The Fusion of Technology and Data Standards

The collaboration between Visual Lease and OSCRE International exemplifies a synergistic approach to marrying technology with the rigorous development of data standards, significantly enhancing ESG reporting capabilities. Ian Cameron from OSCRE International emphasized the critical contribution of technology-focused companies like Visual Lease:

“It makes a real difference to us to have a clear idea of what kinds of data requirements fit, let’s say, energy data management… You are very much aware of that, and you’re sharing that, and again, that’s extraordinarily valuable because frankly, the proof is in the pudding at the detail level in these standards.”

This insight illuminates the importance of granular, technical knowledge in crafting standards that align with industry needs and bolster the integrity and functionality of ESG data.

The Pillars of Effective ESG Reporting: Integration and Implementation

A standout theme from our discussion is the imperative of data integration and strategic implementation beyond mere management. Bill Harter of Visual Lease discussed how working with OSCRE has enriched the evolution of Visual Lease’s solutions, particularly the VL ESG Steward platform. This tool represents a pivotal step forward, leveraging the collaboration with OSCRE to ensure comprehensive analytics and actionable ESG insights.

Leveraging OSCRE’s Work with VL ESG Steward

The VL ESG Steward platform is at the forefront of applying the insights and standards developed through Visual Lease’s collaboration with OSCRE, marking a leap from compliance to strategic advantage in ESG reporting. It underscores the importance of a seamless data flow and detailed analytics in providing organizations with the insights needed for impactful environmental stewardship.

Broadening ESG Reporting Horizons

The dialogue with OSCRE opens new avenues for expanding into scope three operations and beyond. This initiative is poised to offer more precise estimations for ESG reporting, aiding companies in the complex landscape of scope three emissions and broader ESG concerns.

A Comprehensive Approach to ESG Standards

The collaborative effort to develop ESG reporting standards is comprehensive. Ian Cameron’s work on process flows represents an all-encompassing strategy to ensure tools like VL ESG Steward meet users’ sophisticated needs, enabling organizations to exceed ESG reporting standards.

The partnership between Visual Lease and OSCRE is not just a collaborative effort; it’s a pioneering endeavor to redefine the future of ESG reporting. We’re establishing a foundation for a new era of sustainability and transparency in real estate and beyond through targeted technology, detailed data standards, and a focus on practical application.

Reflecting on the depth of the collaboration, Ian Cameron remarked, “You focus on the detail and the technical aspects of some of the stuff that probably passes by most people’s eyes… And that’s extraordinarily valuable because frankly, the proof is in the pudding at the detail level in these standards.” This encapsulates the essence of our mission – to empower organizations with the tools they need to demystify ESG reporting complexities and contribute to a sustainable future. This conversation highlights the transformative power of integrating robust data standards with cutting-edge technology.

Shaping the Future with Data Standards

OSCRE International, a non-profit dedicated to developing and implementing real estate data standards, plays a crucial role in facilitating digital transformation across the industry. With a focus on enhancing data strategy and management, OSCRE’s Industry Data Model spans leasing, space management, and, crucially, environmental data management. This broad and diverse model is designed around implementable use cases, such as lease data exchange, ensuring practical application in the real world.

“Our collaboration with industry leaders, including Visual Lease, is vital in developing standards that truly meet the industry’s needs,” shares Ian Cameron, Chief Innovation Officer at OSCRE. “By focusing on areas like energy data standardization, we’re addressing the immediate and future challenges organizations face in managing and reporting environmental data.”

Visual Lease and OSCRE: Collaborating on ESG

Visual Lease’s involvement in OSCRE’s initiatives, particularly around ESG, underlines our commitment to addressing the nuanced demands of lease management in the context of sustainability. As part of OSCRE’s Data Standards Committee, Bill Harter contributes insights and drives conversations on how best to integrate and implement these crucial standards within our solutions, including our newest product offering, VL ESG Steward.

“Working with OSCRE has been invaluable in enhancing our approach to data standardization and ESG,” notes Bill Harter. “This collaboration not only enriches our understanding but also ensures that our products, like VL ESG Steward, are equipped to provide actionable intelligence for companies looking to improve their operations and reduce their environmental impact.”

Beyond Compliance: The Vision for ESG Stewardship

The journey towards comprehensive ESG reporting is more than a compliance exercise; it’s about equipping organizations with the data they need to make informed decisions that benefit their bottom line and the planet. By integrating OSCRE’s standards and leveraging diverse industry perspectives, VL ESG Steward is designed to offer more than mere compliance. It aims to deliver actionable insights, enabling companies to track and analyze a wide range of ESG-related data and metrics effectively.

“The real goal of ESG stewardship is to provide companies with the tools they need to make a real difference,” explains Bill Harter. “As we look to the future, understanding the broader implications of ESG data, from energy management to water usage and beyond, will be key to driving meaningful change.”

A Unified Front for Data and ESG Standards

As Visual Lease continues collaborating with Ian Cameron, Bill Harter, and other industry leaders, our collective efforts are setting the stage for a new era of data-driven decision-making and sustainability in real estate lease management. Through initiatives like the Energy Standards Data project and beyond, we respond to current trends and anticipate our industry’s future needs, ensuring our clients are always one step ahead.

“In the realm of ESG and data standardization, collaboration is not just beneficial; it’s essential,” states Bill Harter. “Together, we are not only shaping the standards that will define our industry’s future but also ensuring that organizations have the tools they need to succeed in an increasingly complex world.”

At Visual Lease, we empower organizations to navigate these changes, leveraging our SaaS solutions to provide strategic, financial, and operational outcomes from their leased portfolios. As we move forward, integrating robust data standards and a deep commitment to ESG considerations will continue to be at the heart of Visual Lease’s work. By fostering collaboration and innovation, VL helps organizations navigate today’s challenges and build a more sustainable and efficient future.

Before the adoption of Visual Lease, the organization faced sustainability issues in lease management, compounded by new accounting compliance standards. The Director’s team, responsible for overseeing approximately 150 real estate leases and an additional 1400 equipment and vehicle leases, found an innovative solution in Visual Lease, marking a significant shift in how they managed their global lease portfolio.

The Challenges of Pre-Visual Lease Management

The lease management process was quite a hassle, relying on Excel spreadsheets and Lotus Notes as a makeshift electronic filing system. This method proved inefficient, especially with a lean team focusing on lease negotiations and strategic business needs. Searching for a more robust system led to exploring various platforms. Visual Lease stood out for its user-friendly and intuitive interface, simplifying lease abstraction and management tasks.

Visual Lease: A Catalyst for Efficiency and Collaboration

Adopting Visual Lease transformed the lease management process, empowering the team with tools to abstract leases efficiently, even with a lean staff. The platform’s ability to grant read-only access to stakeholders significantly reduced the overload of queries, enabling the team to focus on critical tasks. This accessibility and ease of use made Visual Lease an indispensable tool for the organization.

“One of our most important things that we can do is to provide good, reliable information in a timely manner to our decision-makers. Honestly, I believe that Visual Lease helps us do that, and it’s really been transformative, honestly, through my career here,” shares the Director, underscoring the pivotal role of Visual Lease in enhancing operational efficiency and decision-making.

Navigating Lease Accounting and ESG Reporting with Visual Lease

The transition to Visual Lease streamlined lease management and positioned the organization to adapt seamlessly to evolving lease accounting standards. The collaboration between the real estate and finance teams has been exemplary, ensuring data integrity and compliance with financial reporting requirements. Furthermore, as sustainability and ESG reporting become increasingly critical, Visual Lease’s potential role in supporting environmental and sustainability goals highlights its value beyond lease management.

A Future-Ready Approach to Lease Management

Visual Lease has become an integral part of Toshiba America Business Solutions daily operations, significantly impacting the organization’s ability to effectively manage a vast and complex lease portfolio. The Director’s participation in Visual Lease’s Customer Advisory Board reflects a commitment to continuous improvement and customer-centric development, ensuring that the platform remains at the forefront of addressing the dynamic needs of global lease management.
The journey with Visual Lease illustrates a transformative shift from fragmented and manual lease management practices to a streamlined, efficient, and collaborative approach. As organizations navigate the complexities of global lease portfolios, accounting standards, and sustainability reporting, Visual Lease emerges as a critical partner in fostering operational excellence and strategic decision-making.

Key Insights from Zena Thomas on GASB 96:

• Expertise and Experience: With over 20 years in the field, Zena’s extensive accounting background enriches Visual Lease’s product development, ensuring our solutions are deeply aligned with accounting standards.
• GASB 96 Overview: GASB 96 addresses the need for standardized accounting treatment for subscription-based IT arrangements, establishing a framework for capitalizing software costs.
• Comparison to GASB 87: While similar to GASB 87 in creating a right-of-use asset and liability, GASB 96 distinguishes itself with unique implementation stages, including preliminary, initial implementation, and operation/additional implementation stages.

  Our conversation dives into the complexities of the GASB 96 lease accounting standard, a subject of interest among government entities and other organizations. This standard marked a pivotal shift in the accounting of subscription-based information technology arrangements, aiming to normalize the capitalization of software costs. GASB 96 is was designed to mirror its forerunner, GASB 87, by establishing a right-of-use asset and a corresponding liability for these software arrangements. Yet, it sets itself apart by introducing distinct implementation stages not present in GASB 87. Zena Thomas shares:

  “GASB 96 is the accounting treatment for subscription-based information technology arrangements. It’s GASB’s response to questions around accounting treatment for software. Many entities were already capitalizing these costs, and they were looking for GASB to justify that treatment.”

  This in-depth discussion with Zena illuminates the importance of adapting to and implementing the GASB 96 standard, highlighting the evolution of lease accounting practices.

  Understanding GASB 96

  GASB 96 addresses the accounting treatment for subscription-based information technology arrangements, essentially acknowledging the evolving software capitalization landscape. The standard aims to provide a clear justification for this treatment, drawing parallels to GASB 87 but with notable distinctions, particularly in its initial stages.

  The Distinction from GASB 87

  While GASB 96 shares similarities with GASB 87, especially in amortization schedules, the differentiation lies in the initial implementation stages outlined by GASB 96:

  • Preliminary Stage: Costs incurred in the conceptual framework development are typically expensed as incurred.
  • Initial Implementation Stage: Costs associated with placing the asset into service are, for the most part, capitalized.
  • Operation and Additional Implementation Stage: Ongoing troubleshooting and maintenance activities may see a mix of capitalization and expense costs.

  Leveraging Technology for Compliance

  The transition to or concurrent handling of GASB 87 and 96 poses unique challenges and opportunities for organizations. While it’s feasible to calculate GASB 96 using GASB 87 methodologies, organizations are advised to employ specific platforms designed for GASB 96 to ensure accurate reporting and compliance. Visual Lease, for instance, provides a robust framework that can initially accommodate both standards, with plans to transition calculations to a dedicated GASB 96 module.

  Preparing for GASB 96

  For entities that were well-versed in GASB 87, the introduction of GASB 96 presented an opportune moment to begin preparations for compliance. Gathering data concurrently for both standards could streamline processes, offering a comprehensive approach to lease accounting standards compliance. With many entities still in the early stages of GASB 96 material development, there was a window for thorough preparation and strategy formulation.

  The evolution of lease accounting standards, evidenced by the introduction of GASB 96, underscores the dynamic nature of financial regulations and the imperative need for organizations to stay informed and prepared. As we navigate these changes, leveraging tailored technology solutions like those offered by Visual Lease can provide a strategic advantage, ensuring seamless compliance and optimized lease accounting practices. Whether deep into GASB 87 or just beginning your journey, now is the time to consider the implications of GASB 96 and how it will shape your organization’s future of lease accounting.

  The post The Great GASB 96: Insights with Zena Thomas first appeared on Visual Lease.]]> https://visuallease.com/uniting-lease-accounting-and-lease-administration/ Fri, 03 May 2024 13:00:23 +0000 https://visuallease.com/?p=9333 In the complex world of business, understanding the difference between lease accounting and lease administration is crucial. Although they might seem similar, they each have unique and important roles when...
  The post Uniting Lease Accounting and Lease Administration first appeared on Visual Lease.]]> In the complex world of business, understanding the difference between lease accounting and lease administration is crucial. Although they might seem similar, they each have unique and important roles when it comes to managing lease portfolio compliance, maintenance, and optimization effectively. Having a better grasp of these processes and using them strategically can significantly enhance an organization’s operational efficiency and compliance posture.

  The Essential Role of Lease Administration

  Lease administration provides essential support to the Office of the CFO by carefully managing crucial lease data needed for ASC 842 and IFRS calculations. This involves ensuring accurate and timely communication of data with accounting teams, and managing:

  • Lease Amendments
  • Lease Changes
  • Lease Terminations
  • This smooth coordination helps generate vital schedules and reports necessary for adjusting and meeting financial statements requirements.

  The Dynamic Nature of Leases

  Contrary to the one-and-done perception often associated with lease recording, leases are inherently dynamic. A lease portfolio is subject to frequent changes, influenced by variable expenses, one-time charges, escalation amounts, and indexation. This flux underscores the necessity for a robust lease administration process, emphasizing the importance of well-documented procedures and playbooks, particularly in managing the complexities of international leases.

  The Undervalued Effort of Lease Administration

  Often underestimated, the effort and time required to build and maintain effective lease administration processes are significant, especially in the context of mergers or decentralized operations. Organizing a global lease portfolio demands a considerable investment of time and a detailed understanding of the nuances involved in lease management.

  Strategic Planning and Lease Data

  Lease data holds immense strategic value, informing forecasting, impact analysis, and space planning. In a post-COVID world, with the shift towards flexible and remote work arrangements, up-to-the-minute lease administration and data are pivotal in supporting organizational strategy and operational flexibility.

  Critical Components of Daily Lease Administration

  Lease administration encompasses managing portfolio changes, variable expenses, and risk mitigation. This includes new leases, amendments, renewals, terminations, and acquisitions. A key aspect is managing common area maintenance and operating expense reconciliations, a significant area for potential savings and error minimization.

  Mitigating Risks through Process and Dual Controls

  A solid foundation of processes and procedures is essential for mitigating ongoing risks such as missed or delayed payments, manual errors, and fraud. Implementing dual controls, such as verification calls for changes in vendor information, can significantly reduce the incidence of fraud and cybersecurity threats.

  “Process, process, process. If you document your processes and follow through, you’ll mitigate most of your problems and be a proactive asset to your internal teams.” – Jamie Covert, President Scribcor Global Lease Administration

  The discourse on lease administration circles back to a singular, powerful theme: process. Documenting and adhering to well-defined processes mitigates most problems and positions lease administration as a proactive collaborator across internal teams, including strategy, transactions, and accounting. Looking ahead, the evolving landscape of Environmental, Social, and Governance (ESG) requirements and the critical role of space planning underscores the growing significance of lease administration in strategic decision-making and portfolio optimization.

  In the realm of lease management, understanding and leveraging the distinct roles of lease accounting and administration can yield substantial benefits, from enhanced compliance and operational efficiency to strategic insights and optimization of lease portfolios. As the business world continues to evolve, the value of these functions will only increase, making their mastery essential for organizational success.

  The post Uniting Lease Accounting and Lease Administration first appeared on Visual Lease.]]> https://visuallease.com/unlocking-strategic-value-from-lease-accounting/ Fri, 15 Mar 2024 13:00:53 +0000 https://visuallease.com/?p=9164 It’s clear that the journey towards and beyond compliance with lease accounting standards (ASC 842, IFRS 16, & GASB 87) is fraught with challenges and opportunities. The strategic importance of...
  The post Unlocking Strategic Value from Lease Accounting first appeared on Visual Lease.]]> It’s clear that the journey towards and beyond compliance with lease accounting standards (ASC 842, IFRS 16, & GASB 87) is fraught with challenges and opportunities. The strategic importance of effectively managing a lease portfolio becomes even more apparent in today’s economic climate.

  The Evolution of Lease Management:

  The initial wave of adopting new lease accounting standards such as ASC 842 was not merely a compliance exercise but a transformative process for organizations worldwide. This transition period illuminated the potential for lease portfolios to significantly reduce risks and unlock real business benefits when managed with intention and strategic foresight.

  Maintaining Momentum in Compliance and Control:

  With the foundational compliance phase behind us, the enduring challenge for organizations is maintaining this compliance dynamically. This necessitates an integrated effort across various functions—real estate, finance, operations, legal, and procurement—to ensure information is accurately managed and utilized, minimizing exposure to risk and enhancing strategic decision-making capabilities.

  Insights from the Audit Front Lines:

  Audit and accounting professionals underscore the importance of meeting compliance mandates and leveraging the audit process as a strategic tool for refining lease management practices. Audits offer a unique lens through which to view lease agreements, providing opportunities to strengthen internal controls and operational insights.

  Emerging Topics on the Horizon:

  The transition to ASC 842 opened up a series of emerging topics that continue to evolve. The complexity of lease agreements and the dynamic nature of today’s economic environment call for ongoing diligence in lease management. The optimization and strategic advantage opportunities that arose during the initial adoption phase are just as relevant today, if not more so.

  Leveraging Lease Data as a Strategic Asset:

  The detailed lease data organizations have worked hard to compile and maintain is a veritable gold mine of strategic value. This previously underutilized information now allows management to make more informed and agile business decisions, optimize operations, and achieve cost savings on a previously unattainable scale.

  As we look back on the insights shared in the past and their application in the present day, the journey through and beyond lease accounting compliance emerges as a pathway to significant operational and strategic benefits. The detailed work required to achieve compliance offers a foundation upon which companies can build to streamline operations, negotiate better terms, and foresee future costs more clearly, transforming their lease portfolios into strategic assets that drive efficiency and savings.

  If you’d like to learn more about reducing risk and leveraging your lease portfolio to drive better outcomes, watch a quick overview of VL’s platform.

  The post Unlocking Strategic Value from Lease Accounting first appeared on Visual Lease.]]> https://visuallease.com/the-strategic-asset-of-lease-portfolios/ Wed, 13 Mar 2024 13:00:40 +0000 https://visuallease.com/?p=9162 Businesses have encountered unique opportunities to transform their lease portfolios from mere contractual obligations into dynamic, strategic assets. This evolution, spurred by effective management and the integration of cutting-edge technology,...
  The post The Strategic Asset of Lease Portfolios first appeared on Visual Lease.]]> Businesses have encountered unique opportunities to transform their lease portfolios from mere contractual obligations into dynamic, strategic assets. This evolution, spurred by effective management and the integration of cutting-edge technology, has allowed organizations to diminish risk and unlock extensive operational and financial benefits significantly.

  The Evergreen Nature of Lease Management:

  Historically, leases have represented one of the largest line items on the expense ledger for many companies, overshadowed only by payroll. This reality was often overlooked until the advent of new lease accounting standards (ASC 842, IFRS 16, & GASB 87), which prompted a paradigm shift towards more stringent lease accounting and lease administration processes to ensure continuous compliance.

  As we look back from our current vantage point, it becomes clear that for Chief Financial Officers (CFOs) and their teams, the initial push for compliance was just the beginning. The ongoing challenge has been to sustain these efforts, leveraging appropriate technology and establishing controls that span multiple departments. The absence of a unified approach to lease management exposes organizations to various risks, including financial inaccuracies and missed opportunities for savings.

  From Compliance to Strategic Advantage:

  The journey beyond compliance has revealed the untapped potential of lease portfolios as catalysts for greater financial agility and operational efficiency. Visual Lease has been at the forefront of this transformation, providing a robust platform tailored to meet the nuanced needs of all stakeholders involved in lease management. This centralized strategy mitigates risk and enhances compliance, ensuring that critical decisions can be made swiftly and confidently.

  The Ongoing Revolution in Financial Technology:

  Financial technologies, particularly those designed to streamline lease management and optimization, have proven indispensable. These tools have facilitated adaptability to the fluctuating economic landscape and supported the efficacy of virtual teams, proving essential for modern business operations.

  Conclusion: A Look Ahead:

  Reflecting on our journey through 2023, the importance of leveraging leases as strategic assets has never been more pronounced. The foresight and strategies implemented have paved the way for businesses to not only navigate the complexities of the present but also to lay a solid foundation for future growth and optimization. As we build on these insights, the potential for innovation and efficiency in lease portfolio management remains boundless, promising opportunities for those prepared to explore them.

  If you’d like to learn more about reducing risk and leveraging your lease portfolio to drive better outcomes, watch a quick overview of VL’s platform.

  The post The Strategic Asset of Lease Portfolios first appeared on Visual Lease.]]> https://visuallease.com/get-equipped-to-master-your-equipment-leases/ Tue, 12 Mar 2024 13:00:07 +0000 https://visuallease.com/?p=9160 As businesses navigate the complexities of the post-pandemic landscape, the question of whether to lease or buy equipment is more pertinent than ever. The global health crisis, followed by economic...
  The post Get Equipped to Master Your Equipment Leases first appeared on Visual Lease.]]> As businesses navigate the complexities of the post-pandemic landscape, the question of whether to lease or buy equipment is more pertinent than ever. The global health crisis, followed by economic fluctuations, has significantly impacted the equipment leasing market, prompting organizations to reevaluate their leasing strategies and financial planning.

  The Significance of Lease vs. Purchase Analysis

  A thorough lease versus purchase analysis is at the core of any equipment financing decision. This fundamental strategy supports organizations in determining the most cost-effective method for acquiring equipment, considering the net present value of after-tax cash flows, correcting residual assumptions, and setting appropriate discount rates. This analysis is crucial for boardroom-level decision support and auditing, ensuring businesses make informed decisions aligning with their financial goals.

  The Impact of the Pandemic on Equipment Leasing

  Despite the challenges posed by the labor market, supply chain issues, and inflationary pressures, we’ve seen record years for equipment financing. The Equipment Lease Financing Association projects the market to grow from $1.1 trillion in 2020 to $2.5 trillion by 2030. This surge underscores the shifting preference towards leasing as a strategy for cash preservation and financial flexibility.

  Navigating Lease Accounting Standards

  The relatively recent accounting standard (ASC 842, IFRS 16, & GASB 87) updates have spotlighted lease execution, contract terms, and management. These standards necessitate heightened transparency and control over leasing contracts, pushing organizations to adopt best practices for managing the life cycle of leases. Consequently, there’s an increasing demand for sophisticated lease accounting and advisory services to navigate these complexities and optimize contract savings.

  The Role of Visual Lease in Supporting Equipment Leasing

  In partnership with leading financial advisors, VL delivers comprehensive data and insights for managing equipment leases effectively. This collaboration ensures that organizations have access to the latest strategies and tools for lease analysis, contract management, and compliance with accounting standards, enabling them to realize significant savings and enhance their lease portfolio management.

  Preparing for Future Lease Transactions

  As companies adapt to economic uncertainties and evolving market conditions, the emphasis on strategic lease administration has never been more critical. Successful lease management goes beyond contract negotiation, encompassing a detailed understanding of lessor capabilities, contract terms, and overall portfolio strategy. Organizations that invest in developing baseline metrics for their leasing activities can measure improvement and achieve substantial savings over time.

  By embracing advanced lease versus purchase analysis and leveraging strategic partnerships, companies can confidently navigate this evolving market, ensuring their leasing decisions support long-term financial health and operational efficiency.

  If you’d like to learn more about reducing risk and leveraging your lease portfolio to drive better outcomes, watch a quick overview of VL’s platform.

  The post Get Equipped to Master Your Equipment Leases first appeared on Visual Lease.]]> https://visuallease.com/fund-accounting-for-leases/ Thu, 07 Mar 2024 15:34:35 +0000 https://visuallease.com/?p=9158 In the complex accounting landscape, fund accounting is a specialized area that demands meticulous attention, especially for non-profits, universities, hospitals, and governmental entities. Fund accounting is essential for these organizations,...
  The post Fund Accounting for Leases first appeared on Visual Lease.]]> In the complex accounting landscape, fund accounting is a specialized area that demands meticulous attention, especially for non-profits, universities, hospitals, and governmental entities. Fund accounting is essential for these organizations, as it helps track the allocation and usage of cash designated for specific purposes, ensuring that funds are not misappropriated.

  Understanding the intricacies of fund accounting is crucial for maintaining financial integrity and compliance, particularly when managing leases. Leases represent significant financial commitments and are subject to strict reporting requirements, making the accurate tracking and reporting of lease-related transactions a critical concern for accountants.

  The Challenge of Fund Accounting for Leases

  Fund accounting’s primary challenge is its need to precisely monitor cash flows and obligations within distinct funds, treating each fund as a standalone entity akin to a department. This approach is fundamentally different from traditional business accounting, focusing on ensuring that money designated for specific uses is spent accordingly.

  For governmental entities, this is further complicated by the need to satisfy the Annual Comprehensive Financial Report (ACFR), a comprehensive government-wide report detailing all financial activities and fund statuses, including those related to leases.

  Visual Lease’s Role in Simplifying Fund Accounting

  Visual Lease, a leading provider of lease accounting software, addresses these challenges head-on by offering solutions tailored to the unique needs of fund accounting. By automating the creation of journal entries that align with government-wide reporting and providing detailed insights into fund-specific transactions, Visual Lease enables organizations to maintain accurate and compliant financial records.

  Visual Lease’s platform offers flexibility, allowing users to integrate lease-related fund journal entries directly into their existing ERP systems or maintain them within Visual Lease for specialized reporting. This adaptability is crucial for organizations that manage their funds through separate ledgers or need to report on fund activities comprehensively.

  Understanding Accruals in Fund Accounting

  A fundamental aspect of fund accounting for leases is navigating the differences between modified and full accrual accounting. Most organizations are familiar with cash-based accounting, where transactions are recorded when cash changes hands. However, the shift to full accrual accounting under standards like GASB 87 requires recognizing expenses and revenues when they are incurred, regardless of when the cash transaction occurs.

  Government entities often operate on a modified accrual basis, focusing on short-term assets and liabilities alongside cash balances to provide a clear picture of a fund’s financial health. This necessitates maintaining dual sets of journal entries to comply with full and modified accrual reporting requirements, a complex process that Visual Lease simplifies with its robust software solutions.

  Setting Up for Success in Fund Accounting

  Successfully implementing fund accounting practices, particularly for leases, requires a deep understanding of an organization’s financial structure and the ability to track and allocate cash accurately. Organizations must have a clear organizational map from the outset, allowing for the precise movement and allocation of funds as needed.

  Visual Lease has proven to be an invaluable partner for organizations navigating the transition to GASB 87 and beyond, providing the tools and support needed to manage lease accounting with confidence and compliance.
  As organizations strive to adapt to evolving accounting standards and complex fund accounting requirements, the importance of leveraging specialized tools and expertise cannot be overstated. Visual Lease stands at the forefront of this challenge, offering solutions that ensure accuracy, compliance, and financial integrity in fund accounting for leases.

  The post Fund Accounting for Leases first appeared on Visual Lease.]]> https://visuallease.com/how-is-gasb-87-different-from-previous-standards/ Thu, 22 Feb 2024 13:00:58 +0000 https://visuallease.com/?p=9085 In this blog post, we will provide a comprehensive breakdown of GASB 87 and explain what you need to know. Revisiting the Introduction of GASB 87 The lease accounting standard,...
  The post How is GASB 87 different from previous standards? first appeared on Visual Lease.]]> In this blog post, we will provide a comprehensive breakdown of GASB 87 and explain what you need to know.

  Revisiting the Introduction of GASB 87

  The lease accounting standard, GASB 87, brought about a significant shift in how leases are accounted for. Previously, operating leases were kept off the balance sheet, but now they must be included. This change meant that public sector organizations saw a substantial increase in assets and liabilities on their balance sheets.

  How has GASB 87 Changed Lease Accounting?

  1. Increased Transparency

     Similar to the standards set by FASB and IFRS, GASB 87 aimed to bring more transparency to financial statements. With the inclusion of operating leases, stakeholders can now have a clearer picture of an organization’s leasing obligations. This increased transparency is essential for making informed decisions and understanding the financial health of an organization.

  2. Impact on Government Entities

     Governmental funds, including proprietary and fiduciary funds, experienced changes due to GASB 87. While fund balance accounting didn’t see significant alterations, comprehensive annual financial reports needed to reconcile fund balances with full accrual balances on government-wide financial statements. This alignment ensured accurate and comprehensive reporting of lease obligations.

  3. The Role of Lease Accounting Technology

     To navigate the complexities of GASB 87, implementing lease accounting software is highly recommended. This technology simplifies the calculation, reporting, and compliance processes, especially for organizations with substantial lease portfolios. By leveraging lease accounting software, organizations can maintain accurate records and alleviate the burden of continuous remeasurement and reporting.

  4. Managing Data Integrity and Internal Controls

     Adopting GASB 87 is just the beginning. Organizations must also prioritize the day-to-day management of lease data integrity and internal controls. Lease accounting software serves as a critical tool in this process, facilitating budgeting, cash flow forecasting, and document management. Strong internal controls are crucial for ensuring compliance and accuracy in lease accounting processes.

  5. Integration with ERP Systems

     Organizations have different preferences for integrating lease software with their general ledger systems. Direct integration between lease software and ERP systems can help reduce manual errors and streamline processes. This integration ensures seamless communication and data synchronization between different financial systems, improving efficiency and accuracy in lease accounting.

  In conclusion, GASB 87 has brought significant changes to lease accounting standards. Organizations need to understand these changes and adapt accordingly. By embracing lease accounting technology, maintaining data integrity, and preparing for future standards, organizations can navigate the complexities of lease accounting and ensure compliance with regulatory requirements.

  The post How is GASB 87 different from previous standards? first appeared on Visual Lease.]]> https://visuallease.com/a-complete-guide-to-commercial-lease-negotiations/ Wed, 21 Feb 2024 13:00:04 +0000 https://visuallease.com/?p=9083 Best Practices for Negotiating Ideal Lease Terms We’re diving into the intricacies of GASB 96, a significant standard that government entities need to adopt, especially following the implementation of GASB...
  The post A Complete Guide to Commercial Lease Negotiations first appeared on Visual Lease.]]> Best Practices for Negotiating Ideal Lease Terms

  We’re diving into the intricacies of GASB 96, a significant standard that government entities need to adopt, especially following the implementation of GASB 87.

  For most companies, leases and operating costs are usually the second largest expense behind payroll. Yet, after the initial negotiation, companies often don’t keep track of their lease terms or obligations — and that can mean missed opportunities, overbilling and wasted time.

  Because leases are such a big investment, the ability to negotiate or renegotiate a lease is a critical part of managing business expenses. Lease negotiation requires understanding lease components and their implications, and then using that information to negotiate the best lease terms for your business.

  A great way to prepare for negotiating a new contract or renegotiating with current lessors is to review your existing lease portfolio. It can help you get a good grasp of your obligations under different leases, which lease terms benefit you (or not) and how much flexibility there may be for negotiation.

  How to Negotiate a Commercial Lease

  In this guide, we’ll look at three ways you can prepare for and effectively manage your next lease negotiation:

  1. Identify Opportunities to Negotiate Within Leases
  2. Evaluate Your Existing Leases
  3. Seek Expert Advice

  Identify Opportunities to Negotiate Within Leases

  In general, negotiation plays a bigger role in commercial leases than in residential or consumer leases.

  That’s because:

  • Companies often have needs specific to their business, such as the way a space is configured or special requirements for utilities and other features
  • Lessors may be motivated to accommodate those needs to help seal the deal

  In addition, businesses are more likely to lease larger quantities of equipment, vehicles and other assets than a consumer would. Although these leases often require customized contracts based on individual companies’ needs, most commercial leases include some common terms and standard boilerplate language.

  These terms and language might be negotiated at the beginning of a lease and then automatically inserted each time the contract renews, with little or no changes over time. However, there are a few factors that can help determine the flexibility and ability to negotiate lease terms.

  Factors that Affect Negotiation Power

  The amount of flexibility you have to negotiate a commercial lease often depends on the circumstances. For instance, if it is close to the end of a lease term and your landlord wants you to renew, you may have an opportunity to renegotiate a lower cost or other favorable terms.

  Other things that may affect your ability to negotiate include the size and value of the leased assets. For example, you may have some leverage to negotiate with prospective landlords if you are looking for:

  • Prime locations for multiple retail stores
  • Significant square footage for warehousing, a showroom or manufacturing facilities
  • Multiple office spaces to accommodate doing business in different locations

  The ability to negotiate a lease also depends on the flexibility of the property owner or provider. A landlord who is anxious to fill a vacancy may be willing to negotiate an incentive for you to lease, such as a generous Tenant Improvement Allowance (TIA) for customizing an office space to your needs.

  Renegotiation of a lease in the middle of a lease term could be triggered by a hardship of some kind, such as a distressed market, a significant business disruption or even bankruptcy. In these cases, lessors may be more inclined to negotiate so that they get something rather than nothing.

  For example, if you lease a large amount of square footage or a highly visible location in a mall or office building, the landlord may work with you on desirable lease terms to avoid having the space sit empty.

  Lease Clauses in a Post-Pandemic, Hybrid Work World

  As the world recovered from Covid-19, corporate real estate planning became more complicated than ever. Businesses across all industries continue to be in cash-conservation mode, looking to cut costs and remain agile in response to economic uncertainties.

