

While new lease accounting compliance will be a challenge for many organizations, it also represents an opportunity for many organizational improvements. For more insight into how to maximize this opportunity to realize cost savings and efficiency, contact CoStar today.