Preparing for the new Lease Accounting changes with PeopleSoft Lease Administration
In a previous blog I discussed the high level steps to prepare for the new lease accounting changes. In this blog I will be focusing on the first step, identifying your leased assets. The reason for the deeper dive on this step is that I have seen a common theme across several organizations: Leasing assets is highly decentralized and how the leased assets are being tracked is not the same across all departments. The visibility to the list of leased assets and the related liabilities is not always clear.
The entire process of moving to the new lease accounting standards will require planning, budgeting, modifying business processes, adapting to new software, etc. as outlined in my previous blog. A critical step that your organization can easily do is to build your list of leased assets now. Regardless of your organization’s overall approach, doing this step now will prevent any unnecessary delays once your overall transition plan is in place.
In its current state, your leased asset data is more than likely just focused on the information needed to support payments & invoices and not necessarily all the asset data that will be needed to support the new accounting standards. Pulling together a list of these assets will take some planning and effort; however, it should all be readily available. A first pass approach should be to pull together the list of information that is already being tracked. Then with a second pass, add the new information required for the accounting standards change.
A quick list of the new information needed will include:
- Ownership Transfer to Lessee (Y/N)
- Purchase Option Reasonably Certain of Exercise (Y/N)
- Highly Specialized Customer Specific Asset (Y/N)
- Lease Term for Major Part of the Asset Useful Life (Y/N)
- Lease Payments Substantially All Asset Fair Value (Y/N)
Financial Term Information:
- Lease Start Date
- Lease End Date
- Initial Direct Costs
- Lease Incentives
- Lease Options
- Rent vs Operating Expense (cost breakdown and implied interest rates for present value calculations)
- Asset Profiles
- Asset Category
- Asset Fair Value at Lease Inception
- Asset Fair Value at End of Lease
- Guaranteed Residual Value
- Estimated Asset Useful Life
In conclusion, this quick take and deeper dive for building your leased asset list should give your organization a solid jump start and this will ensure that your organization has the necessary data ready when you begin the transition to the new accounting standards.
Thank you for reading and be sure to read my other Lease Administration Blogs.
Steven Brenner, CPA
Senior Principal Consultant