  Now, many leases directly consider and may include:

  • A pandemic clause, clarifying the rights and obligations of both parties in the event of unforeseen circumstances, such as future pandemics or other force majeure events
  • Health and safety protocols, specifying the measures each party must take to ensure a safe and healthy working environment, including sanitation, cleaning, and compliance with health guidelines
  • Dispute resolution for pandemic-related issues, establishing a clear process for resolving disputes related to pandemic-related matters, such as rent abatement due to government-mandated closures.
  • Government assistance coordination, describing how parties will cooperate in obtaining and managing government assistance programs that may be available during times of crisis.

  Even more so, there is now an emphasis on “hoteling” — an office arrangement where employees don’t have assigned workstations and instead reserve or use available workspaces temporarily — as well as spaces created with collaboration in mind, such as huddle rooms, team neighborhoods, and social zones.

  These may be incorporated through flexibility in space utilization clause, allowing for flexibility in the use of space, potentially permitting tenants to adjust the layout or configuration based on changing needs or social distancing requirements, or through a negotiated tenant improvement allowance to help offset the expenses associated with incorporating this new office needs.

  The widespread effects of the COVID-19 pandemic has had a strong impact on both lessees and lessors. On one hand, landlords whose properties have been affected want to recover as much rent as they can. At the same time, many tenants have been looking for some form of relief from their rent obligations had experienced some level of unoccupancy to their corporate real estate leased properties due to office closures. Still, nearly half (47%) of the companies paid full rent on unoccupied properties — and a small fraction (8%) paid no rent. Regardless, more than half the companies planned to ask landlords for some rent relief, such as application of their security deposit or a rent abatement, reduction or deferral.

  Tenants have looked to their leases for clauses like force majeure, casualty or business interruption to save money on rent.

  However, these clauses have not been commonly found to apply to COVID-19, given it was unusual to include specific language about a pandemic in lease clauses before the current climate. However, that is something that may change in the future through lease negotiations.

  Alternatively, some tenants and landlords have worked together during the pandemic on lease negotiations to ensure that both can stay in business during and after the crisis, and the landlord can continue to collect revenue from assets.

  Evaluate Your Existing Leases

  Your existing leases are a valuable source of information that can help your business negotiate new leases or renegotiate existing agreements.

  Any lease that has been customized to your business needs provides an opportunity for you to identify lease language that has worked in your favor. Moving forward, you can choose to establish that language as a standard to use in new leases or renewal negotiations.

  Conversely, if existing leases contain language that has not worked well for your business, you can try to avoid those terms in new contracts or renegotiate them at the time of lease renewal.

  What to Look for in Current Leases

  Naturally, you want to know what your rent and other lease payments are — but you also want a clear picture of what you are getting for the money. For example:

  • How many offices or how much space do you lease from the same landlord?
  • What is your cost per square foot?
  • Is the cost based on occupied space? Or on total square footage?
  • Is your rent comparable to what other lessees in the building are paying?
  • Is your monthly payment comparable to or better than the current market rates?
  • Are you paying for common area maintenance (CAM) and if so, how?
  • Are there other shared costs (such as water or other utilities) and if so, are you paying more than your fair share?

  In addition, you should look at your leases to determine whether your termination rights and renewal terms are favorable to your business. How easy is it for you to get in or out of leased spaces?

  • Is there a “lease kickout,” or a threshold that allows you to terminate a lease if the location is not operating profitably?
  • Is there a clause that allows you to terminate the lease on a retail location if there is a significant reduction in foot traffic or if an anchor store closes?
  • If you have multiple leases and critical dates with the same landlord, can you trade off and move locations to make the best use of all the leased spaces?

  Lastly, you should know where you are in your current lease terms, to be aware of automatic renewals, deadlines you must act on and possible opportunities to renegotiate before you renew.

  For instance:

  • If you have several leases with the same landlord — such as space in multiple offices or malls — how much of your portfolio is about to expire? If a large number of leases are involved, the upcoming expirations may give you significant leverage in negotiations.
  • Are your lease obligations short-term or long-term? If they are short term, you may soon have a chance to revisit lease language and make changes that will benefit your business.

  How to Search for Pertinent Lease Language
  With this kind of visibility into the details of your current leases, you are in a position to evaluate whether there is language you would like to renegotiate when a lease renews — or language you want to incorporate or avoid when entering into a new contract.

  Manually searching through every lease for specific clauses and language is an incredibly time-consuming and cumbersome task. (Just ask anyone who has implemented lease accounting standards — ASC 842, IFRS 16, GASB 87.)

  But by utilizing lease accounting and management technology, you can more clearly identify all your lease obligations and crucial lease language, which enables you to keep track of current financial obligations and critical dates, plus important details to help with future lease negotiations.

  For example, lease management software can help you identify if you paid for space you did not use — or overpaid for services such as cleaning or utilities. Armed with that information, you can look out for those issues in new leases or address them in current leases prior to renewal.

  With all your leases and important terms entered into a centralized system of record system, you can easily group information, generate reports and view a complete picture of your lease portfolio. You can also view individual lease details and cut data by region, landlord/lessor, expiration dates and other criteria.

  Creating a digital portfolio of abstracted leases lets you search for both ideal and low-performing lease language to:

  • Identify lease terms that previously worked well for your business and use them in new leases
  • Avoid under-performing language in new or renewing leases
  • Renegotiate where possible based on what works well and what does not

  The lease management system you choose should allow you to bookmark specific language and establish it as a standard that you want to repeat in the future, such as:

  • A previously negotiated, favorable holdover rent rate of 125%, versus the typical 150% or even 200%
  • CAM pro rata share language that bases the fee on the square footage of the space you occupy rather than the total square footage

  Further, a robust lease accounting and management system such as Visual Lease enables you to search for and identify automatic renewals on leases that you negotiated long ago, which gives you the opportunity to easily determine whether the terms are still favorable or if they need to be renegotiated.

  Seek Expert Advice

  Engaging with professionals, such as brokers or lawyers, can help you make smarter, more informed decisions about your leases. Lease experts can provide sound advice and help you better interpret and understand lease language, the current market conditions and your overall negotiation options.

  Consult a Broker

  Brokers are not experts in lease documents and legality. However, they can provide insights about the marketplace to help you decide whether to invest in a particular lease. For instance:

  • Does it make sense to sign a long-term lease at current prices — or are prices likely to come down further?
  • Do current lending rates make buying a better option than leasing in some markets?

  A broker can perform a market analysis, which includes the typical pricing in a given area. In addition, brokers often know the lessors and are familiar with their business and reputation — added information that can be helpful to you as a potential lessee.

  When you work with a real estate broker, they can help you better understand the current market and what is happening in neighboring communities.

  For example, in the aftermath of COVID-19, a broker can tell you if there are have been rising vacancies and falling rents in certain locations. Those are trends that may open the door to negotiating with owners who are eager to have their properties occupied and generating revenue.

  The same is true for equipment, vehicles and other frequently leased assets. There, brokers can tell you if prices are down or new stock is not moving — possibly giving you an opportunity to negotiate a price or opt to buy while the market is soft.

  Additionally, there are brokers who specialize in meeting different needs based on the health of a business and its goals. For instance, there are real estate brokers who help companies lease high-end spaces. There are also brokers who help companies during situations such as severe market downturns or bankruptcies.

  Still, remember that brokers are not experts in the legalities of lease language. Therefore, you should consult with an attorney regarding any lease.

  Work with an Attorney

  Before you commit to a lease — whether it is new, renewed or renegotiated — you should always work with an attorney. He or she can identify the high and low liability aspects of the lease and help make sure that you:

  • Get the best terms in legal protections
  • Limit your risks from a casualty and insurance standpoint
  • Understand the boilerplate language often included as standard in leases (such as waiving the right to a jury trial)
  • Know what all your obligations are according to the lease and agree with those terms

  In lease negotiations, an attorney can ensure that a lease includes ideal language to protect your interests. This adds a level of refinement and enforceability that only a legal expert can provide.

  Unlike a broker or other layperson, an attorney has the expertise to guide you through negotiations and manage complex lease language such as casualty and force majeure clauses. Just as you should always consult an attorney before signing a new contract, it is also important to have an attorney review the documents for lease renewals and renegotiations. Additionally, there may be times when it is appropriate to use an attorney to revisit previously negotiated boilerplate language.

  For instance, when you work with the same landlord for a long period of time or a multiple-lease portfolio, you tend to negotiate some standard language and then update the lease as needed in areas such as:

  • Business terms
  • Location-specific charges
  • Insurance language

  Ideally, you can work with the same attorney who was involved in negotiating the original lease, who can compare the documents and redline any changes or additions. At the very least, a new attorney can review the lease to make sure your interests are protected and there are no red flags.

  —

  Get a head start on your negotiation power with a powerful lease accounting and management tool. More than 1500 companies have used Visual Lease as their system of record for all leased real estate and equipment assets. Through proper lease management within one easy-to-use tool, you can simplify and automate lease information that you can leverage for more successful lease negotiations.

  About Visual Lease:

  Visual Lease is the #1 lease optimization solution provider, empowering organizations to leverage their lease portfolio for strategic financial and operational outcomes. Our powerful and secure platform serves as a centralized system of record for all lease financial, operational and legal data, and is purpose-built to support every team that interacts with a company’s lease portfolio. Informed by nearly three decades of experience, our solutions help companies easily sustain compliance with FASB, IFRS, GASB and ISSB reporting requirements, and mitigate the risks and maximize the value associated with their lease records. Our award-winning software is used by 1,500+ organizations to manage more than 1 million real estate, equipment and other leased asset records globally. For more information, visit visuallease.com.

  The post A Complete Guide to Commercial Lease Negotiations first appeared on Visual Lease.]]> https://visuallease.com/a-breakdown-of-gasb-96-6-things-you-need-to-know/ Tue, 20 Feb 2024 13:00:03 +0000 https://visuallease.com/?p=9081 We’re diving into the intricacies of GASB 96, a significant standard that government entities need to adopt, especially following the implementation of GASB 87. The Essence of GASB 96 GASB...
  The post A Breakdown of GASB 96: 6 Things You Need to Know first appeared on Visual Lease.]]> We’re diving into the intricacies of GASB 96, a significant standard that government entities need to adopt, especially following the implementation of GASB 87.

  1. The Essence of GASB 96

     GASB 96 deals with subscription-based information technology arrangements (SBITA), a new area of focus for government entities. This standard requires these entities to identify SaaS agreements and include them on their balance sheets for the first time, ensuring consistent treatment for state and local governments.

  2. Preparation and Comparison with GASB 87

     If your organization has already tackled GASB 87, you’re in an excellent position to handle GASB 96. The process and methodology are similar, aiming to bring uniformity in reporting. GASB 96, like its predecessor, necessitates identifying and consolidating relevant agreements into the balance sheet, creating both an asset and a liability.

  3. Timing and Challenges

     The GASB 96 regulation became effective as of June 15, 2022. Some entities were still grappling with GASB 87, hence the staggered approach to adopting GASB 96. The primary challenge lies in the capacity and bandwidth to implement these standards efficiently.

  4. Roles of IT and Accounting Departments

     The IT department and the accounting team play a pivotal role in this transition. GASB 96 will primarily impact IT, as it revolves around technology agreements. These departments must comb through contracts to classify and account for them appropriately under the new standard.

  5. Cost Considerations and Implementation

     Implementing GASB 96 involves identifying costs at different contract stages, such as preliminary, initial implementation, and operation stages. These need to be either capitalized or expensed, adding a layer of complexity to the process.

  6. Leveraging Technology

     Organizations implementing lease accounting technology for GASB 87 will find it beneficial to use similar technology for GASB 96. The similarity in concepts between the two standards means that adapting existing software solutions can streamline adoption.

  The transition to GASB 96 might be smoother than GASB 87 due to its specific focus on information technology agreements. However, the primary challenge remains the limited resources available to organizations to adopt these comprehensive standards concurrently.

  In conclusion, GASB 96 represents a significant shift in how subscription-based IT arrangements are reported and accounted for, mirroring the changes brought about by GASB 87 in lease accounting. As organizations adapt to these new standards, understanding and leveraging the right tools and strategies will be essential to successful implementation.

  The post A Breakdown of GASB 96: 6 Things You Need to Know first appeared on Visual Lease.]]> https://visuallease.com/2024-lease-accounting-trends-and-solutions/ Fri, 16 Feb 2024 13:00:05 +0000 https://visuallease.com/?p=9079 In our latest blog post, we delve into the findings of our Visual Lease Data Institute (VLDI) research that sheds light on the evolving terrain of lease accounting. About the...
  The post 2024 Lease Accounting Trends and Solutions first appeared on Visual Lease.]]> In our latest blog post, we delve into the findings of our Visual Lease Data Institute (VLDI) research that sheds light on the evolving terrain of lease accounting.

  About the Research: We surveyed senior finance and accounting professionals alongside financial management experts in government sectors.

  The research offers a revealing look at the challenges and solutions in the realm of lease accounting. As we unpack the intricacies of standards ASC 842 and GASB 87, we discover the significant impact of talent shortages, the struggle for knowledge retention, and the pivotal role of innovative software solutions in streamlining lease accounting processes.

  Challenges in Lease Accounting

  A critical finding is the impact of talent shortages and retention issues on adopting lease accounting standards.

  • Both sectors report their teams being stretched thin, with significant concerns over employee burnout.
  • Knowledge maintenance is another major hurdle, with a substantial percentage of both sectors finding it challenging to maintain compliance.

  Overcoming Lease Accounting Challenges with Technology

  Successful companies have overcome talent shortages by leveraging centralized systems for lease accounting and administration.

  • Third-party lease accounting software has been instrumental in streamlining tasks, improving accuracy, and ensuring regulation compliance.
  • Such software saves significant hours for private and public entities and provides essential customer support.

  The journey toward lease accounting compliance is fraught with challenges, but organizations can navigate these complexities effectively with the right tools and support. Visual Lease’s insights and solutions provide a roadmap for businesses to turn these challenges into opportunities for growth and strategic advantage.

  For more insights, visit the VLDI section of our website.

  About The Visual Lease Data Institute

  The Visual Lease Data Institute is a hub for key data trends insights on lease accounting, management, and optimization. It’s a resource designed to equip businesses with the necessary knowledge for lease accounting compliance and to use leases as strategic assets. The institute’s expertise is recognized widely, with mentions in prominent publications like The Wall Street Journal and Forbes.

  The post 2024 Lease Accounting Trends and Solutions first appeared on Visual Lease.]]> https://visuallease.com/tax-lessons-from-the-covid-19-pandemic/ Thu, 15 Feb 2024 13:00:05 +0000 https://visuallease.com/?p=9077 We’re delving into the complex world of lease accounting and its tax implications, particularly in the wake of the COVID-19 pandemic. We’ll share valuable insights into how businesses, especially retailers,...
  The post Tax Lessons from the COVID-19 Pandemic first appeared on Visual Lease.]]> We’re delving into the complex world of lease accounting and its tax implications, particularly in the wake of the COVID-19 pandemic. We’ll share valuable insights into how businesses, especially retailers, navigated the challenges posed by the pandemic using their lease agreements.

  During the pandemic, many businesses had to engage with landlords for financial concessions without fully considering these negotiations’ tax and cash implications. This lack of understanding led to unexpected tax consequences.

  Key Lessons for Retailers

  Retailers learned crucial lessons about leveraging their lease agreements during the early days of COVID-19. Educating clients on the tax implications of their lease decisions was vital.

  • One significant aspect was understanding the principles of code section 467, which ensures the matching of income and expenses in leasing transactions.
  • Without this knowledge, businesses risked incurring tax liabilities without the corresponding cash flow.

  E-Commerce Pivot and Tax Consequences

  While some retailers successfully pivoted to e-commerce, many were unprepared for this shift, leading to significant financial strains. Additionally, landlords forgoing rent presented another set of challenges, as the deferred payments still triggered tax liabilities under certain conditions. Businesses had to navigate these complexities without fully understanding the tax implications.

  Mitigating Negative Impacts with Better Understanding

  A firmer grasp of lease accounting and tax ramifications could have helped businesses mitigate the adverse effects of the pandemic. Structuring leases differently, for instance, could align cash flow with income recognition, providing much-needed relief.

  Broader Industry Implications

  These issues weren’t limited to retailers; other industries faced similar challenges. For example, manufacturers owning property had to consider sale and leaseback arrangements to survive, which required careful tax planning to avoid unintended consequences.

  The Role of Tax Professionals in Business Decisions

  Businesses need to involve tax professionals in their decision-making processes. While tax considerations shouldn’t drive business decisions, they are crucial in structuring transactions efficiently to avoid adverse tax implications.

  The pandemic underscored the importance of understanding the intersection of lease accounting and tax implications. Businesses that navigated this complex landscape effectively were able to turn challenges into opportunities, demonstrating the critical role of informed decision-making and expert guidance in the ever-evolving business environment.

  The post Tax Lessons from the COVID-19 Pandemic first appeared on Visual Lease.]]> https://visuallease.com/6-best-practices-for-asc-842/ Wed, 14 Feb 2024 13:00:23 +0000 https://visuallease.com/?p=9076 Adopting the ASC 842 lease accounting standard has been one of the most impactful changes in accounting practices, particularly for private companies gearing up for compliance. Drawing from the experience...
  The post 6 Best Practices for ASC 842 first appeared on Visual Lease.]]> Adopting the ASC 842 lease accounting standard has been one of the most impactful changes in accounting practices, particularly for private companies gearing up for compliance. Drawing from the experience of public companies that have already transitioned, here are some key insights and best practices:

  1. ASC 842 Is a Major Shift

     Auditing costs have been on the rise, driven by factors such as inflation, the impact of COVID-19, and company restructuring activities. According to a Gartner survey, a significant 62% of companies expect an increase in their audit fees. This upward trend in costs is directly linked to lease accounting.

  2. Preparation Beyond Technology

     Compliance with ASC 842 involves more than just implementing technology. It’s about thoroughly understanding and managing lease contracts, and ensuring cross-functional team involvement, particularly from finance personnel.

  3. Challenge of Lease Management

     Many companies struggle with lease management due to a lack of a centralized system or owner. This can lead to challenges in accurately accounting for leases.

  4. Day 1 Compliance and Beyond

     Achieving compliance starts by bringing all leases onto the balance sheet as a right of use asset and related liability. However, it also involves tracking and accounting for every lease change throughout the reporting period.

  5. Risks of Inaccuracy

     Without the proper tools and processes, there is a risk of inaccuracies in journal entries and disclosures, especially for companies with a large number of leases.

  6. The Burden of Volume

     The volume of leases can significantly complicate compliance. For instance, companies need to book an opening journal entry for all active leases at the start of the year, which can be a daunting task for those with numerous leases.

  In conclusion, transitioning to ASC 842 requires a comprehensive approach that goes beyond just adopting new software. It’s crucial for companies to act promptly, ensure thorough preparation, and involve cross-functional teams to navigate this change successfully.

  The post 6 Best Practices for ASC 842 first appeared on Visual Lease.]]> https://visuallease.com/the-importance-of-lease-accounting-automation/ Tue, 13 Feb 2024 13:00:08 +0000 https://visuallease.com/?p=9074 In today’s fast-paced business environment, lease accounting has become an increasingly complex task for organizations. Manual processes and outdated tools like Excel not only pose a high risk of errors...
  The post The Importance of Lease Accounting Automation first appeared on Visual Lease.]]> In today’s fast-paced business environment, lease accounting has become an increasingly complex task for organizations. Manual processes and outdated tools like Excel not only pose a high risk of errors but also result in rising audit fees. To address these challenges, companies are turning to lease accounting automation. In this blog post, we will explore the main reasons why lease accounting automation is crucial for businesses.

  Rising Audit Fees

  Auditing costs have been on the rise, driven by factors such as inflation, the impact of COVID-19, and company restructuring activities. According to a Gartner survey, a significant 62% of companies expect an increase in their audit fees. This upward trend in costs is directly linked to lease accounting.

  Connection to Lease Accounting

  Achieving and maintaining compliance with lease accounting standards, such as ASC 842, GASB 87, and IFRS 16, is a complex task. However, automation can significantly reduce the costs associated with lease accounting. By leveraging the power of automation, organizations can streamline their lease accounting processes and ensure compliance, leading to potential cost savings.

  Impact on Audit Fees

  Companies that automate at least 25% of their internal controls reported paying nearly 30% less in audit fees. This substantial reduction in costs can offset the annual expenses of lease accounting software subscriptions. By investing in the right lease accounting technology, businesses can realize significant financial benefits.

  Risks of Manual Processes

  Lease accounting involves intricate calculations, making it highly susceptible to human error. Relying on manual processes, especially tools like Excel, increases the risk of inaccuracies in lease accounting. To mitigate this risk, organizations need to embrace automation.

  Consequences of Errors

  Errors in lease reporting can have serious repercussions for businesses. A survey conducted among senior finance and accounting professionals revealed widespread concern about the potential for misreporting lease information. The main worries include increased audit fees and fines, potential damage to the company’s reputation, risk of legal action, and harm to personal professional reputation.

  Benefits of Automation

  Implementing the right lease accounting technology can mitigate risks, enhance operational efficiency, and lead to significant savings on audit costs. By automating lease accounting processes, organizations can ensure compliance with accounting standards, streamline their operations, and eliminate the risk of errors.

  In conclusion, lease accounting automation is no longer just a luxury but a necessity for businesses in today’s complex financial landscape. By embracing automation, companies can reduce audit fees, mitigate risks, and ensure accurate and streamlined lease accounting. To stay ahead of the competition and navigate the challenges of lease accounting, organizations must invest in the right lease accounting technology.

  The post The Importance of Lease Accounting Automation first appeared on Visual Lease.]]> https://visuallease.com/4-steps-to-lease-accounting-compliance/ Mon, 12 Feb 2024 16:20:30 +0000 https://visuallease.com/?p=9072 The management letter from auditors, typically received by CFOs after the annual audit, highlights key financial findings and suggests improvements for internal controls. It also informs about new accounting standards...
  The post 4 Steps to Lease Accounting Compliance first appeared on Visual Lease.]]> The management letter from auditors, typically received by CFOs after the annual audit, highlights key financial findings and suggests improvements for internal controls. It also informs about new accounting standards that need adoption.

  Steps for Lease Accounting Compliance

  To ensure compliance with lease accounting standards, companies should follow these steps:

  In lease accounting specifically, the completeness assertion claims that all leases have been captured and properly capitalized on the balance sheet.

  1. 1. Familiarize with Deadlines

        Understand and allocate sufficient time for gathering lease documents and processing necessary data.

  Create a Plan and Identify Stakeholders

  Recognize major milestones and assign key players or teams to each initiative, understanding their roles and the importance of deadlines.

  Centralize Relevant Documents

  Use a centralized system for easy access, analysis, and updates of lease information. Invest in efficient technology for this purpose.

  Develop Business Requirements

  Before selecting technology or partners, consult with internal stakeholders for their input. This will aid in smooth adoption and ongoing compliance.

  Compliance with the latest lease accounting standards, (ASC 842, GASB 87, and IFRS 16), is not just a regulatory requirement but a strategic opportunity. The management letter serves as a vital roadmap in this process, pointing out critical areas that need attention. By understanding the importance of deadlines, creating a well-thought-out plan, centralizing documentation, and involving key stakeholders in the decision-making process, companies can turn what seems like a daunting task into a manageable and beneficial undertaking.

  Takeaway: Remember, compliance is not just about meeting standards; it’s about enhancing the overall financial health and transparency of your organization. By adopting a proactive approach and leveraging technology effectively, businesses can not only meet the necessary compliance requirements but also gain insights that drive better lease management and financial decisions. In the evolving landscape of financial reporting and management, staying ahead in compliance is not just good practice—it’s a competitive advantage.

  The post 4 Steps to Lease Accounting Compliance first appeared on Visual Lease.]]> https://visuallease.com/why-you-should-retire-excel-in-lease-accounting/ Thu, 07 Dec 2023 13:50:31 +0000 https://visuallease.com/?p=7827 3 Reasons to Stop Relying on Excel Spreadsheets 1. Leases are constantly changing 2. Excel can lead to non-compliance with accounting standards 3. The Office of Finance has evolved 3...
  The post Should I Use Excel or Switch to Lease Accounting Software? first appeared on Visual Lease.]]>
  • 3 Reasons to Stop Relying on Excel Spreadsheets
  1. 1. Leases are constantly changing
  2. 2. Excel can lead to non-compliance with accounting standards
  3. 3. The Office of Finance has evolved
  • 3 Reasons to Switch to Lease Accounting Software
  1. 1. Centralize your lease data in one place
  2. 2. Be efficient & save time with lease management software
  3. 3. Reduce your risk and stay compliant
  • Switch to Visual Lease Accounting Software

  Does your business still use Excel for lease accounting? If so, you’re not alone — many other businesses do the same.

  But there’s a limit to what Excel can do for your organization’s lease portfolio. The reality is that leases are complex, dynamic documents that need a more comprehensive accounting option than Excel. Spreadsheets lack the ability to accurately and efficiently support large lease portfolios and the complex calculations required to comply with lease accounting standards.

  To stay compliant with accounting standards (ASC 842, IFRS 16, GASB 87) and avoid costly mistakes or fines, your business must move to a solution that is built to accommodate the dynamic nature of leases.

  Spreadsheets were never designed to handle processes as complicated as lease accounting. In fact, 100% of senior Real Estate executives believe it is impossible to sustain lease accounting compliance (e.g., ASC 842, IFRS 16, GASB 87) without proper lease administration practices in place.

  3 Reasons to Stop Relying on Excel Spreadsheets

  Here are three major reasons that businesses are unable to rely on Excel for sustained lease accounting compliance:

  1. Leases are constantly changing.

  Leases evolve over time — including expirations, terminations and renewals — making it almost impossible to manually keep track of every change within a spreadsheet. Without sufficient controls to track these ongoing changes, businesses are at risk of reporting on outdated lease data and missing important lease options. As organizations try to keep up with each changing lease, it won’t be long before accounting professionals leave Excel behind for good.

  2. Excel can lead to non-compliance with accounting standards.

  Lease accounting requires transparency in how businesses account for assets and liabilities. Auditors will check to ensure every lease is reliable and that your calculations are accurate. Just one mistake could lead to a failed audit, increased fees and fines, risk of legal action and more. There’s too much at risk to use Excel.

  3. The Office of Finance has evolved.

  For many organizations, the Office of Finance is now responsible for more strategic business initiatives and must accomplish more with less while navigating a weakening economy. Excel exacerbates this issue by requiring long hours of tedious, manual work that’s prone to human error.

  3 Reasons to Switch to Lease Accounting Software

  Lease accounting requires consistent upkeep of your entire lease portfolio. Investing in lease accounting software like Visual Lease helps ensure a seamless process and support ongoing compliance. Here’s why:

  1. Centralize your lease data in one place.

  Fully integrated lease management and accounting technology helps businesses closely maintain their lease data by organizing it in one location. As a result, teams can easily view lease clauses and options under a single source of truth without needing to manually sift through data. This, in turn, ensures accurate, reliable lease financials required for compliance.

  2. Be efficient & save time with lease management software

  As financial teams handle more responsibilities with increasingly limited resources, lease accounting software makes tracking leases easier and more efficient. In fact, according to Visual Lease’s 2022 Lease Market Analysis, private companies saved an average of 600 hours by using third-party lease accounting software.

  3. Reduce your risk and stay compliant.

  Lease accounting tools circumvent the human errors that often occur in Excel. In particular, Visual Lease automates otherwise complex reports and calculations and explains its calculations in every screen, leading to a more confident, reliable financial report. Additionally, when your business uses lease accounting software, auditors will have quick and easy access to your financial reporting and calculations.

  Excel wasn’t designed to handle the in-depth, complex work required for lease accounting. And since leases are often a company’s second-largest expense, relying on Excel isn’t worth the risk of costly audits and fines. Instead, investing in a lease accounting software solution like Visual Lease ensures your business can stay compliant, avoid costly fees, identify cost-saving opportunities and leverage leases as a more strategic business asset.

  Switch to Visual Lease Accounting Software

  Visual Lease makes the transition from Excel to lease accounting software easy, offering an intuitive platform with automated data input, standardized reporting, and compliance tracking. Our proven methodology will make the switch from spreadsheets to software quickly and efficiently.

  Request a demo today and make the switch!

  The post Should I Use Excel or Switch to Lease Accounting Software? first appeared on Visual Lease.]]> https://visuallease.com/what-does-completeness-assertion-mean-in-lease-accounting/ Tue, 05 Dec 2023 13:00:49 +0000 https://visuallease.com/?p=7709 What is completeness assertion in lease accounting? Auditing completeness under ASC 842 What is audited under completeness assertion? How to ensure accurate completeness assertions Getting started with lease compliance Inaccurate...
  The post What Does Completeness Assertion Mean in Lease Accounting? first appeared on Visual Lease.]]>
  • What is completeness assertion in lease accounting?
  • Auditing completeness under ASC 842
  • What is audited under completeness assertion?
  • How to ensure accurate completeness assertions
  • Getting started with lease compliance

  Inaccurate lease accounting can lead to a host of problems for an organization, such as wasting time and resources and a failed audit. In the final stages of the auditing process, accounting professionals will test the assertions in a company’s financial statements, including the completeness assertion. Let’s look at what completeness assertion is in lease accounting and how to ensure its accuracy when preparing for audits.

  What is completeness assertion in lease accounting?

  On a financial statement, completeness assertion affirms that the statement is thorough, includes and details all required items for a particular accounting period and that the organization’s entire inventory is included in the total inventory figure.

  In lease accounting specifically, the completeness assertion claims that all leases have been captured and properly capitalized on the balance sheet.

   

  Auditing completeness under ASC 842

  Completeness is a significant audit area for leases. With the ASC 842 standard, organizations must recognize assets and liabilities on the balance sheet for both operating and finance leases. It’s now crucial for companies—whether private or public—to have an accurate and thorough accounting of all leased assets to ensure completeness.

  What is audited under completeness assertion?

  When a business is audited under ASC 842, an auditor will assess completeness across several areas, including:

  • Lease calculations: Auditors make sure initial balances are calculated correctly and that lease expenses and ROU asset amortization are accurately recorded. They’ll also check to make sure all lease transactions are recorded within the stated period.
  • Quantitative and qualitative footnote disclosures: Auditors check footnote disclosures to ensure all information—including assets, liabilities, lease expenses, cash flow and more—are properly recorded. They also look at the qualitative information that explains what the numbers mean for the company.
  • Embedded leases: It’s easy to overlook or improperly record embedded leases, which are leases within a larger contract. Auditors make sure all embedded leases are clearly and correctly recognized in your company’s financial statements.

   

  How to ensure accurate completeness assertions

  With the new accounting standards, each lease under a business now directly impacts the balance sheet. Not having an accurate, complete representation of all leases could result in an understatement of assets and liabilities.

  As a result, businesses must identify all arrangements that meet the definition of a lease per ASC 842 to ensure completeness. Ignoring this step can lead to a waste of time, money and professional resources, especially during audits, along with costly fines or penalties if financial statements are misrepresenting leased assets.

  Identifying a complete population of leases can be a large undertaking, depending on how centralized a business’ operations are. Typically, this process involves inquiries with department heads along with a detailed review of accounts payable. Because of this, it’s important to maintain seamless and ongoing communication across departments.

  Getting started with lease compliance

  Companies that are in the process of adopting ASC 842 may also find they need new systems or protocols to preserve completeness on an ongoing basis. The right lease administration and accounting software can help save time and resources by enabling teams to regularly capture all details of leased assets as well as efficiently compile all completeness evidence before audits.

  Interested in lease accounting?

  Take the next step and schedule a demo with Visual Lease to ease your lease accounting needs today!

  The post What Does Completeness Assertion Mean in Lease Accounting? first appeared on Visual Lease.]]> https://visuallease.com/asc-842-lease-accounting-excel-templates/ Wed, 01 Nov 2023 13:00:32 +0000 https://visuallease.com/?p=8849 Using ASC 842 Excel Templates How to Create Customized ASC 842 Excel Templates Best Practices for Data Entry and Formula Setup Best Practices for Document Organization Common Challenges with ASC...
  The post ASC 842 Lease Accounting Excel Templates first appeared on Visual Lease.]]>
  • Using ASC 842 Excel Templates
  • How to Create Customized ASC 842 Excel Templates
  • Best Practices for Data Entry and Formula Setup
  • Best Practices for Document Organization
  • Common Challenges with ASC 842 Excel Templates
  • ASC 842 Excel Templates vs Lease Accounting Software
  • Leaving Cumbersome Spreadsheets for a Purpose-Built Platform

  The ASC 842 lease accounting standard represents a significant shift in how organizations report their leases. Before ASC 842, operating leases were not included on the balance sheet, which neglected to provide a full picture of cash flows from leases. This meant companies and investors were unable to identify how much debt was carried within a business’ lease obligations.

  The new lease accounting standard requires organizations to include operating leases and financial leases on the balance sheet, which increases visibility into leasing costs and arrangements. This ensures an accurate depiction of company financials. Compliance with ASC 842 is essential for transparency, accuracy, and financial accountability.

  The calculations that are involved in staying compliant are extremely susceptible to error – particularly if done without automation.  However, many individuals and organizations initially turn to Excel templates for managing their lease accounting needs. In this blog post, we will explore both Excel templates and technology options for ASC 842 compliance.

  Using ASC 842 Excel Templates

  Excel templates can seem like a convenient and cost-effective solution for ASC 842 lease accounting. They offer flexibility in customization and can be tailored to an organization’s specific needs. However, setting up and managing Excel templates for ASC 842 compliance comes with its own set of challenges.

  How to Create Customized ASC 842 Excel Templates

  Setting up Excel templates for ASC 842 can be a time-consuming process. You’ll need to design templates that accurately capture all lease data, including lease terms, payments, and commitments. Creating these templates from scratch can be complex, and errors in template design can lead to inaccuracies down the line. That said, here are some tips to get you started:

  Step 1: Define Your Lease Data Categories

  Before you start building the template, it’s crucial to identify the data categories you need to track to comply with ASC 842. Common categories include:

  • Lease Details: Lease ID, lease term, commencement date, termination date, etc.
  • Payment Information: Monthly/quarterly/yearly lease payments, initial direct costs, etc.
  • Lease Modifications: Any changes or modifications to the lease terms.
  • Discount Rate: The rate used to calculate the present value of lease payments.
  • Lease Liability and Right-of-Use (ROU) Asset: Calculations of these values over time.
  • Lease Classification: Operating or finance lease classification criteria.
  • Lease Documents: Attachments for lease agreements, amendments, disclosures, etc.

  Step 2: Create a New Excel Spreadsheet

  Open Excel and create a new blank spreadsheet. You can start with a clean sheet or use Excel’s pre-designed templates as a starting point.

  Step 3: Set Up Columns and Headers

  In your spreadsheet, create columns for each data category identified in Step 1. Label each column with appropriate headers, such as “Lease ID,” “Commencement Date,” “Lease Term (Years),” “Monthly Payments,” and so on. You can also add headers for any additional information, such as lessor details, lease modifications, and classification criteria.

  Step 4: Format and Customize the Template

  Format the columns to ensure that data is displayed correctly. You may want to adjust column widths, apply cell formatting (e.g., date format, currency format), and add borders for clarity.

  Customize the template further by adding dropdown lists, data validation, or conditional formatting to enforce data consistency and accuracy. For example, you can create dropdown lists for lease classification options or lease modification types.

  Step 5: Add Formulas

  Incorporate Excel formulas to calculate values automatically. For ASC 842 compliance, you’ll need to calculate the present value of lease payments, lease liability, and ROU asset. These calculations involve using the discount rate and the lease payment schedule.

  For instance, you can use the NPV (Net Present Value) function to calculate the present value of lease payments over time.

  Step 6: Set Up Tabs and Document Management

  Create separate tabs or sheets within the Excel file for lease documents and attachments. Each document should be appropriately labeled and organized for easy reference.

  Step 7: Testing and Validation

  Before using the template for actual lease accounting, thoroughly test it with sample data to ensure that calculations and formulas work correctly. Validate the template’s accuracy against known lease scenarios.

  Step 8: User Training

  Provide training to the relevant personnel on how to use the template effectively and input data accurately.

  Remember that while this basic Excel template can help you get started with ASC 842 lease accounting, as your organization’s lease portfolio grows, and complexity increases, you may want to consider transitioning to specialized lease accounting software to streamline the process and ensure compliance more efficiently. Such software offers automation, audit trails, and advanced reporting capabilities, reducing the risk of errors and enhancing accuracy.

  Best Practices for Data Entry and Formula Setup

  When using Excel for ASC 842 lease accounting, implementing best practices for data entry and formula setup is crucial to ensure accuracy, compliance, and efficient lease management. Here are some best practices to consider:

  • Consistent Data Input: Ensure that lease data is entered consistently and uniformly throughout the spreadsheet. Use standardized naming conventions and units (e.g., dollars, square feet, months).
  • Data Validation: Implement data validation rules to prevent incorrect or inconsistent data entry. Use dropdown lists, date validation, and other data validation features to guide users.
  • Data Review: Periodically review and audit the data entered into the spreadsheet for accuracy and completeness. Regularly check for errors, missing information, or discrepancies.
  • User Training: Provide training to the individuals responsible for data entry. Ensure they understand the ASC 842 requirements and how to accurately input lease data into the spreadsheet.
  • Documentation: Document data sources, assumptions, and any changes made to lease agreements or data. This documentation is crucial for audit purposes and maintaining a clear audit trail.

  Formula Setup Best Practices:

  Excel templates require meticulous data entry to ensure accuracy. Formula setup can also be prone to human error. Mistakes in data entry or formulae can lead to incorrect calculations, potentially resulting in non-compliance with ASC 842. Keep these tips in mind:

  • Consistent Formulas: Use consistent formulas throughout the spreadsheet to calculate values like the present value of lease payments, lease liability, and ROU asset. Avoid mixing different formulas or calculation methods.
  • Cell References: Use cell references (e.g., cell names or structured references) instead of hardcoding values within formulas. This makes it easier to update data without having to modify the formulas manually.
  • Check Formulas for Accuracy: Double-check all formulas for accuracy and ensure that they are correctly referencing the appropriate cells and ranges.
  • Use Named Ranges: Define named ranges for critical data ranges or input cells. Named ranges make formulas more readable and easier to manage.
  • Separate Calculations: If your spreadsheet includes complex calculations, consider separating them into different worksheets or sections. This enhances the clarity of the workbook and makes it easier to troubleshoot issues.
  • Formula Auditing Tools: Excel offers built-in auditing tools such as the “Trace Precedents” and “Trace Dependents” functions. Use these tools to trace the flow of data and formulas within your spreadsheet.
  • Error Handling: Implement error handling in your formulas, such as IFERROR or IF statements, to provide meaningful error messages or alternative calculations in case of errors.
  • Documentation: Document complex formulas and calculations for reference and troubleshooting. Include explanations of how the formulas work and any assumptions made.
  • Regular Review: Regularly review and validate the accuracy of your formulas, especially if there are changes to lease agreements or data inputs. Ensure that formulas remain up-to-date and compliant with ASC 842 requirements.
  • Version Control: Implement version control practices to keep track of changes made to formulas. Clearly document when and why changes were made.

  Best Practices for Document Organization

  Keeping track of lease documents within Excel templates can be challenging. Without a centralized repository, it becomes easy to misplace or lose critical documents, which can create audit complications and compliance issues. Here are some best practices for document organization for ASC 842 excel sheets:

  1. Use Separate Tabs or Worksheets: Create separate tabs or worksheets within your Excel workbook to store different types of lease documents. For example:
  • One tab for lease agreements
  • Another for lease amendments
  • A tab for disclosures and correspondence
  • A separate tab for audit documentation
  2. Clear and Consistent Naming Conventions: Develop a clear and consistent naming convention for your documents. Include relevant information such as the lease ID, document type, and date. For example: “LeaseID_Agreement_2023-10-24.pdf.”
  3. Folder Structure: Consider creating a folder structure outside of Excel to complement your organization. Store actual documents in folders based on lease ID or categories (e.g., active leases, terminated leases, amendments). Excel can reference these documents using hyperlinks or file paths.
  4. Hyperlinks: Use hyperlinks within your Excel spreadsheet to directly link to the corresponding documents stored in your folder structure. This allows easy access to documents with a single click.
  5. Document Tracker: Create a document tracking table or list within Excel that includes columns for document name, document type, lease ID, location (file path or hyperlink), and any additional notes or comments.
  6. Version Control: If you have multiple versions of lease documents (e.g., lease agreements with amendments), clearly indicate the version number or date in the document name. Keep the most recent version easily accessible.
  7. Document Index: Consider creating an index sheet within your Excel workbook that lists all lease documents with their associated lease IDs and types. This can serve as a quick reference guide to locate documents.
  8. Color Coding and Formatting: Use color coding or formatting to highlight critical information or identify document status. For example, you could use different colors to distinguish between active leases and terminated leases.
  9. Document Metadata: Include metadata in your Excel spreadsheet, such as lease start and end dates, lessor information, and lease classification. This allows you to quickly filter and sort documents based on key criteria.
  10. Regular Auditing: Periodically review your document organization system to ensure that it remains up-to-date and compliant with ASC 842 requirements. Remove obsolete documents and update document links if necessary.
  11. Backup and Security: Ensure that you have appropriate backup and security measures in place for your document storage system, especially if it contains sensitive lease information.
  12. Training: Train your team members on the document organization system to ensure everyone understands how to access and manage lease documents effectively.

  Common Challenges with ASC 842 Excel Templates

  While Excel templates offer a degree of flexibility, they come with several inherent disadvantages. This is especially important when documenting lease agreements because it can cause financial metrics to be incorrect, leading to penalties. Here are some of the common challenges when using excel templates:

  1. Data Accuracy

  Human errors in data entry and formula setup can lead to inaccuracies in financial reporting, potentially resulting in compliance violations and financial penalties.

  2. Security Risks

  Excel files are susceptible to security breaches. Sensitive lease data may be at risk if proper security measures are not in place, jeopardizing data privacy and compliance.

  3. Version Control

  Managing multiple versions of Excel templates can be confusing and prone to errors. Ensuring that everyone is working on the latest version can be challenging, leading to data inconsistencies.

  4. Audit Complications

  During audits, Excel templates can complicate the process. Auditors may spend significant time verifying data accuracy and formulae, which can lead to additional audit costs and delays.

  Excel Templates vs Lease Accounting Software for ASC 842

  Transitioning to specialized lease accounting software like Visual Lease offers several advantages over Excel templates:

  1. Data Accuracy and Automation

  Lease accounting software automates data entry and calculations, reducing the risk of errors and ensuring compliance with ASC 842.

  2. Enhanced Security

  Lease accounting software typically comes with robust security measures, safeguarding sensitive lease data from potential breaches.

  3. Version Control and Collaboration

  Software solutions facilitate version control and collaboration among team members, ensuring that everyone is working with the latest, most accurate data.

  4. Audit Readiness

  Lease accounting software streamlines audit processes by providing auditors with easy access to accurate, well-organized lease data.

  Leaving cumbersome spreadsheets for a purpose-built platform

  While Excel templates may initially seem like a cost-effective solution for ASC 842 lease accounting, their limitations and potential pitfalls can lead to compliance issues, security risks, and inaccuracies. To ensure compliance with ASC 842 and streamline lease accounting processes, organizations should consider transitioning to specialized lease accounting software like Visual Lease. Making this transition can save time, reduce errors, enhance security, and ultimately contribute to more accurate and efficient lease accounting practices. Learn more about switching from Excel to Visual Lease.

  • 

    Verified User in Transportation/Trucking/Railroad
    Enterprise (> 1000 emp.)

    May 10, 2023

    Visual lease allows us to move away from manually tracking hundreds of lease in excel and does all the heavy lifting for us.

    Posted on
  • 

    Randy O.
    Enterprise (> 1000 emp.)

    May 17, 2023

    Before Visual Lease we tracked everything in Excel. With over 70 leases now, it was a win win situation!

    Posted on
  • 

    Sungmo Y.
    Enterprise (> 1000 emp.)

    Nov 4, 2022

    ASC 842 reporting. This was a huge project for us in 2019 as we prepared for the transition from ASC 840 to ASC 842 and the annual audit. We were tracking everything using Excel before and, without Visual Lease, it would have been really difficult.

    Posted on
  • 

    Verified User in Government Administration
    Enterprise (> 1000 emp.)

    Oct 26, 2022

    “We initially used Excel to track key data and journal entries. Now we use VL to perform all calculations and report on our financials, saving us time and less human error in our calcs.”

    Posted on
  • 

    Adam B.
    Mid-Market (51-1000 emp.)

    May 17, 2022

    This software streamlines our Accounting for leases and completely replaces our existing Excel solution (for both GAAP and IFRS)

    Posted on
  • 

    Ryan B.
    Enterprise (> 1000 emp.)

    Oct 20, 2022

    The ease of use and the lease accounting function which allows you to run multiple lease calculations and scenarios for a lease. It has allowed us to move away from excel based spreadsheets and calculations and automate the calculations. Additionally we have realized great benefit from the centralized tracking and administration. We set up system alerts which send out emails to allow us to stay on top of upcoming term renewal windows so we can assure we make the best strategic decision.

    Posted on
  • 

    Andrew G.
    Mid-Market (51-1000 emp.)

    Oct 22, 2020

    The biggest problems we have solved with Visual Lease are the ASC 842 accounting entries and having a great way to store and calculate hundreds of leases. These calculations are far more accurate than anything an excel could do.

    Posted on
  • 

    Verified User in Hospital & Health Care
    Enterprise (> 1000 emp.)

    Oct 22, 2020

    I can easily make modifications to a lease (extension, renewal, payment amount change) and the system will accurately calculate the updated lease schedule and generate the appropriate accounting entries. This is so much better than our previous Excel system which was very manual.

    Posted on
  
  
  The post ASC 842 Lease Accounting Excel Templates first appeared on Visual Lease.]]> https://visuallease.com/what-are-the-roles-of-lessors-and-lessees-in-lease-accounting/ Wed, 01 Nov 2023 13:00:17 +0000 https://visuallease.com/?p=7702 Table of Contents What is a lessee? What is a lessor? Who is the lessor and lessee in a contract? Benefits for a Lessor vs Lessee How to approach accounting...
  The post What are the roles of lessors and lessees in lease accounting? first appeared on Visual Lease.]]>

  Table of Contents

  • What is a lessee?
  • What is a lessor?
  • Who is the lessor and lessee in a contract?
  • Benefits for a Lessor vs Lessee
  • How to approach accounting for lease agreements for lessor or lessee
  • Lessor accounting obligations
  • Lessee accounting obligations
  • Impact of ASC 842

  Lease contracts play an important role in the day-to-day of most organizations. But does your business thoroughly understand each party’s responsibilities? What about the benefits? These answers are critical to maintaining accurate and healthy lease accounting.

  What is a lessee?

  A lessee is an individual or entity that rents or leases property, equipment, or other assets from another party, known as the lessor. In a lease agreement, the lessee is granted the right to use the leased asset for a specified period of time in exchange for regular payments, typically referred to as rent or lease payments.

  What is a lessor

  A lessor is an individual or entity that owns an asset and leases or rents it out to another party, known as the lessee, in exchange for regular payments, usually called rent or lease payments.

  Who is a Lessor vs. Lessee in a Lease Agreement?

  Under a contractual lease obligation — be it commercial real estate, equipment or vehicles — there is always a lessor and a lessee. A lease is generally defined as a contractual arrangement in which one party, the lessor, provides an asset for use by the other party, the lessee. This arrangement is based on periodic payments for an agreed amount of time.

  Benefits for a Lessor vs Lessee

  Lease contracts offer distinct advantages for both lessors and lessees, contributing to their respective financial strategies and operational efficiencies.

  Benefits for a Lessor:

  1. Income Generation: By leasing out assets, lessors can generate consistent income through periodic lease payments, providing a steady revenue stream.
  2. Asset Utilization: Lessor can maximize the utilization of their assets by leasing them out to lessees, ensuring that the assets are not idle and generating returns.
  3. Risk Mitigation: Lessor retains ownership of the asset, allowing them to mitigate certain risks associated with ownership, such as maintenance and depreciation.
  4. Portfolio Diversification: By leasing out multiple assets across various industries or sectors, lessors can diversify their investment portfolio and reduce overall risk.

  Benefits for a Lessee

  1. Cost-Efficiency: Lessees can access and use high-value assets without the need for significant upfront capital investment, preserving their cash flow for other business operations.
  2. Flexibility: Leasing offers flexibility in terms of asset usage, allowing lessees to adapt to changing business needs without being tied down by long-term ownership commitments.
  3. Up-to-Date Technology: Leasing enables lessees to access the latest technology and equipment without the burden of owning outdated or obsolete assets, ensuring they remain competitive in their respective industries.
  4. Asset Management: Lessees can benefit from simplified asset management, as maintenance and upkeep responsibilities often fall on the lessor, reducing operational burdens.

  How to approach accounting for lease agreements for lessor or lessee

  Although different types of leases exist — such as finance and operating leases — the obligations have one thing in common. When it comes to lease accounting, leases must be reported accurately to meet regulatory compliance standards.

  Lessor accounting obligations

  Accurate accounting is vital to the health of any organization. As a lessor, accounting accuracy requires correctly classifying your leases—whether as sales-type, direct financing or operating.

  Under lease accounting standard ASC 842, ownership transfers to the lessee for accounting purposes for sales-type and direct financing leases. Sales-type leases require lessors to derecognize the underlying asset and instead recognize the lease’s net investment, selling profit or loss arising from the lease, and track the balance and interest income over time. Lessors record direct financing leases in a similar manner but defer the asset’s profit or loss.

  Operating leases give the lessee the right to use the asset but not ownership of it. Therefore, lessors record the asset, its related depreciation and lease payments in the books.

  Lessee accounting obligations

  Lessees must classify their leases as either finance or operating under the ASC 842 lease accounting standard. Both types of leases must appear in the organization’s balance sheet unless the term is 12 months or less, which is considered a short-term lease. For operating leases, lessees are expected to record payments as operating costs on the organization’s income statement.

  Impact of ASC 842

  How lease agreements are presented on balance sheets has changed for both lessors and lessees under ASC 842. Lessees now need to list all leasing obligations, including operating leases, on the balance sheet, categorizing them as either operating or finance leases. Lessors, who were already classifying leases, are less affected. Accurate classification and accounting are essential, and lease management software can assist in meeting these new requirements.

  Whether you are a lessor or a lessee, using a robust software solution like Visual Lease can help maintain accurate lease accounting — and protect the financial health of your business.

  The post What are the roles of lessors and lessees in lease accounting? first appeared on Visual Lease.]]> https://visuallease.com/how-to-calculate-the-present-value-pv-of-future-lease-payments-in-excel/ Mon, 30 Oct 2023 13:00:40 +0000 https://visuallease.com/?p=8845 Table of Contents How to Calculate the Present Value of Lease Payments in Excel Step 1: Organize Data Step 2: Use the PV Function Step 3: Repeat as Needed Cons...
  The post Calculating Present Value of Lease Payments first appeared on Visual Lease.]]>

  Table of Contents

  • How to Calculate the Present Value of Lease Payments in Excel
  • Step 1: Organize Data
  • Step 2: Use the PV Function
  • Step 3: Repeat as Needed
  • Cons of Using Excel: Changes in Lease Payment Schedule
  • The Importance of Lease Calculations in Compliance
  • Calculating the Present Value of Lease Payments with Visual Lease Accounting Software
  • Improving your Lease Management Process
  • Make the Switch from Excel to Visual Lease Software

  Leasing is a common practice for businesses of all sizes, offering flexibility and financial advantages. However, to accurately account for leases and comply with accounting standards like ASC 842, calculating the Present Value of Lease Payments (PV) is essential. While Excel is a commonly used tool for this task, there are better technologies to ensure compliance. In this article, we’ll walk you through the steps to calculate the Present Value of Lease Payments in Excel and highlight the importance of accuracy in lease calculations. We’ll also explore why switching to an established provider is a smart move for lease accounting.

  How to Calculate the Present Value of Lease Payments in Excel

  Excel is a versatile tool for various financial calculations, including determining the present value of lease payments. Follow these steps to perform the calculation:

  Step 1: Organize Data

  Before diving into calculations, ensure that you have all the necessary lease data organized. This should include:

  • Interest rate per period (rate)
  • Total number of payment periods (nper)
  • Payment amount for each period (pmt)

  Having this information at your fingertips will make the calculation process much smoother.

  Step 2: Use the PV Function

  In an empty cell, use the Excel formula for calculating the present value. The formula typically used is:

  =PV(rate, nper, pmt)

  • Rate: Enter the interest rate per period. Ensure that the rate is consistent with the payment frequency (e.g., annual rate for annual payments).
  • NPER: Input the total number of payment periods over the lease term.
  • PMT: Enter the payment amount for each period. Make sure to include any relevant negative sign (for outflows).

  After inputting these values, Excel will calculate the present value of lease payments, which represents the total value of future lease payments in today’s dollars.

  Step 3: Repeat as Needed

  If you have multiple lease agreements or different payment schedules, you can repeat the above steps for each lease to calculate their respective present values.

  Cons of Using Excel: Changes in Lease Payment Schedule

  The PV function in Excel is easy to use, but it is very limited in function. It cannot accommodate changes in the payment schedule during the lease term. That is why most users will utilize the NPV function instead. While it accommodates changes, each payment must be entered individually, even if the payments are unchanged, as well as periods where the payment amount is zero.

  Both PV and NPV only deal with full periods (usually based on a month, although other periods can be selected).  Sometimes, though, a partial period is required in the calculation of NPV, for example when the payment is not at the beginning or end of the calendar month. That can be done with Excel, but this requires creating a complex model.  Also, the payment methodology (beginning or end of period, see below) is important for making PV work with lease accounting schedules. This is an extra step in the PV or NPV functions, one not often used. This can create errors which are difficult to reconcile.

  The Importance of Lease Calculations in Maintaining Compliance

  Accurate lease calculations are crucial for several reasons, ranging from financial transparency and regulatory compliance to effective decision-making and risk management. Here are some of the most common reasons why having accurate lease calculations is important:

  • Financial Transparency: Accurate calculations ensure that your financial statements accurately represent your organization’s financial position, helping stakeholders make informed decisions.
  • Compliance: Regulatory standards like ASC 842 demand accuracy in lease calculations. Errors can lead to compliance violations and regulatory penalties.
  • Audit Preparedness: Accurate calculations make audit processes smoother, reducing the risk of audit issues and delays.
  • Budgeting and Planning: Precise lease calculations aid in budgeting and financial planning, helping organizations allocate resources effectively.
  • Contract Negotiations: Accurate calculations provide a strong foundation for lease negotiations, allowing organizations to make informed decisions about lease terms.

  Each of the lease accounting standards (ASC 842, IFRS 16, GASB 87) specifies methodology for calculating interest, straight-line rent, ROU Asset amortization, and Liability reduction.  If the present value calculation does not perfectly align with the schedule, the ROU Asset and Liability will not amortize to zero at the end of the lease term.  This is a red flag for auditors.

  Calculating the Present Value of Lease Payments with Visual Lease Accounting Software

  While Excel is a useful tool, it has limitations, and managing complex lease portfolios can be challenging. That’s where Visual Lease software comes in.

  Visual Lease can calculate the Net Present Value of a lease accounting schedule in one of two ways. The following describes these ways in terms of the Excel function NPV, and B1 through BN are the individual payments:

  • Beginning of the Period: This method deducts the payment amount from the principal, then calculates the periodic interest. The formula is NPV(Annual Rate/12, B2:Bn) + B1 .
  • End of the Period: This method calculates the periodic interest, then deducts the payment amount from the principal. The formula is NPV(Annual Rate, B1:Bn).

  If the initial period is partial (begins any day other than first of a month), the methods are as follows, referencing the Excel function PV. The platform creates individual present values for each period i as PV(Annual Rate/12,Period,,-Bi) where Bi is the payment for the ith period, and sums the values for the initial liability value, according to one of these methods:

  • Beginning of the Period: This method uses the full face value of the first payment. It then discounts the second payment by the fractional initial month. For each subsequent payment, it increases each subsequent period by adding 1 to the prior period value.
  • End of the Period: This method discounts the first payment by the fractional initial month. For each subsequent payment, it increases each subsequent period by adding 1 to the prior period value.

  The Net Present Value of payments affects the Right of Use Asset Starting Balance, Total Ending Liability Starting Balance, and Interest for all schedules affecting the balance sheet.

  Users can easily select their preference in the Net Present Value Calculation Method drop-down within VL. This can

  Visual Lease simplifies the process of calculating PV and offers numerous advantages:

  • Automation: Visual Lease automates lease calculations, reducing the risk of errors and saving you time.
  • Accuracy: With a dedicated platform for lease accounting, Visual Lease ensures accuracy in all calculations, helping you stay compliant with accounting standards.
  • Comprehensive Reporting: Generate detailed and customizable reports for better insights into your lease portfolio.
  • Centralized Document Management: Store and manage all lease documents in one secure location.
  • Audit Trail: Visual Lease maintains an audit trail, making it easier to track changes and ensure transparency.
  • Compliance: Visual Lease is designed to keep you compliant with the latest accounting standards, reducing the risk of regulatory issues.

  Improving your Lease Management Process

  Calculating the present value of lease payments is a critical aspect of lease accounting. While Excel can handle these calculations, it comes with limitations and potential risks. Transitioning to Visual Lease software not only simplifies the process but also offers enhanced automation, accuracy, compliance, and reporting capabilities. If you’re serious about lease accounting, Visual Lease is the smart choice to ensure accuracy and efficiency in your lease management processes.

  Making the Switch from Excel to Visual Lease Software

  When Excel can’t keep up with multiple leases and running reports is an extremely manual process, it’s time to consider a better option. Switching from Excel to Visual Lease is a straightforward process. Visual Lease’s proven migration methodology ensures completeness, consistency and sustainable workflows.

  

  Visual Lease offers an easy transition, and like our customers, your organization can quickly realize the benefits of using specialized lease management software:

  • CURO Group Holdings Corp. saved hundreds of hours with portfolio automation
  • Bassett Furniture gained 50% more efficiency by using VL as a system of record
  • PennState Health saved over 180 hours of work per year by integrating technologies
  • Efficiency: Visual Lease streamlines lease management, saving you time and reducing manual data entry.
  • Accuracy: With automated calculations, you can trust that your lease data is accurate.
  • Compliance: Visual Lease ensures compliance with ASC 842 and other accounting standards.
  • Advanced Reporting: Access advanced reporting and analytics to gain valuable insights into your lease portfolio.
  • Document Management: Store and organize all lease-related documents within the platform.
  • Audit Readiness: Visual Lease prepares you for audits with accurate and well-documented lease data.

  Switch to Visual Lease today to experience the difference.

  The post Calculating Present Value of Lease Payments first appeared on Visual Lease.]]> https://visuallease.com/is-your-lease-accounting-in-need-of-a-digital-transformation/ Mon, 23 Oct 2023 21:10:57 +0000 https://visuallease.com/?p=8810 Lease accounting and management have evolved into intricate processes, posing fresh challenges for financial leaders. From grappling with an accountant shortage to seeking enhanced lease flexibility during economic uncertainty and...
  The post Is Your Lease Accounting in Need of a Digital Transformation?  first appeared on Visual Lease.]]> Lease accounting and management have evolved into intricate processes, posing fresh challenges for financial leaders. From grappling with an accountant shortage to seeking enhanced lease flexibility during economic uncertainty and preparing for imminent ESG reporting obligations, the office of finance has never been in more need of a robust system of record and process automation. 

  Digital transformation necessitates a robust technology-driven framework, underpinned by effective controls, to navigate (and automate) the complexities of lease accounting and meet eventual ESG reporting standards.  

  To achieve digital transformation in lease accounting, organizations can consider these best practices: 

  Digitize your leases and centralize them in a dedicated system of record 

  Leases are complex and dynamic documents –  it’s critical that organizations understand and digitize the terms of their lease. Misunderstandings about financial obligations often result in delayed payments, overpayments, and missed opportunities for cost savings. By tracking leases systematically, organizations can optimize their portfolios and even identify opportunities for value creation.   

  For example: A company has 20 forklifts, split 10 each at 2 warehouses. One warehouse is 50% idle, while the other is overcapacity and oftentimes has forklifts down for service. Reallocating some of the assets to the overcapacity facility (portfolio optimization) saves money from excessive wear and tear and increases capacity.   

  A lease management system allows organizations to view and track key clauses, obligations and other lease information including master leases, subleases, lease options, critical dates and special scenarios in real estate, equipment, operating or any other leased asset. 

  Take Preemptive Action on ESG Reporting 

  With numerous ESG regulations already in place and more on the horizon, organizations must proactively prepare to meet these reporting requirements. Investors, employees, and customers are closely monitoring ESG disclosures, demanding greater transparency. Without the ability to report on environmental aspects of their leased and owned assets, such as water consumption and carbon emissions, property owners risk alienating key stakeholders. They may also find themselves ill-prepared to comply with forthcoming climate change regulations and reporting standards.  

  Providing organizations with environmental transparency aligns with their internal ESG objectives, making it an attractive proposition. By implementing robust lease controls and leveraging a carbon accounting tool, organizations can position themselves as pioneers in this space. 

  Lease accounting was never a walk in the park, and its complexities have only deepened with the introduction of ESG reporting standards. As these standards continue to expand, organizations and their accounting teams must adapt. Digitizing and implementing the right technology is the key to successful reporting and upkeep in this evolving landscape, ensuring teams can meet an expanding array of business requirements. 

  Discover more about the VL ESG Steward here. 

  The post Is Your Lease Accounting in Need of a Digital Transformation?  first appeared on Visual Lease.]]> https://visuallease.com/top-3-best-practices-for-lease-management/ Mon, 23 Oct 2023 14:00:04 +0000 https://visuallease.com/?p=8798 Lease management is more complicated than ever before. Tenants and landlords are navigating a lot of hurdles, including organizations’ need for greater flexibility – according to the Visual Lease Data...
  The post Top 3 Best Practices for Lease Management first appeared on Visual Lease.]]> Lease management is more complicated than ever before. Tenants and landlords are navigating a lot of hurdles, including organizations’ need for greater flexibility – according to the Visual Lease Data Institute companies are prioritizing agility within their leases, with 88% of senior Real Estate Executives reporting that companies are planning for physical space needs just one year or less in advance – and now ESG reporting requirements on the horizon. The standards released by the International Sustainability Standards Board (ISSB) are expected to be followed soon by guidelines from the SEC, adding another layer of complexity specifically for landlords who will be responsible for this reporting.

  All of these changes require the right technology-backed controls framework to successfully meet both lease accounting and ESG reporting standards. Here are three ways the right lease management can help organizations stay on top of these changes. 

  1. Ensure clear communication and documentation

  Leases are complex and dynamic documents –  it’s critical that tenants understand and can track the terms of their lease. Misunderstandings about expenses and what’s owed can often lead to late payments and negatively impact a tenant-owner relationship. This also helps property owners track tenant payments to identify more financially stable and accountable tenants who pay rent and other expenses on time. The right lease controls ultimately benefit both parties through improved communication and a better understanding of the lease agreements.

  2. Increase lease agility and flexibility

  Tenants increasingly want the flexibility to react to changing circumstances, whether that is a dynamic work schedule or an uncertain economy. The ability to track a tenant’s performance or occupancy through lease management will help inform property owners on how to structure future agreements and establish more individualized terms for each tenant. Lease management can also improve communication between both parties by allowing them to quickly convey messages like important dates about the building and potentially dangerous weather.

  3. Staying ahead of ESG reporting requirements

  ESG regulations are here and more are around the corner, so company leaders need to be planning ahead to stay in front of reporting requirements. This reporting is also likely to be closely watched by investors, employees and customers who all have indicated they expect to see greater transparency from companies when it comes to where things stand with ESG.

  Owners run several risks if they do not have the ability to report on their leased and owned asset portfolios’ environmental output – from water usage to carbon emissions and on. These risks include falling out of favor with key stakeholders, including employees, tenants and investors, and being wildly unprepared for climate change regulations and reporting standards. Having the ability to provide this level of environmental transparency to tenants will only gain in appeal as it allows them to use these metrics toward their own internal ESG goals as well. Implementing strong lease controls and the right tracking technology, like the VL ESG Steward, now will position these owners ahead of the rest. 

  The bottom line: The right lease controls will enable successful reporting within a complex system.

  Lease accounting has never been easy, and it’s only become more complicated with the introduction of new ESG reporting standards, which will ultimately fall to organizations and their accounting teams to manage and maintain. ESG standards are only expected to expand, which means companies will have to further adapt their accounting to suit regulations. The right controls in place will enable successful reporting and maintenance for teams that must meet a growing range of business needs. 

  Learn more about the VL ESG Steward here.

  The post Top 3 Best Practices for Lease Management first appeared on Visual Lease.]]> https://visuallease.com/understanding-californias-new-climate-disclosure-laws-sb-253-and-sb-261/ Wed, 11 Oct 2023 13:00:03 +0000 https://visuallease.com/?p=8751 California has taken a significant step toward addressing climate change by enacting the ground-breaking California Climate Accountability Package. This legislation not only sets the stage for comprehensive reporting of carbon...
  The post Understanding California’s New Climate Disclosure Laws – SB 253 and SB 261 first appeared on Visual Lease.]]>

  California has taken a significant step toward addressing climate change by enacting the ground-breaking California Climate Accountability Package. This legislation not only sets the stage for comprehensive reporting of carbon emissions but also expands the scope of companies impacted, going beyond publicly traded entities. 

  In this post, we’ll delve mainly into the details of SB 253, its implications, and the broader landscape of environmental disclosure.

  What is the California Climate Accountability Package?

  The California Climate Accountability Package comprises two bills, Senate Bill 253 (SB 253) and Senate Bill 261 (SB 261), which mandate both public and private companies operating in California to disclose their greenhouse gas (GHG) emissions as well as climate-related financial risk. These bills were signed into law by Governor Newsom on October 9, 2023.

  What is SB-253? Who does it impact?

  SB-253, at its core, establishes a robust reporting framework for carbon emissions. Unlike other environmental disclosure laws, SB-253 primarily focuses on carbon emissions and does not encompass additional factors like water waste or biodiversity standards. However, it goes further than future federal SEC guidelines, as it applies to both public and private companies with a revenue threshold of at least $1 billion, doing business in California – expanding the potential scope to a wide range of entities.

  What’s Included in SB-253:

  • Expanded Coverage: While the SEC regulations will apply primarily to publicly traded companies, SB-253 extends its reach to private companies that meet the revenue threshold, making it applicable to a more extensive group of businesses. The mandated Scope 3 disclosure brings many additional companies under coverage (regardless of their revenue).
  • Mandated Scope 3 Disclosures: One significant feature of SB-253 is the requirement for reporting on scope 3 emissions. Although it leaves room for interpretation, this expands the responsibility of businesses to account for indirect emissions, such as employee commutes and business travel.
  • Financial Risk Disclosure: SB-253 introduces the Climate-Related Financial Risks Act (SB-261), applicable to companies with a lower revenue threshold of $500 million. This aspect focuses on financial risk disclosure, emphasizing the need for companies to understand and report on the environmental impact of their operations.
  • Incremental Reporting: Companies will need to start gathering data for scope 1 and scope 2 emissions from January 2025, with the first reporting year set for 2026. For scope 3, data collection begins in January 2026. This gradual approach allows companies time to prepare for the reporting requirements.
  • Increasing Assurance Levels: The law outlines a transition from limited assurance to reasonable assurance for reporting by 2030. This progression emphasizes the importance of accurate and reliable reporting, requiring businesses to prove their emissions data through a full audit trail.

  SB-253 represents a significant shift in the landscape of climate disclosure, not only in California but potentially influencing environmental reporting practices nationwide. Its broader coverage, scope 3 requirements, and increasing assurance levels place a premium on accurate data collection and reporting.

  The Impact of SB-253:

  The California Climate Accountability Package is set to transform climate disclosure practices and emissions reporting for more than ~10,000 companies. Advocates argue that this enhanced accountability will drive large corporations, major greenhouse gas emitters, to reduce their carbon footprint. It also empowers consumers and regulators to identify laggard companies and push them toward climate action, while revealing firms with significant climate-related financial risks. Forward-thinking companies already measuring and disclosing their greenhouse gas emissions will benefit from the proposed reporting framework, which emphasizes their initiatives. 

  Businesses are gearing up for upcoming disclosures, like the SEC Climate Proposal, reflecting investors’ demand for consistent, reliable climate-related financial information. Many organizations are committed to achieving net-zero emissions, and transparency will enable investors to assess their progress. The new reporting requirements will also help identify value-creation opportunities through accurate carbon accounting, offering insights into emissions profiles and hotspots. These insights can lead to cost-of-capital reductions for sustainability-oriented firms and cater to consumers willing to pay premiums for eco-conscious brands or adjust their buying habits to reduce their carbon footprint.

  California’s SB-253 is a significant step toward comprehensive climate disclosure. It not only expands the reporting scope but also emphasizes the need for accurate data and reasonable assurance. Whether driven by compliance or operating in self-interests, businesses should recognize the importance of environmental reporting in a world increasingly focused on sustainability and climate action. SB-253 sets the stage for a more transparent and accountable future, where businesses must take responsibility for their carbon emissions.

  What is SB-261?

  SB 261, also referred to as the Climate-Related Financial Risk Act, is a California statute designed to enhance transparency regarding climate-related financial risks confronting certain businesses. This legislation mandates that companies with annual revenues exceeding $500 million must:

  • Compile biennial reports detailing their climate-related financial risks and strategies for risk mitigation.
  • Commence reporting by no later than January 1, 2026.
  • Adhere to the guidelines outlined in the Task Force on Climate-Related Financial Disclosure (TCFD) framework.

  In essence, SB 261 strives to shed light on the financial vulnerabilities businesses encounter due to climate change, promoting greater awareness and preparedness.

  How Can VL ESG Steward Help?

  For businesses affected by SB-253 and SB-261, tracking and reporting emissions accurately is paramount. VL ESG Steward provides a platform for capturing, tracking, and reporting on direct and indirect emissions, offering a full audit trail to ensure data accuracy. As regulations evolve, VL continues to enhance its capabilities to meet the specific reporting needs of businesses.

  The post Understanding California’s New Climate Disclosure Laws – SB 253 and SB 261 first appeared on Visual Lease.]]> https://visuallease.com/unraveling-common-area-maintenance-cam-charges-a-comprehensive-guide/ Mon, 09 Oct 2023 13:00:49 +0000 https://visuallease.com/?p=8733 In the world of commercial real estate leasing, Common Area Maintenance (CAM) charges play a pivotal role, impacting both landlords and tenants. CAM rent, often referred to as CAM fees,...
  The post Unraveling Common Area Maintenance (CAM) Charges: A Comprehensive Guide first appeared on Visual Lease.]]> In the world of commercial real estate leasing, Common Area Maintenance (CAM) charges play a pivotal role, impacting both landlords and tenants. CAM rent, often referred to as CAM fees, can significantly influence a tenant’s overall occupancy costs. In this comprehensive guide, we will delve into the intricate details of CAM charges, demystifying what CAM encompasses, the intricacies of CAM fees in leases, how it differs from operating expenses and implications for lease accounting.

  What is Common Area Maintenance (CAM)?

  Common Area Maintenance, or CAM for short, refers to the costs associated with maintaining and operating common areas within a commercial property or complex. These common areas typically include lobbies, hallways, elevators, parking lots, landscaping, and shared facilities like restrooms or fitness centers. CAM charges are an additional expense that tenants may incur beyond their base rent.

  CAM Fees in Leases

  CAM fees are often a point of negotiation in commercial lease agreements. When tenants lease space in a commercial property, they may be required to pay a share of the CAM expenses. The specific terms and calculations for CAM fees can vary widely depending on the lease agreement.

  The calculation of Common Area Maintenance (CAM) fees can vary depending on the terms outlined in the lease agreement. While there is no one-size-fits-all formula, here’s a general overview of how CAM fees are typically calculated:

  • Pro-Rata Share: CAM fees are often allocated based on a tenant’s pro-rata share of the total leasable space within the commercial property. This means that the larger the space a tenant occupies, the greater their CAM fee responsibility.
  • Expense Pool: Landlords accumulate all eligible CAM expenses incurred during a specified period, usually a fiscal year. These expenses include property management fees, landscaping costs, utilities for common areas, janitorial services, repairs, and other qualifying expenditures.
  • Calculating Tenant’s Share: To determine a tenant’s CAM fee for the period, landlords divide the tenant’s leasable square footage by the total leasable square footage in the property. This ratio is then applied to the total CAM expenses for that period. The formula may look like this:

  (Tenant’s Leasable Square Footage / Total Leasable Square Footage) x Total CAM Expenses = Tenant’s CAM Fee

  • Annual Reconciliation: Typically, CAM fees are estimated at the beginning of the lease term based on expected expenses. After the fiscal year ends, landlords perform an annual reconciliation. They compare the estimated CAM fees paid by tenants with the actual expenses incurred during that period. Depending on the lease terms, tenants may be required to pay any shortfall or receive a credit for overpayment.
  • Caps and Limits: Some lease agreements may include caps or limits on the annual increase in CAM fees to protect tenants from steep cost escalations. This helps tenants maintain cost predictability.

  What Does Common Area Maintenance Include?

  Common Area Maintenance charges encompass a wide range of expenses associated with the upkeep and operation of shared spaces. These expenses can include:

  • Property Management: Costs related to property management services, such as salaries, administrative costs, and management fees.
  • Utilities: Expenses for common area utilities like electricity, water, gas, and sewer.
  • Landscaping and Grounds Maintenance: Costs for maintaining outdoor spaces, including lawn care, tree trimming, and landscaping.
  • Janitorial Services: Expenses for cleaning and maintaining common areas like hallways, restrooms, and lobbies.
  • Repairs and Maintenance: The cost of repairing and maintaining common elements, including HVAC systems, elevators, parking lots, and structural repairs.
  • Security: Costs associated with security services and systems that protect the property and its tenants.
  • Insurance: Common area insurance, which covers liability and property insurance for shared spaces.
  • Taxes: Some leases include property tax expenses as part of CAM charges.

  Review Your Lease Agreement Carefully

  When leasing commercial space, it’s crucial for tenants to carefully review the lease agreement, especially the sections related to CAM fees. Tenants should understand how CAM charges are calculated, what expenses are included, and the frequency of CAM reconciliations.

  Negotiating CAM Charges

  During lease negotiations, tenants can often seek to limit the scope of CAM charges or cap the annual increase in CAM expenses. These negotiations can help provide cost predictability and protect tenants from unexpected cost escalations.

  CAM vs. Operating Expenses

  While CAM charges and operating expenses share similarities in that they both involve the upkeep of a commercial property, it’s essential to distinguish between the two:

  • CAM Charges: CAM charges are specifically associated with maintaining and operating common areas shared by multiple tenants within a commercial property. These expenses are typically billed separately from the base rent and are allocated among tenants based on their pro-rata share of the property’s total leasable space. CAM charges often cover items like property management, landscaping, janitorial services, utilities for common areas, and common area repairs.
  • Operating Expenses: Operating expenses, on the other hand, encompass the broader costs associated with running the entire commercial property, including both common areas and tenant-occupied spaces. These expenses may include property taxes, insurance premiums, building-wide utilities, structural repairs, and administrative costs related to the property’s overall operation. Unlike CAM charges, which are usually billed separately, operating expenses are often incorporated into the base rent or charged as a separate line item in the lease agreement.

  CAM Considerations in Lease Accounting:

  CAM charges play a significant role in lease accounting, particularly under ASC 842, which governs lease accounting for both lessees and lessors. CAM charges are a common component of commercial lease agreements and have specific accounting implications:

  • Lessee Recognition of CAM Expenses: Under ASC 842, lessees are required to recognize the total lease expense over the lease term on their balance sheet. This expense includes not only the base rent but also any additional payments, such as CAM charges.
  • Separate Identification of CAM Charges: Lessees must account for CAM charges separately from the base rent. They should record CAM charges as an expense when incurred, just like rent payments. This requires keeping a clear record of CAM expenses as they are invoiced or reconciled throughout the lease term.
  • Initial Recognition and Annual Reconciliation: Initially, CAM charges are estimated based on the lease agreement’s terms, and this estimate is included in the lessee’s total lease liability. However, CAM charges are subject to annual reconciliation. Lessees must adjust their liability and recognize any under- or overpayment of CAM charges in their financial statements based on actual expenses incurred.
  • Balance Sheet Impact: Including CAM charges on the balance sheet as part of the total lease liability affects a lessee’s financial ratios and metrics, such as leverage ratios and asset-to-liability ratios. This transparency provides a more accurate representation of the lessee’s financial obligations.
  • Income Statement Impact: CAM charges are recognized as expenses on the lessee’s income statement, impacting the lessee’s net income and other financial metrics.

  Armed with this knowledge, both landlords and tenants can navigate the realm of CAM charges with greater clarity and confidence. Whether you’re a property owner or a tenant, understanding CAM is paramount for making informed decisions and ensuring a harmonious and transparent landlord-tenant relationship in the world of commercial real estate leasing.
  

  The post Unraveling Common Area Maintenance (CAM) Charges: A Comprehensive Guide first appeared on Visual Lease.]]> https://visuallease.com/lease-clause-ideas-for-landlords-creating-the-best-lease-agreement/ Wed, 04 Oct 2023 13:00:35 +0000 https://visuallease.com/?p=8731 As a landlord, one of the most critical aspects of your rental property business is the lease agreement. A well-crafted lease agreement not only protects your interests but also provides...
  The post Lease Clause Ideas for Landlords: Creating the Best Lease Agreement first appeared on Visual Lease.]]> As a landlord, one of the most critical aspects of your rental property business is the lease agreement. A well-crafted lease agreement not only protects your interests but also provides clarity for both you and your tenants. In this blog post, we’ll explore essential lease clause ideas for landlords, aiming to help you create the best lease agreement possible. We’ll also discuss the key elements that should be included in your lease agreement to ensure a smooth and harmonious landlord-tenant relationship.
  1. Clearly Defined Lease Term Specify the lease term clearly in your agreement. Whether it’s a year-long lease or a month-to-month arrangement, outlining the duration of the lease provides both parties with a clear understanding of their commitment.
  2. Rent Amount and Due Date Clearly state the monthly rent amount and the due date. Make sure to include information about late fees and acceptable methods of payment.
  3. Security Deposit Details Outline the amount of the security deposit required, the conditions under which it may be withheld, and the timeline for returning the deposit after the lease ends.
  4. Maintenance and Repairs Specify the responsibilities of both the landlord and tenant when it comes to property maintenance and repairs. Define what constitutes normal wear and tear and what falls under the tenant’s responsibility.
  5. Property Access and Inspections Detail how and when you, as the landlord, can access the property for inspections, repairs, or other legitimate reasons. Ensure you adhere to local laws regarding notice periods for entry.
  6. Subletting and Assignment Determine whether subletting or assigning the lease is allowed. If not, make it clear that the tenant cannot transfer the lease to another party without your written consent.
  7. House Rules and Policies Include any specific house rules and policies, such as restrictions on smoking, pet policies, or noise regulations. Be sure to communicate any consequences for violating these rules.
  8. Utilities and Services Specify which utilities and services are included in the rent, and which are the tenant’s responsibility. This prevents confusion and disputes over utility payments.
  9. Maintenance of Landscaping If your property has a yard or landscaping, define whether the tenant is responsible for its upkeep or if you, as the landlord, will handle it.
  10. Notice Period for Lease Termination Clearly state the notice period required for either party to terminate the lease agreement. This helps prevent misunderstandings and ensures a smoother transition.
  11. Dispute Resolution Include a section on how disputes will be resolved, whether through mediation, arbitration, or the legal system. A clear dispute-resolution process can save both parties time and money.
  12. Renewal Procedures If you offer lease renewal options, outline the process for renewal, including any changes to rent or terms.
  13. Insurance Requirements Specify whether the tenant is required to maintain renters’ insurance and provide details on the coverage required.
  14. Guest Clauses Define rules regarding guests, such as the maximum length of time guests can stay, and whether overnight guests must be registered with the landlord.
  15. Fee Protection Clarify any fees associated with the lease, such as application fees or fees for bounced checks. State the purpose of these fees and the circumstances under which they may apply.
  16. Exit Inspection Include a provision for an exit inspection and walk-through when the lease ends. This helps document the condition of the property and any potential deductions from the security deposit.

  Creating the best lease agreement for landlords involves careful consideration of these essential lease clause ideas. A well-crafted lease agreement not only safeguards your interests but also promotes a positive landlord-tenant relationship. Remember that local laws and regulations may impact the specific language and clauses in your lease agreement. By prioritizing clarity and transparency in your lease agreements, you can set the stage for a successful and hassle-free rental experience for both you and your tenants.

  The post Lease Clause Ideas for Landlords: Creating the Best Lease Agreement first appeared on Visual Lease.]]> https://visuallease.com/navigating-nonprofits-asc-842-regulations-what-you-need-to-know/ Mon, 02 Oct 2023 13:00:50 +0000 https://visuallease.com/?p=8730 Much like their for-profit counterparts, nonprofits must also follow specific financial reporting standards, including Accounting Standards Codification (ASC) 842. This blog post will delve into the essential aspects of ASC...
  The post Navigating Nonprofits & ASC 842 Regulations: What You Need to Know first appeared on Visual Lease.]]> Much like their for-profit counterparts, nonprofits must also follow specific financial reporting standards, including Accounting Standards Codification (ASC) 842. This blog post will delve into the essential aspects of ASC 842 regulations and answer common queries like whether ASC 842 applies to nonprofits and when it becomes effective for compliance. Additionally, we will explore the world of Generally Accepted Accounting Principles (GAAP) applied in nonprofit accounting.

  Understanding ASC 842

  ASC 842 is a set of accounting standards developed by the Financial Accounting Standards Board (FASB). These standards specifically pertain to leases and were introduced to enhance transparency in lease accounting, providing a more accurate representation of an organization’s financial position. While ASC 842 is primarily associated with for-profit entities, it is important for nonprofits to understand its relevance as well.

  Does ASC 842 Apply to Nonprofit Organizations?

  The short answer is yes, ASC 842 does apply to nonprofit organizations. The FASB’s guidance on lease accounting, including ASC 842, is generally applicable to all entities that follow GAAP accounting standards. Therefore, nonprofits are not exempt from complying with ASC 842 when they enter into lease agreements.

  Nonprofit organizations often enter into leases for various assets, such as office spaces, vehicles, or equipment. These lease agreements can have a significant financial impact and should be accounted for in accordance with ASC 842.

  ASC 842 Effective Date for Nonprofit Organizations

  Understanding the effective date of ASC 842 compliance is crucial for nonprofit organizations. The FASB initially issued ASC 842 with staggered effective dates based on entity types. For public companies, the standard was effective starting in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Private companies and nonprofit organizations were granted more time to implement the standard.

  For nonprofit organizations, ASC 842 became effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. It’s essential to note that the effective dates might differ for certain nonprofit organizations based on their specific circumstances.

  GAAP Accounting for Nonprofits

  Nonprofit organizations, like for-profit entities, must adhere to Generally Accepted Accounting Principles (GAAP) when preparing their financial statements. ASC 842, being a part of GAAP, falls under these principles.

  GAAP accounting for nonprofits is designed to provide transparency and accuracy in financial reporting, ensuring that donors, grantors, and other stakeholders have a clear understanding of the organization’s financial health. Compliance with ASC 842 is crucial not only for meeting regulatory requirements but also for maintaining the trust of donors and supporters.

  H2: How to Nonprofits Can Prepare for ASC 842

  Nonprofit organizations can prepare for ASC 842 compliance by taking several proactive steps. Here are some key actions to consider:

  • Educate Your Team: Start by ensuring that your finance and accounting teams are well-informed about ASC 842 and its requirements. This may involve providing training or bringing in external experts to explain the nuances of the standard.
  • Identify Lease Agreements: Begin by identifying all lease agreements within your organization. This includes leases for office spaces, equipment, vehicles, or any other assets. It’s crucial to have a comprehensive list of all leases.
  • Gather Lease Data: Collect all relevant data related to your lease agreements. This includes lease terms, payment schedules, renewal options, and any other lease-specific information.
  • Assess Lease Classification: Determine whether each lease should be classified as an operating lease or a finance lease. ASC 842 requires different accounting treatments for each category.
  • Implement New Accounting Systems: You might need to update or implement new accounting systems to ensure they can handle the additional reporting requirements of ASC 842. Consider whether your existing software is capable of tracking and reporting lease data accurately.
  • Review Documentation: Ensure that your lease agreements and contracts are well-documented and readily accessible. Proper documentation is essential for compliance and financial reporting.
  • Engage Legal and Accounting Experts: Seek advice from legal and accounting professionals who are well-versed in ASC 842. They can help you interpret the standard and make informed decisions.
  • Develop New Policies and Procedures (Controls): Create policies and procedures that outline how your organization will handle lease accounting under ASC 842. This includes processes for initial recognition, subsequent measurement, and financial statement disclosure.
  • Consider Technology Solutions: Explore lease accounting software or technology solutions that can streamline the process of tracking and reporting lease data.
  • Perform Impact Assessment: Assess the financial impact of ASC 842 on your organization’s financial statements. This will help you understand how the standard will affect your balance sheet and income statement.
  • Communicate Changes: Ensure that relevant stakeholders, including board members, donors, and grantors, are aware of the changes brought about by ASC 842. Transparency is crucial in maintaining trust and support.
  • Testing and Validation: Before the compliance deadline, perform testing and validation of your lease accounting processes to identify any potential issues or discrepancies.
  • Stay Informed: Stay up-to-date with any updates or amendments to ASC 842. Accounting standards can evolve, so it’s essential to remain informed about changes that may affect your nonprofit.

  By proactively preparing for ASC 842 compliance, nonprofit organizations can ensure accurate financial reporting, maintain transparency, and meet regulatory requirements, ultimately safeguarding their financial stability and reputation.

  The post Navigating Nonprofits & ASC 842 Regulations: What You Need to Know first appeared on Visual Lease.]]> https://visuallease.com/demystifying-non-lease-components-in-asc-842/ Tue, 12 Sep 2023 13:00:25 +0000 https://visuallease.com/?p=8651 Leasing arrangements are a common aspect of business operations, allowing companies to secure assets and facilities without the commitment of ownership. However, within the realm of lease accounting, there’s a...
  The post Demystifying Non-Lease Components in ASC 842 first appeared on Visual Lease.]]> Leasing arrangements are a common aspect of business operations, allowing companies to secure assets and facilities without the commitment of ownership. However, within the realm of lease accounting, there’s a concept that often adds complexity to the equation: non-lease components. In this article, we’ll delve into what non-lease components are, their significance under ASC 842, and how they impact lease accounting.

  Understanding Non-Lease Components

  When discussing lease payments, we encounter three distinct categories that play a role in determining financial obligations:

  1. Lease Payments: These are relatively straightforward. Lease payments encompass the base rent or any other charges that contribute to calculating the ending liability. This liability, in turn, plays a pivotal role in the calculation of the right-of-use asset.
  2. Excluded Payments: Excluded payments, as the name suggests, are those that do not factor into accounting schedules. They have no bearing on the lease accounting process. Examples include real estate taxes, utility payments, and direct payments to other vendors that are unrelated to the lease.
  3. Non-Lease Components: Non-lease components are the focus of our discussion. These payments are intricately tied to the lease but are excluded from the definition and calculation of the right-of-use liability. These components arise from the lease agreement but are not integrated into the accounting framework in the same manner as lease payments.

  What are Non-Lease Components in ASC 842?

  Under the guidelines of ASC 842, non-lease components hold a unique position. They are payments made to the lessor that stem from the lease agreement but are treated differently in the accounting process. Examples of non-lease components commonly encountered include Common Area Maintenance (CAM) charges, operating expenses, and other variable expenses that are linked to the occupancy of the premises.

  Importantly, non-lease components are disclosed in financial statements and IASB disclosure reports, adding transparency to the financial picture. However, their treatment differs from lease payments. Unlike lease payments, non-lease components are expensed in the period they are paid. This distinction is crucial, as it means they do not contribute to the amortization schedule or impact the calculation of the right-of-use asset.

  Non-Lease Components Significance and Implications

  Understanding non-lease components is essential for accurate financial reporting and compliance with lease accounting standards. By recognizing these components and differentiating them from lease payments, companies can ensure that their financial statements are transparent, accurate, and compliant with ASC 842.

  In the complex landscape of lease accounting, grasping the intricacies of non-lease components is crucial. These components, distinct from lease payments and excluded payments, contribute to a comprehensive understanding of a company’s financial obligations. As outlined by ASC 842, non-lease components are payments tied to the lease but treated separately in accounting processes. Their disclosure is mandatory, but their treatment as expenses in the period paid sets them apart from lease payments.

  By familiarizing yourself with non-lease components, you can navigate the world of lease accounting more confidently.  If you’re looking to streamline lease management, ensure compliance with accounting standards, and gain full visibility into your lease portfolio, check out VL’s Lease Accounting platform.

  The post Demystifying Non-Lease Components in ASC 842 first appeared on Visual Lease.]]> https://visuallease.com/how-to-calculate-a-lease-amortization-schedule-a-comprehensive-guide/ Thu, 07 Sep 2023 13:00:58 +0000 https://visuallease.com/?p=8650 When it comes to managing leases and financial obligations, understanding how to calculate a lease amortization schedule is crucial. This schedule not only helps you keep track of payment timing...
  The post How to Calculate a Lease Amortization Schedule: A Comprehensive Guide first appeared on Visual Lease.]]> When it comes to managing leases and financial obligations, understanding how to calculate a lease amortization schedule is crucial. This schedule not only helps you keep track of payment timing but also ensures accurate financial reporting and compliance. In this guide, we’ll walk you through the process of creating a lease amortization schedule step by step, using Excel as a powerful tool. Whether you’re a business owner, accountant, or financial analyst, mastering this skill can greatly enhance your financial management capabilities.

  Understanding Lease Amortization Schedule

  A lease amortization schedule is designed to outline the timing of lease payments and allocate them between principal and interest components. This schedule reflects the gradual reduction of the lease liability balance over time. The fundamental idea is to break down the net present value of all future lease payments into manageable installments. By doing so, you gain clarity into the distribution of costs and can make informed financial decisions.

  Creating a Lease Amortization Schedule

  To begin, let’s explore how to construct a lease amortization schedule:

  1. Gather Information: Collect essential lease details, including the number of payments, payment amounts, lease term, and discount rate.
  2. Choose Payment Timing: Determine whether payments are made at the beginning or end of each period. This choice will influence your calculation methodology.
  3. Calculate Beginning Liability Balance: Calculate the net present value of all remaining future payments. This value serves as your beginning liability balance.
  4. Set Up Amortization Schedule: Create a table with columns for Period, Beginning Balance, Interest Expense, Principal Payment, Cash Payment, and Ending Balance.
  5. Fill in Period Numbers: Start with period 1 and proceed to the lease term’s final period.
  6. Calculate Interest Expense: Based on your chosen payment timing, calculate the interest expense for each period. For beginning-of-period payments, apply the interest rate to the previous period’s ending balance. For end-of-period payments, apply the interest rate to the beginning balance.
  7. Calculate Principal Payment: Subtract the interest expense from the cash payment to determine the principal payment.
  8. Calculate Ending Balance: Deduct the principal payment from the beginning balance to get the ending balance for the current period.
  9. Repeat the Process: Continue these calculations for each period until the lease term is complete.
  10. Visualize the Data: Create a line chart to visualize the gradual reduction of the lease liability balance over time.

  Benefits of Using a Lease Amortization Schedule

  Creating a lease amortization schedule offers several benefits for businesses and individuals alike:

  • Financial Planning: The schedule provides a clear overview of payment distribution, helping you plan your finances effectively.
  • Accurate Reporting: An accurate schedule aids in preparing financial statements and adhering to accounting standards such as ASC 842 and IFRS 16.
  • Compliance: For businesses, compliance with lease accounting standards is essential. A well-constructed schedule ensures you stay compliant with regulations.
  • Informed Decisions: By understanding how payments are allocated between interest and principal, you can make informed decisions about leasing arrangements.

  Using Lease Amortization Schedule Calculators and Templates

  For those looking to simplify the process, various online lease amortization schedule calculators are available. These tools allow you to input lease details and receive a ready-made schedule.

  In conclusion, understanding how to calculate a lease amortization schedule is a valuable skill that enhances financial management and decision-making. By leveraging tools, you can create accurate schedules that provide insights into lease payment timing and distribution. Whether you’re a business professional or an individual managing personal leases, this knowledge empowers you to take control of your financial obligations.

  Remember, consistency in methodology is key, regardless of whether you choose beginning-of-period or end-of-period calculations. By mastering lease amortization schedules, you’ll be well-equipped to navigate the complexities of lease accounting and financial management.

  Looking for a tool to manage your lease accounting needs? Easily manage every modification and maintain compliance as your leases – and the regulatory requirements – evolve with VL’s Lease Accounting platform.

  The post How to Calculate a Lease Amortization Schedule: A Comprehensive Guide first appeared on Visual Lease.]]> https://visuallease.com/unveiling-the-net-advantage-to-leasing-understanding-the-lease-vs-buy-analysis/ Tue, 05 Sep 2023 13:00:41 +0000 https://visuallease.com/?p=8649 In the realm of business decisions, the choice between leasing and buying assets has significant financial implications. To help evaluate these options, the concept of “Net Advantage to Leasing” comes...
  The post Unveiling the Net Advantage to Leasing: Understanding the Lease vs. Buy Analysis first appeared on Visual Lease.]]> In the realm of business decisions, the choice between leasing and buying assets has significant financial implications. To help evaluate these options, the concept of “Net Advantage to Leasing” comes into play. In this article, we’ll delve into what the net advantage to leasing entails, how to calculate it, and why it’s an integral part of informed decision-making.

  Defining Net Advantage to Leasing

  The term “Net Advantage to Leasing” might seem like a mouthful, but it essentially encapsulates the financial evaluation of the advantages associated with leasing as opposed to buying an asset outright. While the terminology leans towards leasing, the concept is often referred to as a “lease vs. buy analysis.” This analysis seeks to determine whether leasing or purchasing is the more financially advantageous option based on various factors.

  The Complexity of Lease vs. Buy Analysis

  A universal formula for a lease vs. buy analysis doesn’t exist due to the diverse factors that come into play. The analysis involves weighing the cumulative payments required for leasing an asset against the total expenses involved in purchasing and owning it. The result of this analysis provides insight into which option aligns better with a company’s financial goals.

  Calculating the Net Advantage to Leasing

  To calculate the net advantage to leasing, consider the following steps:

  1. Identify Costs: Sum up all the payments expected for leasing an asset, including any maintenance or operating expenses. Similarly, calculate the costs associated with purchasing and owning the asset, such as the purchase price, maintenance, and disposal costs.
  2. Time Value of Money: Recognize the importance of the time value of money. Money available today holds more value than the same amount in the future. This means that upfront costs have a different impact compared to future costs.
  3. Duration Matters: Consider the duration for which you’re analyzing the lease vs. buy decision. The financial picture can change significantly depending on the period you’re evaluating.
  4. Present Value: Apply the concept of present value to both leasing and buying costs. This involves discounting future cash flows back to their present value to account for the time value of money.
  5. Compare: Compare the present value of total expenses for leasing and buying. This analysis helps you understand the financial advantages or disadvantages of each option.

  Grasping the Concept Through an Example

  Let’s consider an example involving a vehicle. If you’re looking to acquire a car, the lease option might appear attractive due to lower upfront costs and the absence of a significant down payment. However, the lease might come with a lump sum payment at the end. Analyzing the total expenditures and applying the time value of money clarifies the financial implications of both options.

  The net advantage to leasing, or the lease vs. buy analysis, is an indispensable tool for making informed financial decisions. While there’s no one-size-fits-all formula, understanding the components involved—total expenses, time value of money, and present value—can guide you toward choosing the option that aligns best with your company’s financial strategy.

  If you’re looking for a platform that can aid your organization in finding insights across your leases, check out VL’s Lease Accounting solution.

  The post Unveiling the Net Advantage to Leasing: Understanding the Lease vs. Buy Analysis first appeared on Visual Lease.]]> https://visuallease.com/lessee-vs-tenant-demystifying-the-difference/ Thu, 31 Aug 2023 13:00:10 +0000 https://visuallease.com/?p=8648 When it comes to real estate and leasing agreements, terms can sometimes get a bit muddled. One such pair of terms that often find themselves used interchangeably are “lessee” and...
  The post Lessee vs. Tenant: Demystifying the Difference first appeared on Visual Lease.]]> When it comes to real estate and leasing agreements, terms can sometimes get a bit muddled. One such pair of terms that often find themselves used interchangeably are “lessee” and “tenant.” However, there’s a subtle distinction between the two, and understanding this difference can help clarify legal and financial matters. In this article, we’ll break down the nuances of lessee vs. tenant and shed light on their implications.

  Defining Lessee vs. Tenant

  At first glance, “lessee” and “tenant” might seem like synonyms, and in many cases, they are used that way. But when we dig deeper, a distinction becomes evident.

  • Lessee: A lessee is a term that refers to an individual or entity that has entered into a formal lease agreement. This agreement outlines the terms and conditions under which the lessee gains the right to use and occupy a property. The lessee pays a specified amount of money at predetermined intervals for the privilege of utilizing the premises.
  • Tenant: A tenant, on the other hand, is someone who occupies a property, regardless of whether there is a formal lease agreement in place. This occupancy can be under various arrangements, such as month-to-month agreements or even informal arrangements. While a tenant might have a lease, they can also be occupying the space without a legally binding lease.

  Understanding the Role of Lease Agreements

  The crux of the difference between a lessee and a tenant lies in the presence of a lease agreement. A lease agreement is a legal document that outlines the terms, rights, and obligations of both parties—the lessor (property owner) and the lessee. The agreement specifies the duration of the lease, rent payment details, and any additional clauses that govern the arrangement.

  In contrast, a tenant might occupy a property without a formal lease agreement. This could be due to a short-term arrangement, an informal understanding, or even a month-to-month occupancy.

  Accounting and Business Perspective

  From an accounting standpoint, the distinction between a lessee and a tenant might not carry as much weight. The financial responsibilities and considerations for both parties, especially in a business context, can be quite similar. The primary difference in treatment often depends on the presence or absence of a formal lease agreement.

  Interchangeability in Everyday Language

  In everyday conversations, “lessee” and “tenant” are often used interchangeably, and in many scenarios, this casual usage is perfectly acceptable. However, when it comes to legal and financial matters, understanding the precise terms can help prevent misunderstandings and ensure that the proper legal protections are in place.

  In the world of real estate and leasing, language matters. While “lessee” and “tenant” might be used interchangeably in everyday language, they carry subtle distinctions in the legal and financial realms. A lessee is someone who enters into a formal lease agreement, while a tenant refers to someone occupying a property, regardless of the presence of a lease. By grasping these nuances, you can navigate lease-related matters with confidence and clarity.

  Are you ready to simplify your lease management and ensure accurate documentation of lease agreements? Explore Visual Lease’s comprehensive platform that empowers businesses to streamline lease tracking, stay compliant, and make informed financial decisions. Request a demo today.

  The post Lessee vs. Tenant: Demystifying the Difference first appeared on Visual Lease.]]> https://visuallease.com/understanding-lease-purchase-accounting-and-implications/ Thu, 24 Aug 2023 13:00:07 +0000 https://visuallease.com/?p=8572 Leasing is a common practice in business, allowing companies to acquire assets without a hefty upfront cost. However, situations arise where a lessee wants to transition from leasing to outright...
  The post Understanding Lease Purchase: Accounting and Implications first appeared on Visual Lease.]]> Leasing is a common practice in business, allowing companies to acquire assets without a hefty upfront cost. However, situations arise where a lessee wants to transition from leasing to outright ownership, leading to a “lease purchase” scenario. 

  In this blog post, we’ll delve into what a lease purchase option entails, its accounting nuances, and the tax implications that come with it.

  What is a Lease Purchase Option?

  Before diving into the accounting and tax considerations, let’s clarify what a lease purchase option is. A lease purchase option gives a lessee the right, but not the obligation, to buy the leased asset from the lessor. This option can be exercised at a predetermined price, often referred to as the “purchase option price,” which could be a nominal amount or a percentage of the asset’s market value.

  Accounting for Lease Purchase:

  1. Lease Purchase Out of a Lease: If a lessee decides to purchase an asset they were previously leasing, and the lessor agrees, it’s a straightforward transition. There’s no need for advanced accounting; the asset shifts from being a leased asset to a fixed asset on the books. The accumulated amortization shifts to fixed asset depreciation, and any associated taxes are factored in. Essentially, it’s treated like any other purchase.
  2. Lease Purchase Option: When the lessee holds a purchase option, the accounting approach hinges on their intent to exercise it. If the lessee doesn’t anticipate exercising the option, the lease is accounted for as a regular lease. However, if the lessee intends to exercise the option, a different accounting schedule is crafted based on that impending purchase.

  Lease Classification Test:

  For the lease classification test, the timing of asset ownership transfer becomes vital. If it’s likely that ownership will transfer at the option’s exercise, the underlying asset isn’t amortized over the lease term but over the asset’s useful life.

  Lease Purchase Tax Implications:

  The tax implications can be substantial when considering a lease purchase option. If you account for the asset as likely to be purchased at the lease term’s midpoint or end, you amortize the asset value over its useful life. For example, if the leased asset is a vehicle with an 8-year useful life, your amortization occurs over 8 years, impacting expense profiles.

  Bargain Purchase Option:

  A “bargain purchase option” presents another dimension. This means there’s a compelling economic incentive to exercise the option due to a nominal or low purchase price. Even if the lessee initially doesn’t intend to exercise the option, accounting assumes that they will due to the economic incentive.

  Changing Intent and Remeasuring:

  If intent changes—say, from planning to exercise the option to not exercising it—the lease is remeasured. This might change the lease classification, switching from finance to operating lease treatment.

  In conclusion, a lease purchase option introduces complexities to accounting and tax implications. Your approach depends on your intent to exercise the option, the asset’s useful life, and potential bargain purchase incentives. Consulting with accounting professionals can provide clarity and ensure compliance with accounting standards and tax regulations. Understanding the intricacies of lease purchase options empowers businesses to make informed decisions about their assets and financial strategy.

  The post Understanding Lease Purchase: Accounting and Implications first appeared on Visual Lease.]]> https://visuallease.com/preparing-for-lease-accounting-audits-your-comprehensive-checklist/ Wed, 23 Aug 2023 13:00:06 +0000 https://visuallease.com/?p=8571 As a company navigating the intricacies of lease accounting, you’re no stranger to the importance of maintaining accuracy and compliance. Part of this process involves undergoing lease audits, a task...
  The post Preparing for Lease Accounting Audits: Your Comprehensive Checklist first appeared on Visual Lease.]]> As a company navigating the intricacies of lease accounting, you’re no stranger to the importance of maintaining accuracy and compliance. Part of this process involves undergoing lease audits, a task that might seem daunting but is an integral part of your financial health. In this blog post, we’ll guide you through preparing for a lease accounting audit using a detailed checklist to streamline the process and ensure a smooth audit experience.

  Understanding the Significance of Lease Audits:

  Before diving into the checklist, let’s briefly discuss why lease audits are crucial. A lease audit is not just about verifying numerical accuracy; it’s a comprehensive evaluation of your lease agreements, expenditures, controls, and compliance measures. Auditors assess whether your financial transactions align with the terms of your leases and identify any potential risks of fraud or mismanagement.

  Lease Audit Checklist:

  1. Set Clear Boundaries: Determine which leases are subject to the audit. This ensures that your audit scope is defined and complete.
  2. Gather Complete Information: Compile all relevant information, including lease abstracts and underlying lease documents. Auditors need to verify that you’re adhering to lease terms and performing as required.
  3. Ensure Up-to-Date Lease Data: Leases evolve over time, so ensure your data is current. Auditors will review your most recent lease information to verify accuracy.
  4. Review Payment Processes and Controls: Examine your payment processes and controls. This involves ensuring that your payment methods align with lease terms and that you’re accurately disbursing funds.
  5. Document Expenditures: Document and maintain supporting documentation for all expenditures. This documentation might include lease schedules, invoices, and any variable payment calculations.
  6. Validate CAM Charges: If you’re responsible for common area maintenance (CAM) charges, ensure that these charges are reconciled against actual expenses. Validate supporting documentation to prevent overcharges.
  7. Track Capital Expenditures: Properly depreciate capital expenditures as per lease requirements. Ensure that these expenditures are accounted for accurately.
  8. Verify CPI Increases: If your lease involves Consumer Price Index (CPI) increases, verify that these calculations are accurate and performed at the appropriate times.
  9. Check Percentage-Based Payments: If your payments are based on a percentage of sales, validate reported sales numbers, exclusions, and calculations.
  10. Ensure Compliance for Financial Statements: Review your compliance procedures for submitting financial statements and any contingent obligations outlined in your lease. Ensure all documentation aligns.
  11. Review Contingent Payments: Scrutinize any contingent payments mentioned in the lease agreement. Verify that these contingencies are appropriately met before payments are made.
  12. Validate Controls: Assess your internal controls for their effectiveness in preventing fraud and ensuring accurate financial reporting.
  13. Audit the Full Scope: Remember that an audit goes beyond mathematical accuracy. It involves validating documentation, controls, and compliance measures.

  Benefits of Lease Accounting Audit Preparation:

  A well-prepared audit expedites the process and instills confidence in auditors and stakeholders. Properly documenting your lease transactions, ensuring compliance, and validating payments demonstrate your commitment to transparency and accuracy.

  While lease audits might seem like a complex ordeal, proper preparation simplifies the process. Use our comprehensive lease audit checklist as a guide to ensure that your lease accounting audit is efficient, effective, and successful. By proactively addressing potential issues and maintaining impeccable records, you’re well on your way to navigating lease audits with confidence and ease.

  The post Preparing for Lease Accounting Audits: Your Comprehensive Checklist first appeared on Visual Lease.]]> https://visuallease.com/navigating-commercial-lease-lifecycles-a-holistic-perspective/ Mon, 21 Aug 2023 13:00:40 +0000 https://visuallease.com/?p=8570 The realm of commercial leases encompasses a complex lifecycle that spans far beyond the mere agreement itself. While it’s a subject that often invites surface-level discussions, grasping the full scope...
  The post Navigating Commercial Lease Lifecycles: A Holistic Perspective first appeared on Visual Lease.]]> The realm of commercial leases encompasses a complex lifecycle that spans far beyond the mere agreement itself. While it’s a subject that often invites surface-level discussions, grasping the full scope of a commercial lease lifecycle is essential for businesses and professionals to make informed decisions. In this article, we’ll unveil the multifaceted stages of a commercial lease lifecycle, debunking myths and providing valuable insights.

  Seeing the Whole Elephant: A Holistic Approach to Commercial Lease Lifecycles

  The tale of the blind men describing an elephant aptly mirrors the way various stakeholders perceive commercial leases. Administrators, accountants, brokers, and tenants all interact with leases from their vantage points, often missing the broader picture. To truly understand the commercial lease lifecycle, we need to step back and observe its phases cohesively.

  1. Acquisition Phase: Finding the Right Fit The lifecycle commences with the acquisition phase. This is where the organization identifies the need for a leased asset. Whether it’s real estate or equipment, the acquisition phase involves sourcing the asset, potentially through brokers or procurement departments. The asset is brought into the organization, setting the stage for the next phase.
  2. Preparation Phase: Ready for Action Once the asset is acquired, the preparation phase begins. In the context of real estate leases, this phase includes tenant improvements and fitting out the premises for operational use. Accounting teams get involved to set up proper accounting structures and recognize tenant improvement work. Preparing the asset is essential before actual occupancy.
  3. Operational Phase: Utilizing the Asset As operations commence, the lease enters the operational phase. The asset is used for business activities, with facilities management teams handling maintenance and upkeep. The accounting team oversees accurate expense recognition, aligning with lease terms. Periodic reviews ensure the asset’s continued value to the organization.
  4. Transition Phase: Assessing the Need Transitioning towards the end of the lease term, companies reassess the asset’s value and necessity. This phase isn’t solely reserved for lease-end. Companies may review their asset needs at various points throughout the lease term, deciding whether to continue or relocate.
  5. Disposition Phase: Wrapping Up As the lease term nears its end, the disposition phase comes into play. Operations wind down, equipment is relocated, and furniture is dismantled. If required, restoration work is performed on the premises before returning them to the lessor. Ultimately, the keys are handed back, concluding the operational phase.

  Accounting for the Complete Picture

  Throughout the entire lifecycle, accounting plays a crucial role. From setting up proper accounting structures for leases and tenant improvement expenses to tracking operating expenses and reconciling financials, the accounting team ensures accurate financial reporting.

  Why Understanding the Lifecycle Matters

  Understanding the comprehensive lifecycle of commercial leases empowers businesses to make strategic decisions. Whether it’s renewing a lease, reevaluating the asset’s value, or orchestrating a smooth transition, each phase informs a company’s trajectory.

  Conclusion: Embracing the Full Journey

  Beyond the lease agreement lies a dynamic and multifaceted lifecycle. Embracing the entire journey ensures that businesses operate efficiently, accounting accurately reflects transactions, and decision-making remains informed. By understanding the stages from acquisition to disposition, professionals can navigate commercial lease lifecycles with a holistic perspective, reaping the benefits of well-informed choices and optimal financial management.

  The post Navigating Commercial Lease Lifecycles: A Holistic Perspective first appeared on Visual Lease.]]> https://visuallease.com/asset-capitalization-in-lease-accounting-what-you-need-to-know/ Thu, 17 Aug 2023 13:00:20 +0000 https://visuallease.com/?p=8569 Navigating the world of lease accounting can sometimes feel like deciphering a complex code. The terms, regulations, and methodologies can leave even the savviest professionals scratching their heads. One such...
  The post Asset Capitalization in Lease Accounting: What You Need to Know first appeared on Visual Lease.]]> Navigating the world of lease accounting can sometimes feel like deciphering a complex code. The terms, regulations, and methodologies can leave even the savviest professionals scratching their heads. One such topic that often raises questions is asset capitalization in leases. In this article, we’ll delve into the intricacies of this concept, clarifying what it means to capitalize an asset, and shedding light on the impact it has on your balance sheet.

  The Evolution of Lease Accounting

  Before we dive into the details of asset capitalization, let’s address an important shift in lease accounting. The term “capital lease” under the old ASC 840 standard has become a relic of the past. With the advent of ASC 842 guidelines, leases are now classified into two categories: operating leases and finance leases. While the term “capital lease” has been retired, the concept of capitalizing assets remains a fundamental aspect of lease accounting.

  What Does It Mean to Capitalize an Asset?

  To capitalize an asset means to recognize it on your balance sheet as both an asset and a corresponding liability. In the context of lease accounting, this occurs when a lease, whether an operating or finance lease, is brought onto the balance sheet. The asset value represents the right to use the leased asset over the lease term, while the liability reflects the future payment obligations associated with the lease.

  Capitalized Assets Based on the Lease Classification

  Regardless of lease type, all leased assets are capitalized under ASC 842 guidelines. However, the treatment of these capitalized assets varies based on the lease classification.

  1. Operating Leases: In an operating lease, the expense recognition is characterized by straight-line rent expense. This means that the total lease payments are divided equally over the lease term. The amortization of the right-of-use asset is calculated based on an interest component derived from the remaining liability balance.
  2. Finance Leases: Finance leases, on the other hand, are recognized with a front-loaded expense recognition. The amortization of the right-of-use asset follows a straight-line method, while the interest component varies as the liability balance decreases over time.

  Calculating Asset Capitalization

  As the intricacies of calculating asset capitalization and amortization become evident, it’s clear that the assistance of specialized software is invaluable. Solutions like Visual Lease offer the functionality to streamline these calculations, ensuring accuracy and compliance. With pre-set formulas and automation capabilities, lease management software simplifies the process, allowing you to focus on strategic decision-making rather than complex calculations.

  A Clearer Path to Lease Accounting Clarity

  While the terminology of lease accounting may have evolved, the concept of asset capitalization remains at its core. Recognizing leased assets on the balance sheet, along with the corresponding liabilities, is a critical step in achieving accurate financial reporting and compliance. Whether dealing with operating or finance leases, understanding the nuances of asset capitalization ensures that your organization remains on the path of accurate and transparent lease accounting practices. And with the support of advanced lease management software, you can navigate these complexities with confidence and clarity.

  The post Asset Capitalization in Lease Accounting: What You Need to Know first appeared on Visual Lease.]]> https://visuallease.com/financial-restatements-the-impact-to-newly-public-companies/ Tue, 15 Aug 2023 13:00:43 +0000 https://visuallease.com/?p=8562 Navigating the Transition: Understanding Challenges Faced by Newly Public Companies and Strategies for Success In the dynamic landscape of public offerings, the surge in initial public offerings (IPOs) during 2020...
  The post ​​Financial Restatements: The Impact to Newly Public Companies first appeared on Visual Lease.]]> Navigating the Transition: Understanding Challenges Faced by Newly Public Companies and Strategies for Success

  In the dynamic landscape of public offerings, the surge in initial public offerings (IPOs) during 2020 and 2021 led to a record number of companies going public through traditional IPOs or SPAC mergers. However, the parallel rise in IPOs and accounting restatements offers a significant insight into the challenges new public companies face. These companies, while transitioning to public status, are often still fine-tuning their internal controls, accounting policies, team structure, and technology integration. This leaves them susceptible to internal control weaknesses, restatements, and the need for remediations.

  What Is a Restatement?

  A restatement is the rectification of previously released financial statements, prompted by errors or misinterpretations. This commonly happens during the transition of newly public firms. Such revisions entail correcting mistakes, including significant inaccuracies, stemming from sources like accounting errors, noncompliance with GAAP, fraud, or clerical blunders. Accountants assess materiality, and if flawed data could result in misleading interpretations, restatements become obligatory under FASB rules. 

  A Deeper Dive into Restatements

  A survey conducted in 2022 by Deloitte highlighted that approximately 59.1% of public companies revised or remediated their financial processes within the past 12 months, with 51.6% anticipating the same within the next year. Delving deeper into newly public companies that encountered restatements, Deloitte’s discussions with CFOs revealed three recurring themes contributing to these events:

  • Complex Accounting Standards: The transition to newly applicable accounting standards often requires more judgment and estimates. These intricate standards can challenge companies, leading to restatements.
  • Manual Processes and Controls: The process of refining internal controls, often through manual processes and multiple spreadsheets, can create an environment prone to errors.
  • Lack of Specialized Skills: New public companies might lack staff with deep technical expertise in these evolving standards, increasing the likelihood of misinterpretations and errors.

  Areas of Common Restatements

  Based on Securities and Exchange Commission (SEC) filings, one of the most common areas for restatements in newly public companies since is leases (ASC 842). The nuances and complexities within ASC 842 often require technical accounting expertise and pose challenges for newly public entities.

  Responding to Restatements

  Responding to restatements requires a methodical approach:

  1. Create a Plan: Establish a project management office (PMO) with clear protocols, resources, and communication channels to address the issue.
  2. Assess Resources: Enlist resources with deep technical knowledge to address the complexities causing restatements.
  3. Evaluate Misstatements: Investigate the cause of the misstatement and adjust financials accordingly.
  4. Identify Control Failures: Understand the root cause of internal control deficiencies and prepare a remediation plan.
  5. Communication: Keep stakeholders informed, including auditors, board of directors, investors, regulators, and banks.
  6. Complete Reporting: Prepare restated financials and disclosures to explain the misstatement’s cause and impact.
  7. Repair and Improve: Use the lessons learned to enhance controls and processes, minimizing the risk of future restatements.

  Preventing Future Restatements

  Preventing future restatements involves building a resilient accounting organization:

  • Continuous Controls Assessment: Regularly assess internal controls to adapt to changing business conditions and technology.
  • Stay Current: Monitor regulatory changes that might affect accounting and financial reporting.
  • Leverage External Advisers: Engage accounting and reporting advisers with specialized skills to analyze complex issues and offer solutions.

  With the intricate landscape of accounting standards and the unique challenges that newly public companies face, establishing a knowledgeable team, strong controls framework, and proactive remediation strategy can significantly reduce the risk of restatements and ensure a smooth transition into the public market. 

  The post ​​Financial Restatements: The Impact to Newly Public Companies first appeared on Visual Lease.]]> https://visuallease.com/comments-on-the-exposure-draft-ifrs-s2-climate-related-disclosures-by-the-issb-of-the-ifrs-foundation/ Tue, 01 Aug 2023 13:00:58 +0000 https://visuallease.com/?p=8399 Visual Lease, LLC (hereinafter “VL,” “we,” “our,” and “us”) appreciates being given an opportunity to comment on the Exposure Drafts published by the International Sustainability Standards Board (hereinafter the “ISSB”)...
  The post Comments on the Exposure Draft IFRS S2 Climate Related Disclosures by the ISSB of the IFRS Foundation first appeared on Visual Lease.]]> Visual Lease, LLC (hereinafter “VL,” “we,” “our,” and “us”) appreciates being given an opportunity to comment on the Exposure Drafts published by the International Sustainability Standards Board (hereinafter the “ISSB”) in March 2022. VL supports the direction of developing consistent climate related disclosures, as consistency in standards is necessary to permit users to analyze and understand entity disclosures. In the United States and globally, more entities have responded to the growing information needs of investors by implementing disclosure practices for non-financial information. This information has been inconsistently presented, however, and is therefore of limited usefulness. We hope that the IFRS Foundation’s work on setting out sustainability reporting standards will help create a high-quality and consistent corporate reporting system, which when used in combination with existing financial reporting, presents meaningful and useful information to the public. We welcome the publication of the ISSB’s two Exposure Drafts of standards for the disclosure of sustainability-related financial information.

  Questions for Respondents

  

  Visual Lease Response

  VL agrees with the objective of the exposure draft.

  

  Visual Lease Response

  VL agrees with the need for users to understand governance process, controls, and procedures used to monitor and manage climate-related risks and opportunities. However, we find two areas of concern in the guidance as written.
  First, we view Exposure Draft S1 and Exposure Draft S2 as complimentary, working hand in hand with each other. Neither will be taken independently of the other. In that vein, the Governance disclosures of S1 can be merely referenced into S2. While they are aligned today, seperately stating them can permit the versions to diverge in the future, which we do not believe to be the intent.

  Second, we believe that some of the more detailed disclosure requirements unique to S2 do not add value to users as they do not reflect the structure and workings of governance structures. We find it common for entities to establish governance structures and processes on an integrated basis, not on an individual sustainability theme basis. Therefore, the responsibility to address such sustainability-related risks and opportunities is more often integrated throughout the governance structure, not isolated. Investors, who are users of information, also expect such integrated governance structures to be established and to work effectively. Disclosures should be designed to correspond to such actual practices and information needs.

  

  Visual Lease Response

  VL understands that while climate-related risk is a global phenomenon, the unique nature of operations will mean every entity will have a unique exposure to risk. Various industries will have risks and opportunities that are both common and unique, so we find the approach outlined in Exhibit B to be appropriate. Ensuring these unique factors are consistently applied across all entities in an industry will ensure users have directly comparable data points.

  

  Visual Lease Response

  VL agrees that enviornmental-related risks may impact an entity’s business model by an impact on the value chain and not merely on the entity’s direct operations. We support the inclusion of the value chain in disclosure reporting.

  Given the additional degrees of separation, however, we agree that disclosing concentration of significant climate-related risks and opportunities in the value chain should be qualitative rather than quantitative. To make such disclosure quantitative would require estimation of the impact on the entities which comprise the value chain. We do not believe the reporting entity would have sufficient data to make those quantitative estimations. The reporting entity would then further have to estimate the share of the supply chain impact borne by them, and then estimate the subsequent impact on their operations. The margin of error in any such estimations makes their value dubious.

  
  

  Visual Lease Response

  We support the proposed disclosure requirements for transition plans. Transition plans will have more impact on short-term performance than any other disclosure area and is the activity most directly under the control of the entity. Therefore, we believe the resulting disclosure will be of great benefit to users.

  VL is also in favor of enhanced disclosure requirements for carbon offsets. The wide range of activities considered to be carbon offsets and the tremendous variation in price per ton of offset raise questions about the validity of certain schemes. We support enhanced disclosure so that the marketplace of users can evaluate their validity.

  
  

  Visual Lease Response

  VL generally supports the proposal that entities disclose quantitiative information on effects of climate-related risks. However, as discussed in our response to Question #4, some of the impacts of climate-related risks may not be estimated with a reasonable degree of certainty. Some may not be quantifiable. We believe that a range of quantitative disclosure, with appropriate qualitative supporting data, is the most beneficial package of information for users.

  We have further observed that other respondents raise the issue of the impact of baseline year selection on reported data. We have no particular perference on the selection of a baseline year when establishing objectives, goals and transition plans. We would just advise that the baseline year be disclosed, and probably the reason for selecting that particular baseline year (if appropriate).

  When disclosing the current and anticipated effects of risks, however, we believe that either the current year or the most recent full year presented to be the most appropriate baseline. Reporting the impact of a hypothetical future event in terms of impact on financial results from 10 years ago is an unnecessary burden on users and will hamper their ability to understand the impact of the risk.

  
  
  

  Visual Lease Response

  VL is in agreement with each of the components of this question. The wide variety of approaches mentioned in this question indicates that while the issue is not new, there continues to be significant development of knowledge in the field. To best understand the entity- or industry-specific risks, we support the ability to utilize alternative techniques so long as they are adequately disclosed. We have confidence that allowing their use will enhance further development of the technology, and allow the marketplace of users to evaluate their reliability.

  

  We agree that risk management should be expanded to include both risks and opportunities. In our experience, it is accurate that risks and opportunities can relate to or result from the same source of uncertainty.

  We believe that this area is a significant overlap with the Draft S1 requirements: therefore, we suggest affirming alignment between the two standards.

  
  
  

  Visual Lease Response

  1. We agree in general, with some reservations. As regards disclosure of GHG emissions, we fully support the disclosure of Scope 1 and 2 emissions. Given their nature, Scope 3 emissions cannot be estimated with the same level of certainty. We believe that the additional provisions attaching to Scope 3 reporting are beneficial, but would support additional refinement to ensure emissions are not overreported or underreported. While we see clear benefits to identifying risk assessments and opportunities, and the associated capital deployment, we do not see the same clarity of purpose to disclosing internal carbon costs and remuneration data. While we believe it may help understand the throught process behind the capital deployment, the actual amounts deployed are the more meaningful data.
  2. We do not see any additional cross-industry metrics which should be added.
  3. VL believes the GHG protocol represents the most comprehensive, widely accepted measurement standard for emissions. That said, there is a need for the data to be continuously reviewed and updated. The further one moves from direct measurement of emissions, the greater the potential for error. Scope 3 in particular is often two to three times removed from direct measurement, and subject to local variations. We recommend the process of the GHG protocal be utilized, but the local values should be substituted is more current and/or more relevant.
  4. We support the disclosure of Scope 1 and Scope 2 emissions in all cases. Given the uncertainty involved with Scope 3 emissions, and the additional cost inherent with gathering data, we believe it may be appropriate to phase in Scope 3 reporting requirements. We do support the inclusion of Scope 3 emissions if these are included in other reporting under this standard. We have no clear preference for reporting disaggregated emissions versus a single CO2e value.
  5. We agree with the requirement to report Scope 1 and Scope 2 emissions for the consolidated entity distinct from associations, joint ventures, etc. The consolidated entry reporting would be relatively straightforward. The GHG protocol addresses the issue with joint ventures, etc. in their principle of equity share, financial control or operational control. We support the IFRS decision to align with these principles.
  6. If Scope 3 emissions are to be included in reporting, we support their inclusion as an absolute gross amount. We further support the application of materiality to disclosure of Scope 3 emissions.

  

  Visual Lease Response

  VL agrees that the definition of “latest international agreement on climate change” is sufficiently clear. With that understanding, we agree with the proposed disclosure about climate-related targets. We believe that users compare the company-specific targets versus the agreement targets to assess the sufficiency of the target, then compare actual results against the target to assess performance.

  
  
  

  Visual Lease Response

  Regarding items (a) through (c), we agree with the approach to revising the SASB standards to enhance their international applicablity. We are indifferent to the three revision approaches; in fact we believe the facts associated with each standard may mean that different approaches are best suited to different standards. We only suggest that the revisions are perfomed with an eye to keeping the standard as constant as possible, so that an entity that has used the relevant SASB Standards in prior periods may continue to provide information consistent with the equivalent disclosures in prior periods.

  As regards iems (d) through (i), VL is not sufficiently knowledgeable about the proposed revisions to the existing SASB Standards address emerging consensus on the measurement and disclosure of financed or facilitated emissions in the financial sector to offer an opinion on the matter. We can only comment that the concept of “financed emissions” and “facilitated emissions” seems markedly different that the Scope 3 emissions associated with other industries.

  As regards the industry-based disclosure, requirements items (j) through (l), we fully support the approach of standards which reflect the unique attributes of different industries. Beyond that, we have no comments on any specific industry requirements.

  

  Visual Lease Response

  As a developer of a software solution for the various updated lease accounting standards globally adopted, we do not have direct insight into the expected costs of complying with the proposed environmental disclosure proposals. However, we believe the complexity of the proposed standards is an important parallel to the lease accounting standards. The rules are complex and pervasive, which will require entities to dedicate significant resources to compliance. Excel spreadsheets will be difficult to manage and will create opportunities for error to occur. Development of software to aid in tracking and disclosure will be an important condition for ensuring timely and accurate data presentation to users.

  

  Visual Lease Response

  Due to the breadth and variety of data encompassed by these standards, we feel it best to approach the issue of verifiability based on the nature of the data.

  Reporting Scope 1 and Scope 2 emissions are relatively straightforward and as such can be stringently verified. While greenhouse gas emissions are not directly measured, the source of the emissions can be directly measured, and the relationship to emissions is well established.

  Scope 3 emissions are indirectly measured. The relationship between the input measure and output emissions estimates can be validated, but validation of the input measure is a greater challenge.

  Other items in the standard move even further from direct measure. Estimating the financial impact to the entity of a hypothetical event impacting the entity’s value chain constitutes several degrees of separation. It becomes difficult to validate anything other than the internal mathematics of the modeling. In this instance, the standard would have to be reasonableness instead of accuracy. We believe that more detail about verification and enforcability is necessary.

  

  Visual Lease Response

  Visual Lease recognizes that adoption is a complex issue with no simple answer. We can look to our experience of adapting software for the new Lease Accounting requirements (IFRS 16, ASC 842) for some guidance. The changes to lease
  accounting were mere adjustments compared to the scope of Draft S1, and approximately three years passed between adoption and the effective date.

  On the other hand, we also recognize the rush in many jurisdictions to pass some sort of standard. We support the ISSB taking a leadership role in this issue, and so we do not suggest taking a longer approach. However, a phased implementation may be preferable. For instance, capturing and reporting Scope 1 and Scope 2 Greenhouse Gas Emissions is a relatively straightforward exercise and could be implemented sooner. Understanding the proper horizon for Scope 3 issues is a challenge of its own, much less estimating those emissions. The effective date should be later. Estimating the financial statement impact of hyppothetical environmental events requires extensive modeling, and therefore might best be phased in over time. In any event, we would certainly support a provision to permit early adoption of the standards.

  We would encourage the ISSB to leave open the possibility for individual jurisdictions to use an adoption waterfall, where the largest entities would adopt first, followed by successively smaller entites. By this method, the entities with the most resources to apply to the efforts can model and test the standards. The lessons learned from their implementation would then lessen the expense on smaller enterprises who are less able to bear the cost.

  We further support proposed relief from disclosing comparatives in the first year of application. We are concerned that entities might or delay adoption until at least two years of reliable information is available. We support adoption in the first year reliable information is available. However, if an entity has made prior disclosures we support using that information as comparative. If the prior disclosures do not comply with the new standards, we believe the comparison would still benefit users if the different methodologies are adequately explained.

  

  Visual Lease Response

  We only suggest the approach to digital reporting be consistent with the current approach to financial reporting.

  

  Visual Lease Response

  Visual Lease supports initiatives to establish globally consistent sustainability information disclosures. Environmental issues are truly global issues, and require a consistent application across all borders.

  As stated in our response to Question 13, we believe timing is probably the most important consideration that could limit the ability of Draft S1 to be used as a global baseline. The last standard to the playing field cannot become the baseline. For that reason we support a quick but measured path to an effective date.

  VL believes a building block approach is best suited to achieving this global baseline standard. First make effective those parts of the standard which are easiest to implement. Add the levels of complexity as we go along. We contend that this accretive approach is the most effective way to make this standard the global baseline.

  

  Visual Lease Response

  Visual Lease has no further comments.
  Respectfully Submitted,

  Joseph Fitzgerald
  Senior Vice President, Lease Market Strategy

  Visual Lease
  William Harter
  Principal Solutions Advisor
  Visual Lease

  The post Comments on the Exposure Draft IFRS S2 Climate Related Disclosures by the ISSB of the IFRS Foundation first appeared on Visual Lease.]]> https://visuallease.com/comments-on-the-exposure-draft-ifrs-s1-general-requirements-for-disclosure-of-sustainability-related-financial-information-by-the-issb-of-the-ifrs-foundation/ Tue, 01 Aug 2023 13:00:14 +0000 https://visuallease.com/?p=8380 Visual Lease, LLC (hereinafter “VL,” “we,” “our,” and “us”) appreciates being given an opportunity to comment on the Exposure Drafts published by the International Sustainability Standards Board (hereinafter the “ISSB”)...
  The post Comments on the Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information by the ISSB of the IFRS Foundation first appeared on Visual Lease.]]> Visual Lease, LLC (hereinafter “VL,” “we,” “our,” and “us”) appreciates being given an opportunity to comment on the Exposure Drafts published by the International Sustainability Standards Board (hereinafter the “ISSB”) in March 2022. VL supports the direction of developing consistent sustainability reporting standards, as consistency in standards is necessary to permit users to analyze and understand entity disclosures. In the United States and globally, more entities have responded to the growing information needs of stakeholders by implementing disclosure practices for non-financial information. This information has been inconsistently presented, however, and is therefore of limited usefulness. We hope that the IFRS Foundation’s work on setting out sustainability reporting standards will help create a high-quality and consistent corporate reporting system, which when used in combination with existing financial reporting, presents meaningful and useful information to the public. We welcome the publication of the ISSB’s two Exposure Drafts of standards for the disclosure of sustainability-related financial information, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate Related Disclosures.

  

  Visual Lease Response

  Overall, VL believes this Exposure Draft to be clear, understandable, and capable of meeting its objectives. Our overarching concern is that standards be developed which will enable auditors, regulators, and other stakeholders to not only assess a single entity’s environmental impact on its enterprise value, but to make relevant comparisons among entities. The standards must be consistently applied globally. While variations may be necessary based on industry or the types of activities measured, political boundaries should not be a consideration. This Exposure Draft meets those standards and clearly states that an entity would be required to identify and disclose material information about all of the sustainability-related risks and opportunities to which the entity is exposed.
  There are some minor issues we address in response to specific questions, but overall we consider this standard well developed.

  

  Visual Lease Response

  Overall, Visual Lease finds the objective to be clearly stated. The broad objective of Paragraph 1 is supported and explained well by most subsequent paragraphs, although the contents of Paragraph 6 (c) and (d) are more vague than we would like. A statement such as, “its relationships with people, the planet and the
  economy, and its impacts and dependencies on them,” does not provide clear prescriptive direction to entities. We would instead desire to see the standard address the relationship between the IFRS Sustainability Disclosure Standards as a global standard and country- or region-specific standards. We find the definitions used in the Objectives section to be clear.

  

  Visual Lease Response

  Visual Lease supports the application of the standards across any jurisdiction’s Generally Accepted Accounting Principles (GAAP). By its very nature, environmental issues apply globally and do not respect any political (or geographic) boundaries. While we recognize that the nature of different business enterprises may require differences in approach, as is contemplated here by the recognition of modifying some disclosure items for not-for-profit entities, the overall objectives must remain consistent.

  

  Visual Lease Response

  We find the objectives to be clear and appropriately defined. While individual metrics and targets may well evolve over time, the objectives give a clear and consistent framework. Establishing very detailed industry-specific metrics would be inconsistent with the objectives of the standard: to be able to provide the users of information a sufficient basis to assess the implications of sustainability-related risks and opportunities on the entity’s enterprise value. Overall, we believe that the ISSB has struck an appropriate balance between goals and specific requirements that enable primary users to assess enterprise value.

  Visual Lease supports the flexibility to report metrics either as an absolute measure or in relation to other metrics. This will allow information to be analyzed and understood by users in industry- or company-specific ways, enhancing the usefulness of the data.

  

  Visual Lease Response

  Environmental disclosures should be provided for the same reporting entity as for the related financial statements. While we generally support the provisions about sustainability-related risks and opportunities related to activities, interactions, and relationships, we believe the reference to “investments it controls” in paragraph 40(c) leaves unanswered questions. We generally support the use of the GHG Protocol approaches (equity share, financial control, operational control) and agree with its use here, but we believe some additional clarification may be required. Further, we believe that the “use of resources along its value chain” makes sense
  and adds some clarity to the economics, but also may have unanswered questions in practice.

  

  Visual Lease Response

  The requirement on the need for connectivity between various sustainability-related risks and opportunities is clear. The presentation of environmental risks and opportunities requires a complex set of estimation and analysis. Visual Lease believes that identifying and explaining these connections will aid users in understanding of the data presented. Without this additional explanation, transparancy could be reduced instead of enhanced, which is contrary to the objectives. Visual Lease expects that implementation guidance will be required after release of official guidance, but that timely release of the guidance is imperative.

  

  Visual Lease Response

  Visual Lease believes that by starting with the application of the IFRS Sustainability Disclosure Standards entities will have a clear reference point for disclosure. The ability to provide additional disclosures to supplement the standards will provide value to users. The principles outlined in Paragraphs 48 and 49 are paramount to creating useful disclosure. We believe the guidance in Paragraphs 50 through 55 to be reasonably complete, with the provision that it should not be considered exhaustive. The ability to present information which is relevant and useful, as outlined in Paragraphs 46 and 47, must be maintained.

  

  Visual Lease Response

  VL believes that while the definition of materiality is generally clear, there is potentially too much lattitude given to entities to apply judgement in determining thresholds. While we trust that most entities will apply the standard faithfully and consistently with the objectives of the standard, an unscrupulous entity could use materiality to obfuscate pertinent data.

  When information could be presented for multiple reporting entities,VL believes the standard established in Paragraph 37 should apply to materiality. If the sustainability-related financial disclosures should be for the same reporting entity as the related general purpose financial statements then the same materiality thresholds should apply to both.

  VL does agree with the proposal to relieve an entity from disclosing information
  otherwise required by the Exposure Draft if local laws or regulations prohibit
  the entity from disclosing that information as a general principle. We do not have sufficient information as to the potential application of this rule to make further comments.

  

  Visual Lease Response

  We agree with the proposal that the sustainability-related financial disclosures would be required to be provided at the same time as the financial statements to which they relate. We specifically wish to affirm our support of Paragraph 70, relating to interim reporting.

  

  Visual Lease Response

  Visual Lease agrees with the proposals about the location of sustainability-related
  financial disclosures. The approach of deliberately avoiding a requirement to provide the information in a particular location within the general purpose financial reporting is acceptable when combined with the requirement to ensure that the sustainability-related financial disclosures are clearly identifiable and not obscured by that additional information. This further extends to the proposal that information required by IFRS Sustainability Disclosure Standards can be included by cross-reference provided that the information is available to users of general purpose financial reporting on the same terms and at the same time as the information to which it is crossreferenced.

  

  Visual Lease Response

  VL is concerned that users be able to apply data consistently across periods in order to draw meaningful conclusions. The provisions of Paragraph 64 quantify the difference and explain the reason for the difference, and should be sufficient in
  most cases to protect the interests of the users. It is our belief that data be as accurate as possible: so, any time a better measure of a previously reported metric is available we support its use and proper disclosure.

  Overall, we support alignment of sustainability-related disclosures with financial disclosures.

  

  Visual Lease Response

  VL agrees with this proposal. The requirements for any statement of compliance should be equivalent between financial statements and sustainability disclosure statements.

  

  Visual Lease Response

  Visual Lease recognizes that adoption is a complex issue with no simple answer. We can look to our experience of adopting software for the new Lease Accounting requirements (IFRS 16, ASC 842) for some guidance. The changes to lease accounting were less extensive compared to the scope of Draft S1, and approximately three years passed between adoption and the effective date.

  On the other hand, we also recognize the imperative in many jurisdictions to pass some sort of standard quickly. We support the ISSB taking a leadership role in this issue, and so we do not suggest taking a longer approach. However, a phased implementation may be preferable. For instance, capturing and reporting Scope 1 and Scope 2 Greenhouse Gas Emissions is a relatively straightforward exercise and could be implemented sooner. Understanding the proper horizon for Scope 3 issues is more challengeing, much less estimating those emissions: the effective date may take longer. Estimating the financial statement impact of hyppothetical environmental events requires extensive modeling, and therefore might best be phased in over time.

  In any event, VL supports a provision to permit and encourage early adoption of the standards. We would encourage the ISSB to leave open the possibility for individual jurisdictions to use an adoption waterfall, where the largest entities would adopt first, followed by successively smaller entites. By this method, the entities with the most resources to apply to the efforts can model and test the standards. The lessons learned from their implementation would then lessen the expense on smaller enterprises who are less able to bear the cost.

  We further support proposed relief from disclosing comparatives in the first year of application. We are concerned that entities might delay adoption until at least two years of reliable information are available. We support adoption in the first year reliable information is available. However, if an entity has made prior disclosures, we support using that information as comparative. If the prior disclosures do not comply with the new standards, we believe the comparison would still benefit users if the different methodologies are adequately explained.

  

  Visual Lease Response

  Visual Lease supports initiatives to establish globally consistent sustainability information disclosures. Environmental issues are truly global issues, and require a consistent application across all borders.

  As stated in our response to Question 13, we believe timing is probably the most important consideration that could limit the ability of Draft S1 to be used as a global baseline. The last standard to the playing field cannot become the baseline. For that reason we support a quick but measured path to an effective date.

  VL believes a building block approach is best suited to achieving this global baseline standard. First make effective those parts of the standard which are easiest to implement. Add the levels of complexity as the standards evolve. We contend that this accretive approach is the most effective way to make this standard the global baseline.

  

  Visual Lease Response

  We only suggest the approach to digital reporting be consistent with the current approach to financial reporting.

  

  Visual Lease Response

  Given the breadth and extent of the disclosures proposed, we can safely say that the costs of compliance will be high. We have seen estimates of 1,300 person hours per year to meet compliance requirements.1 We cannot speak to the accuracy of that number, but our experience with the adoption of Lease Accounting policy changes (IFRS 16, etc.) is illustrative.

  There is a significant cost initially to gather the required information and to set up the processes to meet the requirements. In the United States, the effort was so significantly higher than estimated that implementation for Private Business Entities was deferred a year to permit sufficient time.

  Entities who initially tried to capture the required information in Excel spreadsheets found the workload to be extremely high, and the risk of errors very high as well. Costs went down and accuracy increased as compliance software became available.

  

  Visual Lease Response

  Visual Lease has no further comments.

  Respectfully Submitted,

  Joseph Fitzgerald
  Senior Vice President, Lease Market Strategy
  Visual Lease

  William Harter
  Principal Solutions Advisor
  Visual Lease

  1. Jill Klindt, “ESG reporting requires the right people and processes”, Accounting Today, July 20, 2022

  The post Comments on the Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information by the ISSB of the IFRS Foundation first appeared on Visual Lease.]]> https://visuallease.com/streamline-your-finances-six-reasons-why-small-and-mid-sized-businesses-need-accounting-software/ Thu, 27 Jul 2023 13:00:01 +0000 https://visuallease.com/?p=8116 In today’s fast-paced business landscape, small and mid-sized businesses (SMBs) face numerous challenges in managing their financial operations efficiently. As a business owner, you may be wondering “Do I need...
  The post Streamline Your Finances: Six Reasons Why Small and Mid-Sized Businesses Need Accounting Software first appeared on Visual Lease.]]> In today’s fast-paced business landscape, small and mid-sized businesses (SMBs) face numerous challenges in managing their financial operations efficiently. As a business owner, you may be wondering “Do I need accounting software for my small business?” The answer is a resounding yes. Accounting software offers numerous benefits that can significantly impact the success and efficiency of your small business. 

  Here are six compelling reasons why accounting software is essential for your small or medium-sized business:

  1. Enhanced Financial Organization:

     Accounting software provides a comprehensive platform for organizing and managing financial data. By automating repetitive tasks like data entry, invoicing, and expense tracking, SMBs can streamline their financial processes, saving time and reducing the likelihood of errors. With a centralized system, businesses can easily access and retrieve critical financial information, facilitating accurate and timely decision-making.

  2. Simplified Bookkeeping:

     Manual bookkeeping can be time-consuming and error-prone, especially for SMBs with limited resources. Accounting software automates essential bookkeeping tasks, such as recording transactions, reconciling accounts, and generating financial statements. By eliminating manual entry and calculations, the software minimizes the risk of human error and ensures accurate financial records.

  3. Efficient Invoicing and Payment Management:

     For SMBs, maintaining a healthy cash flow is vital. Accounting software enables businesses to generate professional invoices, track payment statuses, and send reminders for overdue payments. With automated payment processing capabilities, businesses can expedite cash inflows, reducing the time spent on chasing payments and improving overall cash flow management.

  4. Financial Analysis and Reporting:

     Understanding the financial health of your business is crucial for making informed decisions and setting strategic goals. Accounting software provides robust reporting tools that generate real-time financial statements, profit and loss reports, balance sheets, and cash flow statements. These insights help SMBs identify trends, pinpoint areas of improvement, and make data-driven decisions to drive growth.

  5. Compliance with Accounting Standards:

     Adhering to accounting standards is essential for accurate financial reporting and maintaining regulatory compliance. Accounting software is designed to stay up-to-date with the latest accounting regulations, ensuring that your business meets the necessary standards. For instance, lease accounting software specifically caters to the complexities of lease accounting, helping SMBs comply with ASC 842 or IFRS 16 guidelines.

  6. Time and Cost Savings:

     By automating financial tasks and reducing manual effort, accounting software saves SMBs valuable time and resources. This allows business owners and finance teams to focus on core operations, customer relationships, and strategic planning. Additionally, minimizing errors and improving financial efficiency can result in cost savings and contribute to overall business profitability.

  In today’s digital era, small and mid-sized businesses can significantly benefit from utilizing accounting software. With features tailored to their unique needs, such software enhances financial organization, simplifies bookkeeping, streamlines invoicing and payment management, provides valuable financial insights, ensures compliance, and ultimately saves time and costs. Whether you require general small business accounting software or specialized lease accounting software, investing in the right solution will empower your business to thrive and make informed financial decisions that drive growth and success.

  The post Streamline Your Finances: Six Reasons Why Small and Mid-Sized Businesses Need Accounting Software first appeared on Visual Lease.]]> https://visuallease.com/understanding-the-meaning-of-your-lease-commencement-date/ Fri, 21 Jul 2023 13:12:13 +0000 https://visuallease.com/?p=8109 In the world of leasing agreements, there can be some confusion when it comes to the terminology used by attorneys and accountants. One such term is the “lease commencement date.”...
  The post Understanding the Meaning of Your Lease Commencement Date first appeared on Visual Lease.]]> In the world of leasing agreements, there can be some confusion when it comes to the terminology used by attorneys and accountants. One such term is the “lease commencement date.” While attorneys may interpret it as a specified date within the contract, accountants view it differently. In this blog post, we will explore the disparity in meaning between the lease commencement date for attorneys and accountants. Additionally, we will discuss the distinction between the lease start date and the move-in date, as well as the significance of the lease accounting effective date.

  What Is a Lease Commencement Date? 

  A lease commencement date is the specific date on which a lease agreement becomes effective, and the tenant takes possession of the leased property. It marks the beginning of the lease term during which the tenant has the right to occupy and use the property, while the landlord is obligated to provide possession of the premises as agreed upon in the lease.

  Lease Commencement Date Definitions

  • Lease Term: The period during which the tenant has the right to occupy the leased property. It starts on the lease commencement date and ends on the lease expiration date.
  • Lease Commencement Date: The specific date on which the lease agreement becomes effective, and the tenant takes possession of the leased property.
  • Rent Commencement Date: The date from which the tenant becomes liable to pay rent to the landlord. It is typically the same as the lease commencement date, but there may be situations where the rent commencement date differs from the lease commencement date.
  • Occupancy Date: It refers to the date when the tenant physically occupies the leased property. It is often the same as the lease commencement date, but it can sometimes be earlier or later, depending on the terms of the lease agreement.
  • Effective Date: The date on which the lease agreement is signed by both parties and becomes legally binding. It may or may not be the same as the lease commencement date.
  • Commencement Certificate: A document issued by the landlord or an authorized representative confirming the lease commencement date and the tenant’s possession of the premises.
  • Rent Abatement: A provision in the lease agreement that allows for a temporary reduction or suspension of rent payments during specific circumstances, such as when the premises are undergoing renovations or repairs before the tenant moves in.
  • Holdover Period: A period that occurs when a tenant continues to occupy the leased premises after the lease term has expired without signing a new lease or terminating the tenancy. The terms regarding the holdover period are usually outlined in the original lease agreement.

  How Do You Determine A Lease Commencement Date? 

  Attorney’s Perspective on Lease Commencement Date

  For attorneys, the lease commencement date is a date defined within the leasing contract. It could be the date on which the contract was signed, or some other predetermined effective date specified in the agreement. This date holds legal significance and serves as a reference point for various contractual obligations and rights.

  Accountants’ Perspective on Lease Commencement Date

  In contrast, accountants perceive the lease commencement date as the point at which the lessee gains possession and control of the leased asset. This date could be when the lessee moves into the property or when they receive access to initiate specific construction work. Essentially, it is the actual start date of the lease from an accounting standpoint.

  Can the lease commencement date vary depending on the circumstances?

  The commencement date from an accounting perspective can vary depending on the circumstances. It might coincide with the lease start date, the move-in date, or even the date when the keys are delivered. Whichever event occurs first will be considered the lease commencement date for accounting purposes.

  Importance of Lease Commencement Date for Accounting

  Understanding the lease commencement date is crucial for accurate lease accounting. It determines when the lessee should begin recording the leased asset and the associated liability. It also marks the starting point for expensing the lease. In the case of an operating lease, the expense is typically recognized on a straight-line basis. Conversely, for a finance lease, the amortization of the asset is straight-lined. Regardless, both the asset recording and expense recognition commence from the accounting commencement date, rather than the date of the first rent payment or the effective date specified in the contract.

  Although the lease commencement date may seem straightforward, its interpretation differs between attorneys and accountants. Attorneys focus on the contractual definition, while accountants emphasize the actual possession and control of the leased asset. Understanding this discrepancy is vital for accurate lease accounting, as it determines when to record the asset, liability, and associated expenses. By clarifying the distinction between the lease start date, move-in date, and the lease accounting effective date, both lessors and lessees can ensure compliance with accounting standards and avoid any potential misunderstandings in lease agreements.

  Lease Commencement Date FAQ’s

  What is the difference between the lease commencement date and the effective date?

  The lease commencement date and the effective date are related but distinct terms in the context of a lease agreement. Here’s how they differ:

  •  Lease Commencement Date: The lease commencement date refers to the specific date when the lease term begins, and the tenant takes possession of the leased property. It marks the start of the tenant’s occupancy and the landlord’s obligation to provide possession. On this date, the tenant assumes responsibility for paying rent and adhering to the terms and conditions outlined in the lease.
  •  Effective Date: The effective date, on the other hand, refers to the date when the lease agreement becomes legally binding and enforceable. It is the date when the lease contract is signed by both the landlord and the tenant, indicating their agreement to the terms and conditions of the lease. The effective date may or may not be the same as the lease commencement date.

   In some cases, the effective date and the lease commencement date coincide, meaning the lease becomes effective and the tenant takes possession of the property on the same day. However, there can be instances where the effective date precedes the lease commencement date. For example, if a lease agreement is signed in advance but the tenant’s occupancy doesn’t begin until a later date, the effective date remains the date of signing while the lease commencement date is the actual start of tenancy.

  What is the difference between the lease commencement date and the inception date?

  The lease commencement date and the inception date are related to the start of a lease agreement, but they have slightly different meanings. While the Lease Commencement date refers to the specific date when the lease term begins, and the tenant takes possession of the leased property, the inception date, generally refers to the date when the lease agreement is formed or comes into existence. It is the date when the initial terms and conditions of the lease are agreed upon and documented in the lease agreement, regardless of when the tenant actually takes possession of the property. The inception date is essentially the starting point of the contractual relationship between the landlord and the tenant.

  In simpler terms, the lease commencement date is the date when the tenant begins occupying the premises and the lease term starts, whereas the inception date is the date when the lease agreement itself is formed.

  Is the lease commencement date the same as the date of the first rent payment or the effective date specified in the contract?

  The lease commencement date may or may not be the same as the date of the first rent payment or the effective date specified in the contract.

  In some cases, the lease commencement date, the date of the first rent payment, and the effective date may all align, meaning they occur on the same day. However, it’s also common for these dates to be different, depending on the specific terms negotiated between the landlord and the tenant.

  To determine the relationship between these dates, it is necessary to refer to the lease agreement itself, as it will explicitly state when the lease commencement date, the first rent payment, and the effective date occur in the specific context of that agreement.

  How does understanding the lease commencement date prevent misunderstandings in lease agreements?

  Understanding the lease commencement date is crucial in lease agreements to prevent misunderstandings and ensure clarity between the parties involved. Here are 6 ways it helps:

  1. Clear start of occupancy: The lease commencement date specifies the exact date when the tenant can legally occupy the leased property. This clarity prevents any confusion or disputes about when the tenant can take possession of the premises.
  2. Rent calculation: Lease agreements typically outline the rent payment terms, which often include a monthly or annual basis. The lease commencement date allows both parties to determine the accurate start date for calculating the rental amount, avoiding disagreements over when the rent obligation begins.
  3. Term of the lease: The lease commencement date establishes the duration of the lease agreement. It defines the start and end points of the lease term, ensuring that both parties are aware of the specific time period covered by the agreement. This prevents misunderstandings about the lease’s duration and avoids premature termination or extensions.
  4. Maintenance and repairs: The lease commencement date serves as a reference point for maintenance and repairs. It establishes when the tenant becomes responsible for the upkeep of the property, and any pre-existing damages or repairs needed before the tenant’s occupancy can be determined. This clarity minimizes disputes over maintenance responsibilities and the condition of the property at the start of the lease.
  5. Legal obligations: Certain legal obligations, such as providing notice to terminate the lease, may be tied to the lease commencement date. Understanding this date ensures that both parties comply with their respective legal obligations and prevents misunderstandings or violations of the lease agreement.
  6. Timeline for negotiations: The lease commencement date provides a timeline for negotiations and preparations between the landlord and tenant. It allows both parties to plan and coordinate activities related to move-in logistics, such as inspections, renovations, or obtaining permits. Clarity regarding the lease commencement date facilitates effective communication and minimizes misunderstandings during the preparation phase.

  Overall, understanding the lease commencement date in lease agreements promotes transparency, reduces disputes, and provides a common reference point for both parties involved. It ensures that the terms, obligations, and responsibilities within the lease agreement are clearly defined, preventing misunderstandings that can lead to conflicts or legal issues.

  What are the implications of not accurately determining the lease commencement date?

  Failing to accurately determine the lease commencement date can have several implications and consequences for both the landlord and the tenant. Here are 6 potential issues that may arise:

  1. Ambiguity and disputes: Without a clear lease commencement date, there is room for ambiguity and confusion about when the tenant’s occupancy rights and rent obligations begin. This can lead to disputes between the parties, as each may have a different understanding of when the lease officially starts.
  2. Rent calculation discrepancies: The lease commencement date is crucial for calculating rent amounts accurately. If the date is not properly determined, it can result in disagreements about the rental amount and the duration for which it applies. This can lead to financial disputes and potential financial losses for both parties.
  3. Legal compliance issues: The lease commencement date often has legal implications tied to it, such as notice periods for termination or other legal obligations. Failing to determine the date accurately can result in non-compliance with these legal requirements, which may have legal consequences or negatively impact the rights and responsibilities of both parties.
  4. Delayed occupancy or premature termination: Inaccurately determining the lease commencement date can cause delays in the tenant’s occupancy, particularly if the date is later than expected. Conversely, if the date is earlier, it may result in premature termination of the previous tenant’s lease or inadequate time for necessary preparations. These situations can disrupt the tenant’s plans and lead to financial losses or legal complications.
  5. Inadequate time for preparations: The lease commencement date is an essential reference point for various activities such as property inspections, repairs, renovations, and obtaining necessary permits. If the date is not accurately determined, it can lead to insufficient time for these preparations, affecting the condition of the property or the tenant’s ability to move in smoothly.
  6. Misalignment with other agreements: In some cases, the lease commencement date may need to align with other agreements or contracts, such as utility connections, insurance coverage, or leasehold improvements. Failing to accurately determine the date can result in a mismatch between these agreements, leading to logistical complications or contractual breaches.

  It is important for both landlords and tenants to ensure that the lease commencement date is accurately determined and clearly documented in the lease agreement. Doing so minimizes the potential for misunderstandings, disputes, and legal complications, promoting a smooth and mutually beneficial leasing experience for all parties involved.

  The post Understanding the Meaning of Your Lease Commencement Date first appeared on Visual Lease.]]> https://visuallease.com/unlocking-efficiency-and-sustainability-exploring-contract-management-systems/ Thu, 20 Jul 2023 13:00:44 +0000 https://visuallease.com/?p=8428 Contract management plays a crucial role in modern business operations, ensuring effective collaboration, risk mitigation, and regulatory compliance. With the growing importance of environmental, social, and governance (ESG) considerations, contract...
  The post Unlocking Efficiency and Sustainability: Exploring Contract Management Systems first appeared on Visual Lease.]]> Contract management plays a crucial role in modern business operations, ensuring effective collaboration, risk mitigation, and regulatory compliance. With the growing importance of environmental, social, and governance (ESG) considerations, contract management systems have evolved to encompass sustainability factors. In this blog post, we delve into the world of contract management, highlighting its key functions the integration of ESG elements. By understanding the fundamentals of contract management and its alignment with ESG requirements, businesses can enhance efficiency and sustainability across their value chains.

  What is Contract Management System?

  A contract management system refers to the structured approach and technology utilized to oversee the complete lifecycle of contracts. It goes beyond simply accounting for legal terms and conditions and extends to managing relationships, obligations, and performance throughout the contract’s duration. A contract management system streamlines processes, centralizes information, and provides organizations with the tools to effectively create, negotiate, execute, and monitor contracts.

  Contract Management Functions:

  Contract management systems encompass several key functions that contribute to effective contract administration and performance:

  • Document Management: Efficiently store, organize, and retrieve contract documents, including agreements, amendments, and related correspondence.
  • Workflow Automation: Streamline contract-related processes, automate notifications, approvals, and tasks, ensuring timely execution and adherence to deadlines.
  • Compliance and Risk Management: Monitor contractual compliance, identify potential risks, and implement risk mitigation strategies to safeguard the organization’s interests.
  • Performance Tracking: Monitor and measure contract performance against established metrics, enabling proactive management and facilitating data-driven decision-making.
  • Reporting and Analytics: Generate reports and analytics to gain insights into contract performance, identify trends, and support strategic decision-making.

  Integration of ESG Considerations:

  In the era of ESG awareness, contract management systems have expanded their scope to incorporate sustainability factors. This includes tracking and reporting on carbon emissions across the value chain, considering the environmental impact of contracted goods and services, and ensuring compliance with ESG goals. Organizations are increasingly leveraging contract management systems to capture ESG data, monitor supplier sustainability practices, and align contract terms with sustainability objectives.

  Contract management systems have become essential tools for organizations seeking operational efficiency, risk mitigation, and ESG integration. By implementing robust contract management systems, businesses can optimize contract lifecycle management, foster transparency, and align contractual relationships with sustainability goals. Embracing the phases of contract management and leveraging technology-driven solutions, organizations can navigate the complexities of contract administration while addressing ESG considerations, fostering responsible business practices, and driving sustainable value creation.

  The post Unlocking Efficiency and Sustainability: Exploring Contract Management Systems first appeared on Visual Lease.]]> https://visuallease.com/esg-reporting-simplified-your-top-questions-answered/ Mon, 17 Jul 2023 14:00:51 +0000 https://visuallease.com/?p=8488 VL experts break down the recently announced sustainability reporting standards from the International Sustainability Standards Board (ISSB) The first-ever set of standards recently unveiled by the International Sustainability Standards Board...
  The post ESG Reporting Simplified: Your Top Questions Answered first appeared on Visual Lease.]]> VL experts break down the recently announced sustainability reporting standards from the International Sustainability Standards Board (ISSB)

  The first-ever set of standards recently unveiled by the International Sustainability Standards Board (ISSB) are a big step forward for global ESG and sustainability reporting standards. These new standards, S1 and S2, will have long-standing implications for sustainability regulation, data collection and reporting. Visual Lease has helped clients adapt to new regulations and track complicated metrics for nearly three decades, and recently launched the VL ESG Steward in anticipation of ESG reporting becoming the next great challenge for finance and real estate teams.

  Today, we’re answered the top questions our ESG clients have about how to best prepare for these new regulations. 

  What are the S1 and S2 standards announced by the ISSB?

  The S1 and S2 standards are the ISSB’s new guidelines for sustainability disclosure. The S1 standard (titled “General Requirements for Disclosure of Sustainability-related Financial Information) aims to identify sustainability risks and opportunities, then assess their impact on the value of the enterprise. The S1 standard considers all sustainability risks and opportunities.

  The S2 standard is focused specifically on climate-related issues, including the disclosure of greenhouse gas emissions along with other industry-specific topics.

  When are these standards expected to go into effect?

  The ISSB published the S1 and S2 standards in late June. The standards will be effective with corporate fiscal years starting January 1, 2024. 

  What do these standards mean for U.S. organizations?

  Though the ISSB develops sustainability disclosure standards, it does not have regulatory authority. This means the implication on U.S. organizations will depend on the discretion of authorities in different jurisdictions.

  U.S. organizations may be required to report under ISSB guidelines directly, under guidelines like those adopted for the European Union by the European Financial Reporting Advisory Group (EFRAG). 

  Although no nation has yet adopted the ISSB standards, many have indicated their intent to do so. It’s reasonable to assume that if a U.S. organization must report accounting under the International Financial Reporting Standards (IFRS), it is likely ISSB reporting will also require ESG accounting.

  What are some of the anticipated benefits of these standards to organizations? What are the risks of not meeting them?

  Apart from environmental benefits, maintaining a positive relationship with your customers is perhaps the most significant benefit, particularly in the B2B world. Organizations that must report for regulatory reasons require this information and are likely to cut ties with companies that don’t meet their ESG goals. 

  The same goes for direct-to-consumer businesses. A recent statistic from PwC noted that 76% of consumers say they will stop buying from companies that treat the environment, employees, or the community in which they operate poorly.

  Access to capital can also suffer from poor or non-existent ESG reporting. Moody’s Investor Services reports one of five organizations suffered a credit rating setback after an assessment of their adherence to ESG best practices. 

  Robust ESG reporting can even make an organization more efficient, eliminating or reducing unnecessary travel, and reducing excessive waste — there are countless potential benefits. 

  What data should organizations start tracking to prepare for this new level of reporting?

  The ISSB understands the enormous scope of sustainability reporting. To address this, in April 2023, the board decided to introduce a transition relief in IFRS S1 that allows an entity to report on only climate-related risks and opportunities. These can be broken down into three pillars: energy consumption and greenhouse gas emissions, water usage, waste generation, and biodiversity. 

  How else can organizations set themselves up for ESG reporting success?

  At Visual Lease, we define ESG reporting success as generating reports that clearly present understandable and verifiable metrics. 

  We recommend three steps to make this possible. First, establish a task force responsible for handling everything ESG requires. Next, you’ll want to establish your inventory. ISSB is prioritizing energy and greenhouse gas emissions, but these are also the most complex to track. Any fuel expenditure should be tracked. Gas-fired HVAC and water heaters, diesel-powered emergency generators and propane-powered forklifts are all sources of energy and emissions. Lastly, establish controls around the data flow and ensure an audit trail is available for the necessary attestation.  

  Keep in mind that the goal is not to grasp as much data as possible. We recommend capturing what is consistently obtainable with controls to ensure the data is accurate. This will serve as a baseline to complete additional ESG requirements as they are phased in.  

  Where should organizations look for the latest news on ESG regulations?

  Going directly to the source for information is the best way to get news on ESG regulations, but the reports from the ISSB, SEC, and EFRAG can be very difficult to follow and understand. Regulators are required to speak and write in very precise, technical language, which is often too complex for non-experts to follow. Even non-regulatory bodies often use very technical language or push agendas to promote certain outcomes.

  At Visual Lease, we believe a mix of advisory firms is the best way to stay on top of the latest ESG developments. Given the ISSB requirements, all of the large accounting firms are developing a strong ESG advisory practice. Most are supporting regular webcasts, publications, and continuing education on the topic. These resources do an excellent job of aggregating the technical information and presenting it in a manner that is easy to understand.

  The post ESG Reporting Simplified: Your Top Questions Answered first appeared on Visual Lease.]]> https://visuallease.com/understanding-lease-incentives-why-theyre-important-and-accounting-considerations-under-asc-842/ Thu, 13 Jul 2023 13:00:39 +0000 https://visuallease.com/?p=8111 Lease incentives play a crucial role in lease agreements, representing payments made by the lessor either to the lessee or on behalf of the lessee. These incentives are an integral...
  The post Understanding Lease Incentives: Why They’re Important and Accounting Considerations under ASC 842 first appeared on Visual Lease.]]> Lease incentives play a crucial role in lease agreements, representing payments made by the lessor either to the lessee or on behalf of the lessee. These incentives are an integral part of the total consideration of the lease contract, and it is essential to account for them along with other payment streams in the associated cash flows. In this blog post, we will explore lease incentives in more detail, their importance, and how they impact the financial aspects of a lease, specifically under ASC 842.

  Lease Incentives: Importance and Purpose

  Lease incentives hold significant importance in lease agreements for several reasons. Firstly, they enable lessees to make improvements to a property, customizing it to meet their specific needs. This flexibility is particularly valuable when lessees require modifications or alterations to align the space with their business operations. By offering financial support, lessors encourage lessees to lease their properties and foster long-term relationships.

  Accounting Considerations under ASC 842

  ASC 842, the Financial Accounting Standards Board’s lease accounting standard, provides guidelines for the recognition, measurement, and presentation of lease incentives. It mandates that lease incentives should be accounted for in a manner that accurately reflects the economic substance of the lease transaction.

  When applying ASC 842, companies must carefully evaluate their approach to lease incentives. The standard requires the proper identification and classification of lease incentives within the lease agreement. Lease incentives should be measured and recognized separately from other components of the lease, ensuring transparency and compliance with the accounting standard.

  Lease Incentive Programs

  Some lessors may implement lease incentive programs to attract and retain lessees. These programs offer various incentives, such as rent abatements, tenant improvement allowances, or rent holidays. Lease incentive programs can be structured differently, and their accounting treatment may vary based on the specific terms and conditions outlined in the lease agreement.

  By participating in a lease incentive program, lessees can benefit from reduced costs associated with leasehold improvements, making the space more suitable for their operations. However, it is essential for lessees to understand the implications of these incentives, including potential obligations or adjustments to lease terms in exchange for the offered benefits.

  Lease incentives are integral components of lease agreements, serving to facilitate lessees’ ability to customize properties and meet their specific requirements. Proper accounting for lease incentives, in accordance with ASC 842, is essential for accurate financial reporting and compliance. By recognizing the importance of lease incentives and adhering to the guidelines set forth in accounting standards, companies can ensure transparency, enhance decision-making processes, and establish a solid foundation for lease transactions.

  The post Understanding Lease Incentives: Why They’re Important and Accounting Considerations under ASC 842 first appeared on Visual Lease.]]> https://visuallease.com/esg-accounting-integrating-sustainability-into-financial-reporting/ Wed, 12 Jul 2023 13:00:40 +0000 https://visuallease.com/?p=8427 As businesses increasingly recognize the importance of environmental, social, and governance (ESG) factors, the concept of ESG accounting has gained prominence. This blog post aims to shed light on ESG...
  The post ESG Accounting: Integrating Sustainability into Financial Reporting first appeared on Visual Lease.]]> As businesses increasingly recognize the importance of environmental, social, and governance (ESG) factors, the concept of ESG accounting has gained prominence. This blog post aims to shed light on ESG accounting and its role in financial reporting. From carbon accounting to capturing the financial impact of environmental events, ESG accounting encompasses a wide range of considerations that companies must address. 

  What is ESG Accounting?

  ESG accounting is the incorporation of ESG factors into financial reporting processes. It goes beyond traditional financial metrics by considering the environmental, social, and governance aspects of a company’s operations. The recently released ISSB standards, including the S1 and S2 standards, underscore the significance of ESG accounting by requiring companies to report on climate-related disclosures and their financial implications. This comprehensive approach ensures that companies transparently disclose their environmental impact and address the repercussions on financial statements.

  Carbon Accounting and Climate Disclosures:

  A crucial component of ESG accounting is carbon accounting. With the growing concern over climate change, companies are now required to report on their actual or projected emissions of greenhouse gases and carbon, along with other environmental impacts. This information allows stakeholders to gain a comprehensive understanding of a company’s carbon footprint. By quantifying and disclosing carbon-related data, businesses can demonstrate their commitment to mitigating climate risks and reducing their environmental impact.

  Financial Impact of Environmental Events:

  ESG accounting goes beyond carbon accounting and encompasses the financial impact of environmental events. As climate-related incidents become more prevalent, businesses must recognize and report on the effects of such events on their financial statements. For instance, if a company experiences a decline in attendance or cancels outdoor events due to poor air quality resulting from natural disasters or wildfires, these climate-related impacts must be isolated and reported as changes to the financial position. This level of reporting ensures that stakeholders have a holistic view of the financial implications associated with environmental events.

  ESG Reporting and FASB:

  The Financial Accounting Standards Board (FASB), while not directly involved in ESG standard setting, acknowledges the growing relevance of ESG factors in financial reporting. FASB encourages companies to consider the impact of ESG matters on their financial statements, emphasizing the need for transparent and accurate reporting. While the ISSB standards do not have the legal authority of FASB, they serve as a globally applicable framework for ESG reporting, with nations adopting and aligning their reporting practices accordingly.

  Non-Financial Reporting Directive (NFRD): 

  The Non-Financial Reporting Directive (NFRD) is a European Union (EU) directive that sets out requirements for certain large companies to disclose non-financial information, including environmental, social, and governance (ESG) factors. The directive aims to improve transparency and accountability in corporate reporting, ensuring that companies provide relevant and consistent information about their ESG performance. Under the NFRD, companies that meet specific criteria, such as being listed on EU regulated markets and having more than 500 employees, are required to include non-financial information in their management reports. The information should cover environmental, social, and employee matters, human rights, anti-corruption, and diversity.

  ESG accounting represents a paradigm shift in financial reporting, enabling companies to demonstrate their commitment to sustainable practices and long-term value creation. By integrating ESG factors into financial statements, businesses provide stakeholders with a comprehensive view of their environmental impact and the financial implications associated with it. Carbon accounting and reporting on the financial impact of environmental events are crucial elements of ESG accounting, ensuring transparent disclosures and informed decision-making. As ESG reporting gains momentum, businesses must embrace the evolving landscape and seize the opportunity to become catalysts for positive change.

  The post ESG Accounting: Integrating Sustainability into Financial Reporting first appeared on Visual Lease.]]> https://visuallease.com/introducing-the-new-issb-standards-a-game-changer-for-sustainability-reporting/ Tue, 11 Jul 2023 13:00:26 +0000 https://visuallease.com/?p=8426 In recent times, the importance of sustainability in financial reporting has gained significant traction. To address this growing need, the newly formed International Sustainability Standards Board (ISSB) has released two...
  The post Introducing the New ISSB Standards: A Game-Changer for Sustainability Reporting first appeared on Visual Lease.]]> In recent times, the importance of sustainability in financial reporting has gained significant traction. To address this growing need, the newly formed International Sustainability Standards Board (ISSB) has released two exposure drafts of sustainability standards called S1 and S2. After careful consideration of user feedback and extensive internal deliberations, the ISSB has recently unveiled the finalized S1 and S2 standards. This blog post delves into the key aspects of these standards and their impact on the future of sustainability reporting.

  A Closer Look at the ISSB Standards:

  The S1 standard, titled “General Requirements for Disclosure of Sustainability-related Financial Information,” encompasses broad-based sustainability reporting. It covers a wide range of aspects related to environmental, social, and governance (ESG) pillars. On the other hand, the S2 standard is specifically focused on climate-related disclosures, highlighting the increasing importance of addressing climate change within financial reporting.

  Phased Implementation Approach:

  Recognizing the significant undertaking required for companies to comply with these new standards, the ISSB recommends a phased implementation approach. The initial focus will be on reporting climate-related disclosures, given their paramount importance. This allows companies to gradually acclimate themselves to the requirements before incorporating additional ESG topics outlined in the S1 standard. It is worth noting that both standards become active simultaneously, with climate issues taking center stage.

  Effective Date and Global Adoption:

  The ISSB has set the effective date for the S1 and S2 standards as the beginning of 2024. However, it is crucial to understand that the ISSB, being an arm of the International Accounting Standards Board (IASB), does not possess legal authority in any specific country. Instead, the ISSB develops globally applicable standards, and individual nations have the choice to adopt them. Similar to accounting rules governed by the IASB, which have been largely adopted worldwide, the ISSB standards are expected to follow a similar path of implementation, albeit with some possible fine-tuning.

  Several nations have already expressed their intention to adopt the ISSB standards, emphasizing their commitment to transparent and comprehensive sustainability reporting. While the exact details of implementation may vary slightly, the overall goal remains aligned – to foster consistent and reliable reporting of sustainability-related financial information. The first reports adhering to the new standards are expected to surface in 2025, marking a significant milestone in the evolution of sustainability reporting.

  The ISSB’s release of the S1 and S2 standards represents a major step forward in enhancing sustainability reporting practices worldwide. These standards provide a structured framework for companies to disclose sustainability-related financial information, with a particular emphasis on climate-related disclosures. As organizations gear up for the phased implementation, it is imperative to embrace these new standards as an opportunity to promote transparency, accountability, and responsible business practices. By adhering to the ISSB standards, companies can proactively contribute to a more sustainable future and gain the trust and confidence of stakeholders across the globe.

  The post Introducing the New ISSB Standards: A Game-Changer for Sustainability Reporting first appeared on Visual Lease.]]> https://visuallease.com/understanding-different-types-of-commercial-leases-exploring-triple-net-and-pass-through-leases/ Fri, 07 Jul 2023 13:28:03 +0000 https://visuallease.com/?p=8108 When it comes to commercial leases, there are various types and terms that can be confusing for both lessors and lessees. Among these terms are “triple net leases,” “pass-through leases,”...
  The post Understanding Different Types of Commercial Leases: Exploring Triple Net and Pass-Through Leases first appeared on Visual Lease.]]> When it comes to commercial leases, there are various types and terms that can be confusing for both lessors and lessees. Among these terms are “triple net leases,” “pass-through leases,” and “bondable leases,” which may vary in naming conventions depending on the region. Understanding the different commercial lease types is essential for both parties involved. In this blog post, we will delve into the meaning of triple net leases and explore various types of commercial leases to shed light on their characteristics and implications.

  Types of Commercial Leases

  In broad terms, commercial leases can be categorized based on what is being paid for and how it is paid. Unlike residential leases, commercial leases typically involve more than just a base rent. Let’s explore the primary lease types:

  1. Gross Lease: A gross lease is similar to renting an apartment for personal use. In this type of lease, the lessor includes all expenses, such as snow removal, lawn maintenance, and hallway lighting, in the rent payment. This is the simplest form of a commercial lease, but it is relatively uncommon in the commercial real estate market.
  2. Triple Net Lease: Triple net leases (NNN leases) are frequently seen in retail leases. In this type of lease, the lessee assumes responsibility for additional expenses beyond the base rent. These expenses typically include common area maintenance (CAM), property taxes, and property insurance. The lessee pays the base rent “net” of these three expense categories. Hence, it is called a triple net lease.
  3. Pass-Through Lease: Pass-through leases, also known as bondable leases, differ slightly from triple net leases. In a pass-through lease, the tenant directly assumes the costs of expenses such as snow removal, landscaping, and property taxes. The tenant reimburses the landlord for these expenses separately from the rent payment. This type of lease is commonly found in freestanding buildings like banks or fast-food restaurants.
  4. Modified Gross Lease: A modified gross lease is often seen in office buildings, combining elements of both gross and net leases. Under this type of lease, operating expenses, property taxes, and insurance are typically included in the initial base year rent. However, any increases in these expenses over the base year are charged to the tenant based on their pro-rata share. The exact terms may vary, specifying either the actual expenses or an increase over a base amount.

  Implications for Lease Accounting

  Understanding the nature of the commercial lease type is essential for proper lease accounting, as it affects how expenses are treated under accounting standards such as FASB, ASC 842, and IFRS 16. While the lease payment represents the amount paid for asset usage, common area maintenance expenses are typically considered variable expenses, separate from the lease component. Taxes are treated similarly, and considered excluded from the lease expense. Lessors should carefully allocate these expenses based on the lease type to accurately report their assets and liabilities.

  Navigating the world of commercial leases involves understanding the various lease types available. Triple net leases, pass-through leases, gross leases, and modified gross leases each have distinct characteristics and implications for both lessors and lessees. Familiarity with these lease types is crucial for making informed decisions and ensuring accurate lease accounting. By grasping the meaning of triple net leases and comprehending the differences between commercial lease types, individuals and businesses can navigate lease agreements more effectively and mitigate potential challenges.

  The post Understanding Different Types of Commercial Leases: Exploring Triple Net and Pass-Through Leases first appeared on Visual Lease.]]> https://visuallease.com/understanding-capital-budgeting-decisions-and-audited-financial-statements/ Wed, 05 Jul 2023 13:20:17 +0000 https://visuallease.com/?p=8107 In the realm of financial management, companies are faced with critical decisions regarding capital budgeting. These decisions involve allocating funds to various investment opportunities.  Additionally, companies often seek the assurance...
  The post Understanding Capital Budgeting Decisions and Audited Financial Statements first appeared on Visual Lease.]]> In the realm of financial management, companies are faced with critical decisions regarding capital budgeting. These decisions involve allocating funds to various investment opportunities. 

  Additionally, companies often seek the assurance of accurate financial information through audited financial statements. In this blog post, we will explore the concept of capital budgeting decisions using accounting software and delve into the significance of audited financial statements.

  Capital Budgeting Decisions and Accounting Software:

  Capital budgeting decisions refer to the process companies undertake to determine where to invest their capital. These decisions involve evaluating the financial implications, both short-term and long-term, of investing in different assets. One common choice is the lease versus buy decision, where companies analyze the total cost of owning or leasing an asset over its life.

  To make informed decisions, companies can leverage accounting software to model and analyze capital budgeting examples. By incorporating various variables and comparing the costs of different options, companies can identify the most suitable investment opportunities. Accounting software enables companies to consider factors such as cash expenditures, loan interest, sales tax, and the impact of leases on the balance sheet and profit-loss statements.

  Audited Financial Statements:

  Financial statements serve as essential tools for communicating a company’s financial performance. While companies can choose to present any form of financial statement, the highest level of confidence comes from audited financial statements. Audited financial statements undergo a thorough review by Certified Public Accountants (CPAs) who assess the accuracy and completeness of the financial information.

  Audits involve not only examining the financial numbers but also evaluating the company’s internal processes and controls. CPAs verify that appropriate steps are taken to prevent errors, fraud, and theft. Through testing and analysis, auditors ensure that finances flow accurately within the company and that the financial reports present a true and fair view of the company’s financial position.

  The Importance of Audited Financial Statements:

  Audited financial statements carry immense significance, particularly for publicly traded companies and larger private enterprises. They provide stakeholders, including investors, creditors, and regulators, with a higher level of assurance regarding the reliability and accuracy of the financial information presented. Audited financial statements include an opinion letter from the CPA firm, which states that, in the opinion of the CPA, the information is properly prepared and presented.

  Capital budgeting decisions and audited financial statements play crucial roles in financial management. Accounting software assists companies in making informed capital budgeting decisions by analyzing costs, modeling scenarios, and comparing alternatives. 

  On the other hand, audited financial statements instill confidence in the accuracy and reliability of a company’s financial information. By subjecting financial statements to rigorous scrutiny, companies demonstrate their commitment to transparency and sound financial management.

  The post Understanding Capital Budgeting Decisions and Audited Financial Statements first appeared on Visual Lease.]]> https://visuallease.com/lease-purchase-options-transforming-leases-into-fixed-assets/ Mon, 03 Jul 2023 13:00:38 +0000 https://visuallease.com/?p=8102 Lease purchase options provide companies with the opportunity to convert a lease into a fixed asset. These options allow lessees to exercise their right to purchase the leased asset during...
  The post Lease Purchase Options: Transforming Leases into Fixed Assets first appeared on Visual Lease.]]> Lease purchase options provide companies with the opportunity to convert a lease into a fixed asset. These options allow lessees to exercise their right to purchase the leased asset during or at the end of the lease term. In this blog post, we will explore how lease purchase options work and the accounting implications they entail, specifically under ASC 842 regulations. Understanding these options is essential for businesses seeking to effectively manage their lease agreements and financial statements.

  The Mechanics of Lease Purchase Options:

  When a company leases an asset, it gains the right to utilize the asset for a specified period. However, there may come a point when the lessee decides to acquire ownership of the asset. While this can be achieved through negotiation with the lessor, many lease agreements incorporate a lease purchase option. This embedded option allows the lessee to purchase the underlying asset under predetermined conditions.

  How Does a Lease Purchase Option Work?

  The lessee can exercise a lease purchase option by notifying the lessor. Typically, the lease agreement specifies a purchase price and a specific time frame during which the option becomes available. While the details may vary from lease to lease, the fundamental principle remains constant—the decision to exercise the option lies solely with the lessee. This option to purchase introduces specific accounting considerations under ASC 842.

  Lease Purchase Options Accounting Implications under ASC 842:

  When a lease includes a purchase option, it must be properly recognized and accounted for according to ASC 842 guidelines. The accounting treatment depends on whether the lessee is likely or not likely to exercise the option. The threshold for “likely to exercise” is relatively high, requiring more than just a higher probability. If deemed likely to exercise, the asset is amortized over its useful life instead of the lease term, which is typically a longer period.

  Bargain Purchase Options:

  A special case of a lease purchase option is a bargain purchase option. This option is structured to give the lessee a strong economic incentive to purchase the asset. Often referred to as a “dollar purchase option,” it allows the lessee to buy the asset for a nominal price at the end of the lease term. However, a bargain purchase option is not limited to a dollar value. If the purchase price is significantly below the asset’s fair value, it is classified as a bargain purchase.

  In the case of a bargain purchase option, accounting rules dictate that it must be accounted for as if the lessee will exercise the option. Regardless of the likelihood of exercise, the asset is amortized over its useful life rather than just the lease term. This accounting treatment ensures that failing to exercise a bargain purchase option would be against the lessee’s economic interests.

  Purchase Election without a Purchase Option:

  In situations where a lease does not have a purchase option, but the lessee elects to purchase the asset at a later stage through an agreement with the lessor, there is a methodology for exercising the purchase price. This includes adjusting the value of the consideration paid and automatically updating the fixed asset register by replacing the intangible right-of-use asset with the value of the asset and accumulated depreciation.

  Lease purchase options offer companies the flexibility to convert leases into fixed assets by exercising their right to purchase the leased asset. Understanding the intricacies of lease purchase options and their accounting implications under ASC 842 is crucial for accurate financial reporting. By effectively managing lease agreements and accounting for lease purchase options, businesses can streamline their lease administration and maintain compliance with accounting standards while making informed decisions regarding asset acquisition.

  The post Lease Purchase Options: Transforming Leases into Fixed Assets first appeared on Visual Lease.]]> https://visuallease.com/fixed-asset-accounting-managing-assets-and-leasehold-improvements/ Wed, 28 Jun 2023 13:00:34 +0000 https://visuallease.com/?p=8100 In the realm of financial accounting, fixed asset accounting holds significant importance for companies. It involves the meticulous tracking and management of owned assets, ensuring their existence, location, and allocation...
  The post Fixed Asset Accounting: Managing Assets and Leasehold Improvements first appeared on Visual Lease.]]> In the realm of financial accounting, fixed asset accounting holds significant importance for companies. It involves the meticulous tracking and management of owned assets, ensuring their existence, location, and allocation within the organization. Additionally, fixed asset accounting intersects with lease accounting, particularly concerning leasehold improvements. This blog post delves into the intricacies of fixed asset accounting, highlighting its role in lease administration and the need for distinct yet integrated systems.

  What is Fixed Asset Accounting?

  Fixed asset accounting revolves around the systematic recording and monitoring of a company’s tangible assets, such as buildings, machinery, equipment, and vehicles. These assets often represent substantial investments and have long-term value for the organization. To efficiently handle fixed asset accounting, companies employ a fixed asset register—a solution that works in tandem with accounting platforms like Visual Lease.

  What are Leasehold Improvements?

  One aspect where fixed asset accounting and lease administration intersect is leasehold improvements. When companies lease premises, they may need to undertake custom work to adapt the space to their specific requirements. These leasehold improvements can range from structural modifications to interior design alterations. The costs incurred in making these improvements, both reimbursed and self-funded, must be accounted for accurately.

  Accounting for Fixed Assets:

  The accurate handling of leasehold improvements becomes crucial when adhering to lease accounting standards such as ASC 842 or IFRS 16. These standards outline the guidelines for recognizing, measuring, and disclosing leases and lease-related expenses. To ensure compliance, the expenses related to leasehold improvements must be appropriately categorized within the lease accounting framework.

  The Role of the Fixed Asset Register:

  Within the fixed asset register, companies need to account for the materials and labor costs associated with leasehold improvements. This allows them to maintain a comprehensive overview of their fixed assets and their respective values. The fixed asset register serves as a repository for recording the financial impact of leasehold improvements, ensuring accurate reporting and compliance with accounting regulations.

  Fixed asset accounting plays a vital role in accurately tracking, managing, and reporting a company’s tangible assets. When combined with lease administration, it becomes even more crucial to accurately account for leasehold improvements and comply with relevant lease accounting standards. By leveraging dedicated fixed asset registers and integrating them with lease accounting platforms, companies can effectively manage their assets, ensure compliance, and streamline financial reporting processes.

  The post Fixed Asset Accounting: Managing Assets and Leasehold Improvements first appeared on Visual Lease.]]> https://visuallease.com/understanding-prepaid-rent-for-asc-842-what-you-need-to-know/ Mon, 26 Jun 2023 13:00:30 +0000 https://visuallease.com/?p=8098 What is Prepaid Rent?  Prepaid rent refers to lease payments made in advance for a future period. It represents an asset on the company’s balance sheet, as the prepayment can...
  The post Understanding Prepaid Rent for ASC 842: What You Need to Know first appeared on Visual Lease.]]> What is Prepaid Rent? 

  Prepaid rent refers to lease payments made in advance for a future period. It represents an asset on the company’s balance sheet, as the prepayment can be utilized to offset rent expenses in the future when it is incurred. By recording prepaid rent, companies ensure accurate accounting of their lease obligations and optimize the allocation of expenses over time.

  Is prepaid rent an asset? 

  Yes, prepaid rent is considered an asset in accounting. When a company pays rent in advance for a future period, it has a prepaid rent amount that represents the right to use the leased property in the future. This prepaid amount is recorded as an asset on the balance sheet. As time passes and the rent expense is incurred, the prepaid rent is gradually recognized as an expense, resulting in a reduction of the prepaid rent asset over time.

  Prepaid Rent under ASC 842

  When it comes to accounting for leases under ASC 842, one area that can be confusing is prepaid rent. Under the previous accounting standard, ASC 840, prepaid rent was recognized as an asset on the balance sheet and expensed over time. However, under ASC 842, there are some key differences to keep in mind.

  1. Prepaid rent is not recognized as such under ASC 842. While you can prepay rent ahead of time, the only time this will be recognized is prior to the commencement of the lease term. In other words, if you prepay rent for a future period, that amount will not be recognized as a prepaid asset on the balance sheet under ASC 842.
  2. Under ASC 842, you will have a right-of-use asset and a lease liability on the balance sheet. The lease liability reflects all of the future payments that you owe under the lease agreement, and the right of use asset represents the right to use the leased asset over the term of the lease. 
  3. If you have prepaid rent under ASC 842, the amount of that prepayment will not be included in the lease liability. However, it will be reflected in the right-of-use asset side. This is because the prepayment has already been made and is considered a reduction of the future lease payments owed.

  Straight-Line Rent Calculations Under ASC 842

  It is important to note that prepaid rent will not impact the straight-line rent calculation. Straight-line rent is an even amount that is applied to every single month, regardless of whether a cash rent payment is made or not. Therefore, when the prepaid rent is applied, there will be no reduction in the lease liability for that month. However, the right-of-use asset will be amortized, which will be recognized as an expense on the income statement.

  It is essential to understand the differences related to prepaid rent under ASC 842 for accurate lease accounting. Properly recognizing prepaid rent can help ensure that your financial statements comply with the new standard and provide an accurate depiction of your company’s financial position. 

  The post Understanding Prepaid Rent for ASC 842: What You Need to Know first appeared on Visual Lease.]]> https://visuallease.com/lease-purchasing-options-and-fixed-assets-understanding-lease-to-own-accounting/ Fri, 23 Jun 2023 13:00:32 +0000 https://visuallease.com/?p=8099 Leasing an asset with the intention to eventually purchase it is a common practice among businesses. Whether it’s an optional purchase at the end of the lease or a bargain...
  The post Lease Purchasing Options and Fixed Assets: Understanding Lease-to-Own Accounting first appeared on Visual Lease.]]> Leasing an asset with the intention to eventually purchase it is a common practice among businesses. Whether it’s an optional purchase at the end of the lease or a bargain purchase price, companies often utilize lease purchasing options to acquire fixed assets. However, understanding the accounting treatment for these lease-to-own scenarios is crucial. In this blog post, we will explore the concept of lease-to-own accounting, highlighting the considerations and implications of fixed asset lease accounting.

  What are the key considerations for lease purchasing options and fixed assets?

  1. Economic Incentives and Intent

  When a lessee intends to exercise an optional purchase or there is a bargain purchase price, it creates an economic incentive for acquiring ownership. Referred to as lease-to-own accounting, this approach assumes eventual ownership at the end of the lease term.

  2. Finance Lease Treatment

  In cases where the lessee intends to exercise an option or there is a bargain purchase price, the lease must be treated as a finance lease. This classification affects the accounting treatment and financial reporting.

  3. Amortization and Useful Life

  Instead of amortizing the right-of-use assets solely over the lease term, lease-to-own accounting involves amortizing the asset’s value over its useful life. The expectation of ownership at the end of the lease justifies a longer amortization period.

  4. Operating Lease Possibility

  If there is an option to purchase, but it is deemed unlikely to be exercised, the lease may still qualify as an operating lease based on specific circumstances. This determination depends on various factors and should be carefully assessed.

  5. Remeasurement and Finance Lease Conversion

  Once the lessee decides to exercise or intends to exercise the purchase option, the lease requires remeasurement. This results in the lease being reclassified as a finance lease, with a longer amortization period.

  6. Fixed Asset Accounting

  After the lease is purchased, the right-of-use asset and any accumulated amortization are reversed from the books. The asset is then transferred to the fixed asset register and accounted for in accordance with established fixed asset accounting practices.

  Make Informed Decisions with Lease-to-Own Accounting

  Understanding lease purchasing options and the associated lease-to-own accounting is vital for businesses considering acquiring fixed assets through leasing arrangements. By correctly accounting for these transactions, companies can ensure accurate financial reporting and align their accounting practices with regulatory requirements. 

  The post Lease Purchasing Options and Fixed Assets: Understanding Lease-to-Own Accounting first appeared on Visual Lease.]]> https://visuallease.com/how-to-prepare-for-esg-reporting-requirements/ Thu, 22 Jun 2023 13:15:50 +0000 https://visuallease.com/?p=8106 Update: On June 26, 2023, The International Sustainability Standards Board (ISSB) announced their first two global sustainability-related disclosure standards in response to widespread demand for better transparency, consistency and reliability...
  The post How to Prepare for ESG Disclosure Requirements: Getting Ready for ISSB, EFRAG, SASB, and SEC Standards first appeared on Visual Lease.]]>

  Update: On June 26, 2023, The International Sustainability Standards Board (ISSB) announced their first two global sustainability-related disclosure standards in response to widespread demand for better transparency, consistency and reliability into sustainability plans and performance. IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2 establishes the specific requirements for climate-related disclosures.

  While the Standards will ensure that organizations are reporting on robust sustainability data that is both verifiable and comparable, many companies are not yet prepared for the required effort. This blog post details three steps organizations can take to establish a baseline for reporting.

   

  ESG reporting requirements are standards for how a company tracks and reports its Environmental, Social and Governance behavior. Although U.S. requirements have not yet been finalized, it is clear that these requirements will have a significant impact on organizations with the potential to mitigate environmental risk and improve sales through positive brand recognition. 

  Socially conscious investors are the best-known driving force behind an organization’s adoption of ESG reporting, but the practice has been gaining more momentum among regulators in recent years. Recently, The International Sustainability Standards Board (ISSB), a branch of IFRS, announced that businesses should start prioritizing climate-related disclosures. Further ESG regulations from the ISSB, SASB and SEC are also expected to go into effect. Even though Europe is further along on the ESG journey than the U.S. is, many U.S.-based companies are likely already impacted by EU regulations, and there are widespread efforts to implement global regulations.

  However, many organizations are not yet prepared for what’s ahead as it relates to ESG reporting and goal setting. In fact, only 5% of Senior Real Estate executives said their company’s ESG program is fully established. By waiting for regulations to be fully finalized, organizations are placing themselves at a disadvantage. One of the main factors holding companies back is not knowing what their current environmental impact is and how they can make the changes required to get on track. However, finance teams are in a unique position to be able to help their organizations proactively get a handle on their owned and leased assets, providing them with a strong understanding of their environmental impact. 

  This blog post will highlight three ways to get ahead of ESG reporting requirements: 

  Three Ways Finance Teams Can Prepare for ESG Reporting Requirements 

  1. Create an ESG task force

  In order to effectively manage owned and leased assets throughout their entire lifecycle, it is essential for organizations to establish a task force dedicated to Environmental, Social, and Governance (ESG) initiatives. This task force will involve multiple stakeholders, such as finance, real estate, procurement, accounts payable, legal, and others. By clearly defining roles and responsibilities within the task force, organizations can streamline decision-making processes and ensure that the right individuals are involved at each stage.

  One crucial responsibility of the ESG task force is to stay informed about ESG reporting guidance, emerging regulations, and relevant laws. It is important to designate at least one member of the task force to monitor additional updates from regulatory bodies like the Securities and Exchange Commission (SEC) and the ISSB. This individual should possess a comprehensive understanding of key concepts, such as differentiating between scope 1 and 2 emissions. By staying up to date with evolving requirements, the task force can proactively address any necessary changes and maintain compliance.

  Establishing an ESG task force will ensure that your company has a dedicated team focused on tracking, reporting, and fulfilling ESG requirements. This team will play a crucial role in gathering and analyzing data, monitoring progress, and making informed decisions regarding ESG initiatives. By centralizing these efforts, your organization can effectively engage stakeholders and demonstrate its commitment to sustainability and responsible business practices.

  2. Decide how to track and report data long-term

  Implementing a centralized system of record not only empowers organizations to gain insights into their portfolio of owned and leased assets and optimize financial expenditures but also, enables them to track and assess the environmental impact of these assets. By leveraging such a system, organizations can make informed decisions based on real-time data and begin taking steps to mitigate their carbon footprint related to their real estate and equipment leases, as well as owned properties.

  For instance, as a company’s lease approaches its end, they can use the centralized system to compare the carbon emissions of their current leased office space with alternative options. This analysis can help them determine if relocating to a different space could lead to a significant reduction in their carbon footprint. By identifying and selecting environmentally friendly alternatives, organizations can align their operational practices with their sustainability goals and contribute to a more eco-friendly future.

  3. Establish a strong lease controls framework 

  To empower the cross-departmental collaboration required to effectively manage, track, report and analyze owned and leased asset data, organizations must implement dedicated technology. A solution that provides a strong lease controls framework will mitigate the risk of reporting errors, ensure that the right people have the right access to the right information at the right time, and also, provide access to meaningful insights. 

  Virtual Lease recently launched VL ESG Steward to do all this and more. It is the first solution to push real estate, procurement, facilities and finance teams to go beyond portfolio optimization, accounting and compliance to focus on the environmental impact of their assets, projects and processes. 

  ESG Steward is built in accordance with GRI, CSRD, and the Greenhouse Gas Protocol – the global gold standard for ESG and Emissions reporting guidance, ensuring accuracy, consistency and compliance with regulations and enabling organizations to tie hard data to their environmental disclosures with supporting evidence to substantiate claims of progress with confidence.

  For more information on how Visual Lease can help your business get ahead of ESG regulation requirements, schedule time with our team. 

  The post How to Prepare for ESG Disclosure Requirements: Getting Ready for ISSB, EFRAG, SASB, and SEC Standards first appeared on Visual Lease.]]> https://visuallease.com/finance-leases-vs-operating-leases-understanding-the-differences-and-asc-842/ Tue, 20 Jun 2023 13:00:00 +0000 https://visuallease.com/?p=8097 Table of contents: What is a finance lease? What is an operating lease? Key Characteristics of an Operating Lease Finance Leases vs. Operating Leases Understanding finance leases and operating leases...
  The post Finance Leases vs. Operating Leases: Understanding the Differences and ASC 842 first appeared on Visual Lease.]]> Table of contents:
  • What is a finance lease?
  • What is an operating lease?
  • Key Characteristics of an Operating Lease
  • Finance Leases vs. Operating Leases
  • Understanding finance leases and operating leases
  • How does ASC 842 impact lease classification?
  • What is the Expense Profile for Operating vs. Finance Leases?

  Finance leases and operating leases are two common types of lease arrangements that businesses encounter. With the introduction of the ASC 842 accounting standard, the classification and treatment of leases have evolved. In this blog post, we will delve into the distinctions between finance leases and operating leases and discuss how ASC 842 impacts the accounting for these lease types.

  What is a finance lease?

  A finance lease, also known as a capital lease, is a type of lease agreement in which one party, typically a lessor, allows another party, the lessee, to use and control a specific asset for an extended period of time in exchange for lease payments. A finance lease is structured so that the lessee essentially assumes many of the economic benefits and risks associated with owning the leased asset.

  Key Characteristics of a Finance Lease

  1. Ownership Transfer: Finance leases often include an option for the lessee to purchase the asset at the end of the lease term for a nominal amount, commonly referred to as the “bargain purchase option.”
  2. Long-Term Commitment: : Finance leases are generally long-term agreements, often spanning a substantial portion of the asset’s useful life. They are typically structured to match the asset’s economic life.
  3. Risk and Rewards: In a finance lease, the lessee usually takes on the risks and rewards associated with the leased asset. This includes responsibilities like maintenance, insurance, and any potential residual value.
  4. Accounting Treatment: In financial accounting, finance leases are recorded on the lessee’s balance sheet as both an asset and a liability. This is because the lessee is considered to have acquired a significant portion of the economic ownership of the asset.

  Finance Leases vs. Operating Leases

  Finance leases and operating leases differ significantly in their characteristics and accounting treatment. In a finance lease, the lessee often has the option to purchase the asset at the end of the lease term through a “bargain purchase option,” and they take on the risks and rewards of ownership. These leases are typically long-term and are recorded on the lessee’s balance sheet as both assets and liabilities. On the other hand, operating leases are short-term, with the lessor retaining ownership of the asset throughout the lease term. Lease payments for operating leases are generally treated as operating expenses and do not appear on the lessee’s balance sheet. The choice between these two lease types can have a significant impact on a company’s financial statements and decision-making processes.

  Defining Operating Leases

  An operating lease is a type of lease agreement in which one party, known as the lessor (the owner of the asset), allows another party, the lessee, to use and control a specific asset for a defined period of time without transferring ownership of the asset. Operating leases are often used for short-term or non-core assets and typically have more flexibility compared to finance leases.

  What is an operating lease?

  Short-Term: Operating leases are generally short-term agreements, covering a fraction of the asset’s total economic life. They do not typically extend for the entire useful life of the asset.

  Ownership Retained: In an operating lease, the lessor retains ownership of the leased asset throughout the lease term. The lessee does not usually have the option to purchase the asset at the end of the lease period.

  Maintenance and Risk: The lessor is typically responsible for maintaining the asset and bearing the risks associated with ownership, such as changes in the asset’s value.

  Accounting Treatment: From an accounting perspective, operating leases are generally not recognized as assets and liabilities on the lessee’s balance sheet. Instead, lease payments are typically recorded as operating expenses.

  Finance Leases vs. Operating Leases

  Finance leases and operating leases differ significantly in their characteristics and accounting treatment. In a finance lease, the lessee often has the option to purchase the asset at the end of the lease term through a “bargain purchase option,” and they take on the risks and rewards of ownership. These leases are typically long-term and are recorded on the lessee’s balance sheet as both assets and liabilities. On the other hand, operating leases are short-term, with the lessor retaining ownership of the asset throughout the lease term. Lease payments for operating leases are generally treated as operating expenses and do not appear on the lessee’s balance sheet. The choice between these two lease types can have a significant impact on a company’s financial statements and decision-making processes.

  Understanding finance leases and operating leases.

  Under the previous ASC 840 standard, capital leases were categorized as financing arrangements and were recorded on the balance sheet, while operating leases were treated as a right to use the asset and remained off-balance sheet. However, this off-balance sheet accounting approach led to concerns, prompting the transition to the ASC 842 standard.

  How does ASC 842 impact lease classification?

  ASC 842 mandates that both finance leases and operating leases be recognized on the balance sheet. This change ensures greater transparency in lease accounting.

  • In ASC 842, finance leases are now considered right-of-use assets, categorized as intangible assets. Instead of being expensed, these assets are amortized over their useful life. Finance leases also entail the recognition of separate interest expenses, which decline over time as the lease liability decreases.
  • Similar to finance leases, operating leases under ASC 842 involve the recognition of right-of-use assets as intangible assets. However, the key distinction lies in expense recognition. Operating leases are expensed using a straight-line method, where lease payments are evenly distributed over the lease term. This results in a consistent lease expense throughout the lease duration.

  What is the Expense Profile for Operating vs. Finance Leases?

  The expense profile for finance leases differs from that of operating leases. Finance leases have higher expenses in the initial months and progressively decrease as the lease term progresses. On the other hand, operating leases maintain a constant expense level throughout the lease duration.

  Understanding the differences between finance leases and operating leases is essential for businesses navigating lease accounting under ASC 842. With both types of leases now recognized on the balance sheet, organizations can provide more transparent financial reporting. By grasping the nuances of these lease classifications and their respective expense profiles, businesses can comply with accounting standards and make informed decisions regarding lease arrangements.

  The post Finance Leases vs. Operating Leases: Understanding the Differences and ASC 842 first appeared on Visual Lease.]]> https://visuallease.com/unraveling-off-balance-sheet-financing-understanding-its-impact-and-asc-842/ Fri, 16 Jun 2023 13:56:34 +0000 https://visuallease.com/?p=8096 Table of Contents What is Off-Balance Sheet Financing? ASC 842 Impact on Reporting Leases Importance of On-Balance Sheet Reporting Legal Regulations: The SEC’s Strict Stance Off-balance sheet financing refers to...
  The post Unraveling Off-Balance Sheet Financing: Understanding Its Impact and ASC 842 first appeared on Visual Lease.]]> Table of Contents
  • What is Off-Balance Sheet Financing?
  • ASC 842 Impact on Reporting Leases
  • Importance of On-Balance Sheet Reporting
  • Legal Regulations: The SEC’s Strict Stance

  Off-balance sheet financing refers to financial arrangements that are not reflected on a company’s balance sheet. Historically, operating leases were a prime example of off-balance sheet financing, where lease obligations were footnoted rather than recorded as liabilities. However, due to concerns surrounding transparency and misleading financial reporting, regulatory bodies like the FASB and the SEC have introduced measures to bring off-balance sheet items onto the balance sheet. In this blog post, we will explore the concept of off-balance sheet financing, its implications, and the influence of ASC 842 on lease accounting.

  What is Off-Balance Sheet Financing?

  Off-balance sheet financing encompasses financing arrangements that do not appear as liabilities or assets on a company’s balance sheet. This practice can create challenges in accurately assessing a company’s financial health and obligations. While some companies used off-balance sheet financing to manage their debt coverage ratios or ease their reporting workload, prominent cases of abuse and fraud, such as Enron, prompted regulatory actions to address these concerns.

  ASC 842 and On-Balance Sheet Leases.

  Under ASC 842, both operating leases and finance leases are now required to be recorded on the balance sheet, with limited exceptions for leases. The goal is to enhance transparency and provide investors with a comprehensive view of a company’s financial obligations. Companies are expected to comply with Generally Accepted Accounting Principles (GAAP) and disclose any non-GAAP financing, even if it is not reflected on the balance sheet.

  Importance of On-Balance Sheet Reporting.

  Bringing leases onto the balance sheet enables stakeholders to assess a company’s financial position more accurately. It eliminates potential distortions caused by off-balance sheet financing, allowing investors, creditors, and analysts to make informed decisions based on reliable financial information. The increased disclosure requirements ensure that companies are transparent about their financial commitments and avoid misleading practices.

  Legal Regulations: The SEC’s Strict Stance.

  The SEC has taken a stringent approach to off-balance sheet financing. Recent comments on company financial statements indicate a heightened focus on non-GAAP transactions. Companies are advised to exercise caution and maintain compliance with accounting standards to avoid repercussions and maintain investor trust. Non-compliance may lead to increased scrutiny and potential legal consequences.

  Off-balance sheet financing, once prevalent in operating leases, has undergone significant changes with the introduction of ASC 842. By requiring companies to include lease obligations on the balance sheet, transparency and accuracy in financial reporting have improved. While there are limited exceptions for short-term leases, the overall trend is toward greater disclosure and accountability. Companies should adhere to GAAP guidelines, disclose non-GAAP transactions, and stay updated with regulatory requirements to foster trust and provide stakeholders with a comprehensive understanding of their financial position.

  Ready to Streamline Your Lease Accounting under ASC 842?

  The transition from off-balance sheet financing to on-balance sheet reporting under ASC 842 represents a significant shift in lease accounting. Companies should prioritize adherence to Generally Accepted Accounting Principles (GAAP) and stay vigilant about regulatory requirements to avoid legal consequences and maintain investor confidence. With tools like Visual Lease, you can simplify the process and ensure that your lease data is managed efficiently and accurately.

  The post Unraveling Off-Balance Sheet Financing: Understanding Its Impact and ASC 842 first appeared on Visual Lease.]]> https://visuallease.com/lease-controls-for-business-success/ Thu, 15 Jun 2023 15:08:41 +0000 https://visuallease.com/?p=8093 From Compliance to Optimization: Harnessing Lease Controls for Business Success Lease accounting standards implemented over the last few years (ASC 842, IFRS 16, GASB 87) require all organizations, whether they...
  The post Lease Controls for Business Success | Visual Lease first appeared on Visual Lease.]]> From Compliance to Optimization: Harnessing Lease Controls for Business Success

  Lease accounting standards implemented over the last few years (ASC 842, IFRS 16, GASB 87) require all organizations, whether they be private, public or government entities, to account for their leases on the balance sheet. This paradigm shift has ushered in a more comprehensive reporting process, demanding greater attention to detail from finance teams across industries.

  While for many, the path toward achieving lease accounting compliance was a challenging one, it has also put organizations in a position to take advantage of their lease management practices and implement a strong lease controls framework. In doing so, they will recognize substantial business benefits, including:

  Maximized Value and Reduced Costs

  Real estate leases are an expensive portfolio of holdings for any business. On average, retailers spend about 11% of their annual gross sales on rent, according to data from NewMark Merrill, and office users can spend up to 20% of their business revenue on rent. Rent fees are just part of the cost structure of a lease. Most businesses will spend $2.14 per square foot on energy consumption, $2.15 per square foot on maintenance and $1.68 on cleaning – as real estate costs increase, business operating costs increase in step. 

  Although real estate equates to significant cost expenditures, businesses rarely know the true extent. Research from the Visual Lease Data Institute (VLDI) found that 71% of organizations are not confident they know the full cost of their leases. Technology-backed lease controls – defined as policies and procedures designed to prevent or detect unauthorized acquisition, use or disposition of these assets – can change that. 

  When organizations have proper systems and processes designed to safeguard and manage their leases, they will gain insight into the full value and cost of each lease, allowing them to be proactive in responding to lease obligations, like maintenance responsibilities, rate increases and CAM charges, as well as understanding termination rights if a lease isn’t working for or benefiting the business. In addition, proper lease control systems can help businesses save money. Data from Accenture shows that proper real estate optimization, which can only be achieved with strong lease controls in place, results in annual real estate operating expense reductions in the 12 – 20% range.

  Streamlined Processes and Reallocated Resources

  Sustained lease accounting compliance takes an enormous effort for finance and compliance teams as they attempt to keep track of all the moving parts and pieces of their organization’s lease portfolio. By implementing dedicated lease management technology that provides a customizable lease controls framework, organizations will greatly simplify their lease management and reporting processes.  

  In fact, a 2022 VLDI survey shows private companies save an average of 600 hours when utilizing lease accounting software to manage lease controls. This is particularly valuable in light of the severe shortage of accounting professionals. 

  A 2021 report from The American Institute of Certified Public Accountants found that fewer people are entering the accounting field with bachelor’s degree candidates down 2.8% and master’s degree candidates down 8.4%. Still, three-quarters of companies plan to continue to hire new graduates at the same rate each year. Implementing technology that facilitates strong lease controls can lessen the time spent on manual tasks and empower accounting and finance teams to tackle more strategic work, helping businesses address the talent shortage by better utilizing their existing resources.

  Increased Focus on Business Objectives and Growth

  The Visual Lease Data Institute found that 45% of companies have overpaid rent or expenses due to inadequate lease controls, meaning they’re not properly managing, tracking and analyzing these agreements. In many cases, this cavalier approach can compromise an organizations’ ability to grow in what are already challenging economic times. 

  Businesses with technology that supports proper lease controls can better respond to market real estate availability, create a real estate strategy that reflects their needs and gain an upper hand in negotiations without the pressure of time constraints. With a functional and targeted real estate strategy, companies and government entities will improve operations, minimize capital expenditures and realize organizational growth. 

  The post Lease Controls for Business Success | Visual Lease first appeared on Visual Lease.]]> https://visuallease.com/fixed-asset-accoutning-leasehold-improvements/ Tue, 30 May 2023 15:48:17 +0000 https://visuallease.com/?p=8057 Fixed Asset Accounting: Managing Assets and Leasehold Improvements In the realm of financial accounting, fixed asset accounting holds significant importance for companies. It involves the meticulous tracking and management of...
  The post Fixed Asset Accounting: Leasehold Improvements first appeared on Visual Lease.]]>

  Fixed Asset Accounting: Managing Assets and Leasehold Improvements

  In the realm of financial accounting, fixed asset accounting holds significant importance for companies. It involves the meticulous tracking and management of owned assets, ensuring their existence, location, and allocation within the organization. Additionally, fixed asset accounting intersects with lease accounting, particularly concerning leasehold improvements. This blog post delves into the intricacies of fixed asset accounting, highlighting its role in lease administration and the need for distinct yet integrated systems.

  What is Fixed Asset Accounting?

  Fixed asset accounting revolves around the systematic recording and monitoring of a company’s tangible assets, such as buildings, machinery, equipment, and vehicles. These assets often represent substantial investments and have long-term value for the organization. To efficiently handle fixed asset accounting, companies employ a fixed asset register—a solution that works in tandem with accounting platforms like Visual Lease.

  What are Leasehold Improvements?

  One aspect where fixed asset accounting and lease administration intersect is leasehold improvements. When companies lease premises, they may need to undertake custom work to adapt the space to their specific requirements. These leasehold improvements can range from structural modifications to interior design alterations. The costs incurred in making these improvements, both reimbursed and self-funded, must be accounted for accurately.

  Accounting for Fixed Assets:

  The accurate handling of leasehold improvements becomes crucial when adhering to lease accounting standards such as ASC 842 or IFRS 16. These standards outline the guidelines for recognizing, measuring, and disclosing leases and lease-related expenses. To ensure compliance, the expenses related to leasehold improvements must be appropriately categorized within the lease accounting framework.

  The Role of the Fixed Asset Register:

  Within the fixed asset register, companies need to account for the materials and labor costs associated with leasehold improvements. This allows them to maintain a comprehensive overview of their fixed assets and their respective values. The fixed asset register serves as a repository for recording the financial impact of leasehold improvements, ensuring accurate reporting and compliance with accounting regulations.

  Fixed asset accounting plays a vital role in accurately tracking, managing, and reporting a company’s tangible assets. When combined with lease administration, it becomes even more crucial to accurately account for leasehold improvements and comply with relevant lease accounting standards. By leveraging dedicated fixed asset registers and integrating them with lease accounting platforms, companies can effectively manage their assets, ensure compliance, and streamline financial reporting processes.

  The post Fixed Asset Accounting: Leasehold Improvements first appeared on Visual Lease.]]> https://visuallease.com/esg-in-real-estate-and-industry-changes/ Mon, 15 May 2023 13:13:31 +0000 https://visuallease.com/?p=8026 ESG and the Future of Real Estate: How Sustainability is Changing the Industry The real estate industry is undergoing a significant transformation as sustainability becomes a top priority for investors...
  The post ESG in Real Estate & Industry Changes first appeared on Visual Lease.]]>

  ESG and the Future of Real Estate: How Sustainability is Changing the Industry

  The real estate industry is undergoing a significant transformation as sustainability becomes a top priority for investors and stakeholders. Environmental, social, and governance (ESG) factors are now being considered in real estate valuation, and investors are using ESG data to make informed decisions about asset performance. In this blog post, we will explore how sustainability is changing the real estate industry and what investors need to know about ESG.

  What ESG Factors are being considered in real estate valuation?

  ESG is gaining importance among capital providers, and investors are using ESG data to evaluate the sustainability of real estate assets. ESG factors such as energy efficiency, water conservation, and waste reduction are now being considered in real estate valuation, and buildings that meet sustainability standards are more attractive to investors.

  1. Energy efficiency: Investors are looking for energy-efficient buildings with low carbon footprints. This includes buildings with efficient HVAC systems, LED lighting, and renewable energy sources.
  2. Water conservation: Investors are also looking for buildings that conserve water and have efficient water management systems. This includes buildings with low-flow fixtures, rainwater harvesting systems, and water-efficient landscaping.
  3. Waste reduction: Investors are looking for buildings that have effective waste management systems and reduce waste through recycling and composting.
  4. Social impact: Investors are looking for buildings that have a positive social impact on the community. This includes buildings that provide affordable housing, support local businesses, and promote diversity and inclusion.
  5. Governance: Investors are looking for buildings that have strong governance structures and ethical leadership. This includes buildings that have transparent reporting, strong risk management, and effective stakeholder engagement.

  ESG is becoming a material risk and opportunity for real estate investors and other stakeholders. As climate change and other sustainability issues become more pressing, investors are looking for ways to future-proof their assets against shocks and disruptions. This means that real estate managers must take a proactive approach to sustainability and change their assets to meet ESG standards.

  How is ESG driving innovation in the real estate industry?

  Developers and investors are exploring new technologies and strategies to reduce the environmental impact of buildings and improve their sustainability. Here are the top 5 ESG-related technologies becoming more common in new real estate developments.

  1. Solar panels: Solar panels are a popular way to generate renewable energy and reduce a building’s carbon footprint. They can be installed on rooftops or as standalone structures and can provide a significant portion of a building’s energy needs.
  2. Efficient lighting: LED lighting is becoming more common in real estate developments as it is more energy-efficient than traditional lighting. Smart lighting systems can also be used to optimize energy use and reduce waste.
  3. Insulation: Proper insulation is essential for reducing energy consumption and improving a building’s energy efficiency. Insulation materials such as spray foam, cellulose, and fiberglass can be used to reduce heat loss and improve indoor air quality.
  4. Smart technology: Smart technology can be used to optimize energy use and reduce waste. For example, smart thermostats can be used to regulate heating and cooling systems, while smart sensors can be used to monitor energy use and identify areas for improvement.
  5. Tankless water heaters: Tankless water heaters are becoming more common in real estate developments as they are more energy-efficient than traditional water heaters. They can provide hot water on demand and reduce energy consumption by up to 30%.

  What are the benefits of embracing ESG in real estate? 

  According to the US Green Building Council, green buildings cost 2% more to build on average, but they save 14% to 19% in operational expenditures. This means that while the upfront costs of green technology may be higher, the lifetime savings can be significant.

  Energy-efficient systems can help reduce utility bills, while sustainable features can increase a building’s resale value. In fact, building owners are seeing a 10% or greater increase in property value after investing in green buildings. Additionally, sustainable real estate investments have been shown to outperform traditional real estate investments in terms of risk-adjusted returns.

  If you’re looking for a solution to track ESG reporting across your real estate portfolio, check out VL’s ESG Steward.

   

  The post ESG in Real Estate & Industry Changes first appeared on Visual Lease.]]> https://visuallease.com/related-party-leases-under-asc842/ Wed, 10 May 2023 12:42:44 +0000 https://visuallease.com/?p=7981 Related Party Leases under ASC 842 Recently, the Financial Accounting Standards Board (FASB) introduced new rules and clarifications regarding the treatment of related party leases under ASC 842. Although these...
  The post Related Party Leases under ASC 842 first appeared on Visual Lease.]]>

  Related Party Leases under ASC 842

  Recently, the Financial Accounting Standards Board (FASB) introduced new rules and clarifications regarding the treatment of related party leases under ASC 842. Although these rules apply to all related party leases, their impact is most significant for private business entities. This blog post aims to provide an overview of these developments and highlight the key considerations for companies navigating related party leases under ASC 842.

  Related Party Leases: Key Considerations

  1. Putting Agreements in Writing: FASB has introduced a crucial change requiring companies to document related party leases explicitly. Previously, private businesses often treated these leases informally to cut costs. The original rule required examining legally enforceable terms, leading to expensive attorney opinion letters. FASB’s amendment allows companies to account for related party leases based on the terms written in a simple agreement, simplifying compliance.
  2. Accounting for Leasehold Improvements: Under ASC 842, related party leases involving leasehold improvements face important considerations. Previously, if the improvements had a longer lifespan than the lease term, it could result in accelerated write-offs and unusual expenses. The current standard allows companies to amortize leasehold improvements over their useful life. If the related party lease ends before the improvements’ useful life, adjusting entries are made to align the books properly. This prevents excessive burden on the subleasing company’s financial statements.

  3 Considerations for Related Party Leases Under ASC 842

  When considering related party leases under ASC 842, here are the top three things to keep in mind:

  1. Document the Agreement: Regardless of the complexity or length, it is essential to put related party lease agreements in writing. This documentation should cover the majority of the terms agreed upon by the related parties. By formalizing the lease agreement, companies can ensure compliance with the accounting standards and avoid unnecessary complications.
  2. Accounting for Leasehold Improvements: If the related party lease involves leasehold improvements with a longer lifespan than the lease term, companies should amortize the costs of these improvements over their useful life. This approach prevents accelerated write-offs and unusual expense patterns. In case the lease terminates before the completion of the improvements’ useful life, adjusting entries should be made to align the books accordingly.
  3. Seek Professional Guidance: Given the complexity of accounting standards and the potential impact on financial statements, it is advisable to consult with accounting professionals or experts familiar with ASC 842. They can provide valuable insights and guidance tailored to the specific circumstances of related party leases.

  Implications of Related Party Leases for Private Businesses

  The recent developments introduced by FASB regarding related party leases under ASC 842 have significant implications, particularly for private business entities. By ensuring that related party leases are properly documented and by accounting for leasehold improvements in line with the rules, companies can comply with the standards while maintaining accurate and transparent financial reporting. Seeking professional guidance is crucial to navigating these accounting complexities effectively. By staying informed and adhering to the updated rules, businesses can mitigate risks and make sound financial decisions in the context of related party leases.

  If your organization is struggling with sustainable ASC 842 compliance, you’re not alone.  Join the thousands of companies that have switched to Visual Lease to confidently maintain compliance.

   

  The post Related Party Leases under ASC 842 first appeared on Visual Lease.]]> https://visuallease.com/gaap-vs-tax-accounting-financial-reporting/ Tue, 02 May 2023 20:49:55 +0000 https://visuallease.com/?p=7964 GAAP vs. Tax Accounting: Navigating the Complexities of Financial Reporting With the introduction of ASC 842, some private companies are struggling with the requirement to record the vast majority of...
  The post GAAP vs. Tax Accounting: Financial Reporting first appeared on Visual Lease.]]>

  GAAP vs. Tax Accounting: Navigating the Complexities of Financial Reporting

  With the introduction of ASC 842, some private companies are struggling with the requirement to record the vast majority of their leases to the balance sheet. As a result, some organizations are turning to tax basis to file statements instead of following the new lease accounting rules.

  GAAP (Generally Accepted Accounting Principles) and tax accounting are two different sets of accounting standards that companies are required to follow. While both are used to report financial information, they have different purposes and requirements.

  What is GAAP?

  GAAP is the set of rules and guidelines that publicly traded companies in the United States must follow when preparing financial statements for external stakeholders, such as investors, creditors, and regulators. GAAP principles are designed to ensure that financial statements are accurate, complete, and comparable across companies.

  What is Tax Accounting?

  On the other hand, tax accounting is used to calculate a company’s tax liability to the government. The Internal Revenue Service (IRS) requires companies to report their taxable income based on the tax code and regulations, which can differ significantly from GAAP principles.

  GAAP vs. Tax Accounting

  The main difference between GAAP and tax accounting is their objectives. While GAAP is focused on providing accurate financial information to external stakeholders, tax accounting is focused on complying with tax laws and regulations. This difference in objectives can lead to discrepancies between the two accounting methods, making it difficult to reconcile financial information.

  What are some examples of discrepancies between GAAP and tax accounting?

  • Timing of revenue: GAAP requires revenue to be recognized when it is earned, regardless of when it is received. On the other hand, tax accounting requires revenue to be recognized when it is received, regardless of when it is earned. This can create discrepancies in revenue recognition between the two methods, leading to different reported profits.
  • Treatment of depreciation: GAAP allows for different depreciation methods, such as straight-line or accelerated depreciation, based on the useful life of the asset. Tax accounting, however, requires companies to use specific depreciation methods, such as the Modified Accelerated Cost Recovery System (MACRS), which can differ from GAAP methods.

  These differences between GAAP and tax accounting can create challenges for companies when reconciling financial information. Companies must ensure that their financial statements are accurate and complete, while also complying with tax laws and regulations. This can require significant resources and expertise, as well as the use of specialized software and tools to manage the complexity of the reconciliation process.

  Additionally, tax basis financial statements may not be accepted by all users, such as lenders and investors, who may require GAAP financial statements. Private companies that use tax basis financial statements may need to provide additional disclosures to explain the differences between tax basis and GAAP financial statements.

  Finding The Right Technology:  GAAP Accounting Software

  The biggest challenge in accounting, regardless of whether it is GAAP vs. tax accounting, is tracking down data, managing changes, and maintaining controls.  Managing leases, for example, can be a challenging and complex process, regardless of the accounting basis used.

  • For example, if a company is using GAAP accounting, they need a lease management system that can track and manage lease data in accordance with GAAP principles.
  • Similarly, if a company is using tax accounting, they need a system that can handle the specific tax regulations and requirements related to lease transactions.

  Companies must have strong controls and processes in place to ensure that their lease accounting and management data is accurate and up to date. Companies may need to invest in specialized software and tools to manage the complexity of lease accounting and ensure compliance with accounting methods.

   

   

  The post GAAP vs. Tax Accounting: Financial Reporting first appeared on Visual Lease.]]> https://visuallease.com/accrued-rent-and-deferred-rent-in-asc842/ Fri, 28 Apr 2023 18:32:59 +0000 https://visuallease.com/?p=7956 Table of Contents What is Accrued Rent? What is Deferred Rent? Accrued Rent vs. Deferred Rent: What’s the difference? Accrued Rent Example Deferred Rent Example Key Considerations for Rent Accounting...
  The post Accrued Rent and Deferred Rent in ASC 842 first appeared on Visual Lease.]]>

  Table of Contents

  • What is Accrued Rent?
  • What is Deferred Rent?
  • Accrued Rent vs. Deferred Rent: What’s the difference?
  • Accrued Rent Example
  • Deferred Rent Example
  • Key Considerations for Rent Accounting under ASC 842

  Understanding Accrued Rent and Deferred Rent in ASC 842 Accounting

  Rent is one of the largest expenses that companies face, and it’s critical to properly account for it. Under the new accounting standard ASC 842, there are some changes to how rent is accounted for. Two important concepts to understand in rent accounting are 1. accrued rent and 2. deferred rent. In this post, we will explore what these terms mean, the difference between them, and what to keep in mind when it comes to rent accounting under ASC 842.

  What is Accrued Rent?

  Accrued rent is a type of rent expense that has been recognized but not yet paid. It represents the difference in timing between paying rent and the actual cash payment of rent. In a traditional straight-line application, rent is expensed equally across the lease’s entire term. However, the actual rent payments made may vary depending on the lease agreement. In some cases, the rent may be expensed when no rent is paid, resulting in accrued rent.

  Accrued rent is a liability under the ASC 840 methodology, but under ASC 842, there is no accrued rent. This is because there is already an asset and a liability recorded for the lease under the new standard.

  What is Deferred Rent?

  Deferred rent is the difference between the amount of rent paid and the rent expense. In a straight-line rent application, the rent paid in the early months of the lease is less than the rent paid in later months. This results in deferred rent, which is recorded as a liability on the balance sheet.

  Accrued Rent vs. Deferred Rent: What’s the difference? 

  Accrued rent and deferred rent are both accounting concepts that relate to the timing of rent payments and rent expense recognition, but they represent different scenarios.  Accrued Rent represents a difference in timing, whereas Deferred Rent represents a difference of amount in the period.

  Under the new lease accounting standard, ASC 842, accrued rent is not recognized separately as a liability because the right-of-use asset recognized on the balance sheet already reflects the straight-line rent expense. The difference between the right-of-use asset and lease liability represents the deferred rent or prepaid rent.

  Accrued Rent Example

  Consider a scenario where a company enters into a lease agreement for office space at $10,000 per month. The lease agreement requires payment at the end of each quarter. At the end of the first month, the company accrues $10,000 as rent expense because it has utilized the office space for that period. However, the actual payment of rent doesn’t occur until the end of the quarter. Therefore, at the end of each month, the accrued rent increases by $10,000 until the payment is made at the end of the quarter.

  Deferred Rent Example

  Imagine a company signs a lease for equipment with a total lease term of five years. The lease agreement stipulates that the monthly rent for the first year is $1,000, but it gradually increases by $100 each year thereafter. In this case, the company pays $1,000 per month in rent, but the rent expense recognized in the early years is lower than the actual rent paid due to the gradual increase. Consequently, the difference between the rent paid and the rent expense recognized constitutes deferred rent, which accumulates over the lease term.

  These examples illustrate the distinction between accrued and deferred rent and how they manifest in real-world lease agreements. Understanding these concepts is crucial for accurate financial reporting under ASC 842 accounting standards. For further insights into accrued and deferred expenses, refer to the article here.

  Key Considerations for Rent Accounting under ASC 842

  Rent accounting under ASC 842 can be complex and requires careful consideration. Here are some key things to keep in mind:

  1. Identify lease arrangements: The first step is to identify all lease arrangements, including embedded leases, and determine if they meet the criteria for recognition under ASC 842.
  2. Determine lease term: The lease term is the period during which the lessee has the right to use the leased asset. It includes the non-cancellable period of the lease plus any periods covered by options to extend or terminate the lease if they are likely to be exercised.
  3. Determine lease payments: Lease payments include fixed payments, variable payments based on an index or rate, and any other amounts the lessee is required to pay under the lease.  Not all are included in the calculation of the Lease Liability and Right of Use Asset.  The details of the lease agreement and your accounting elections will determine the proper payments to include.
  4. Calculate lease liability: The lease liability is the present value of lease payments, discounted using the lessee’s incremental borrowing rate. Private business entities have the option to use a risk-free rate in place of the incremental borrowing rate.  This represents the obligation to make lease payments over the lease term.
  5. Calculate right-of-use asset: The right-of-use asset is the lease liability plus any initial direct costs and lease payments made before the lease commencement date. Lease incentives, deferred, and accrued rent can also impact the right-of-use asset value.  It represents the lessee’s right to use the leased asset over the lease term.
  6. Recognize lease expense: If the lease is an operating lease, the lease expense is recognized on a straight-line basis over the lease term, unless there is a more appropriate basis for allocation.   If the lease is a finance lease, the lease expense is recognized as straight-line amortization of the right-of-use asset plus the period interest expense.

  Overall, rent accounting under ASC 842 requires a detailed analysis of lease arrangements, lease terms, and lease payments, as well as careful consideration of transition requirements. It is important for entities to have robust processes and systems in place to ensure compliance with the standard.

   

   

  The post Accrued Rent and Deferred Rent in ASC 842 first appeared on Visual Lease.]]> https://visuallease.com/why-lease-management-shouldnt-be-ignored/ Wed, 26 Apr 2023 12:51:42 +0000 https://visuallease.com/?p=7951 “Why Lease Management Shouldn’t Be Ignored: The High Cost of Underestimating Your Lease Portfolio and How to Optimize It for Your Business Needs” Many companies are underestimating the total cost...
  The post Why Lease Management Shouldn’t Be Ignored first appeared on Visual Lease.]]>

  “Why Lease Management Shouldn’t Be Ignored: The High Cost of Underestimating Your Lease Portfolio and How to Optimize It for Your Business Needs”

  Many companies are underestimating the total cost of their lease portfolio when in reality, leases are often the second largest expense for organizations with most businesses spending 5% to 10% of total revenue per square foot on rent. And in accordance with lease accounting standards (ASC 842, IFRS 16 and GASB 87), companies must now account for these expensive assets on the balance sheet, further emphasizing just how critical it is for business leaders to keep close tabs on these complex agreements.

  While it’s undeniable that leases are a critical part of businesses’ operations and financial reporting, many organizations wrongly assume that once executed, their work on these agreements is done. However, failing to invest in ongoing lease management and controls typically results in excess costs and overutilization of leased assets, such as real estate. For example, a recent survey from Accenture found that companies today could reduce spatial needs by as much as 40% – which could free up funds that could be allocated elsewhere.

  3 Steps to Optimize the Value of Your Lease Portfolio

  There are 3 key steps that companies can take to optimize the value of their lease portfolio to best serve their organization’s needs: 

  1. Gather & Evaluate Your Leases
  

  Corporate leases have a lot of components, from the basics like rental rate and lease terms to maintenance obligations, utilities, and employee utilization rates. With so many components to keep track of, 71% of companies have reported that they are not confident about the complete cost of their lease, and a startling 90% of senior real estate executives feel they do not have access to all the data they need to make informed decisions about their company’s lease portfolio. These statistics are alarming when you consider that leases are typically the  second-largest expense for most businesses.

  To get full control over your portfolio, first take stock of all real estate and equipment leases within your organization, which are likely scattered in various locations and departments within your company. Thoroughly review each component, including terms and responsibilities, like common-area maintenance fees, insurance minimums, and deferred maintenance.

  2. Utilize Technology
  

  While businesses successfully utilize Excel to tackle many different needs, the fact of the matter is  those spreadsheets simply can’t accommodate how intricate and dynamic leases are, which inevitably leads to major reporting errors.  Once you’ve gathered all your leases, consider investing in dedicated technology that is  purpose-built to help you manage all the moving parts and pieces of your leases throughout their entire lifetime.

  The Visual Lease Data Institute found that currently, 83% of companies are not prioritizing investments in the dedicated technology, people, and processes needed to successfully manage their lease-related expenses despite the fact that in a 2022 report, 45% of companies reported that using lease accounting software decreased associated costs. A similar survey from EY found that a technology-paired lease management program unlocked constrained resources and helped employees focus on high-value tasks, a major benefit when today, many organizations are being asked to do more with fewer resources.

  Technology is permeating throughout organizations because of its benefits in streamlining processes and driving efficiency, and the same benefits can be gained by infusing technology into lease management and accounting practices.

  3. Implement Strong Lease Controls
  

  Research from Deloitte found that companies utilizing cross-departmental collaboration could better respond to a broad range of challenges and were more likely to achieve digital maturity. Given how collaborative lease management is, an internal cross-functional task force should lead the efforts to evaluate solutions and ensure the technology is a good fit across departments that commonly interact with a lease portfolio, including real estate, legal, procurement, IT, and finance and accounting.

  Once the right technology has been identified, you should work with your internal teams and solution provider to implement lease controls and align them to your existing systems. Doing so will ensure that the right people have the right access to your lease data at the right time, which will decrease your organization’s chances of missing deadlines or options, miscalculating lease costs, overpaying, overlooking important deadlines and missing the opportunity to exercise options. Amid the changing economic environment, businesses are focused on improving operational performance to weather the storm. An optimized lease portfolio gives companies the opportunity to respond and adapt to market changes and stay ahead of competitors – a vital asset during a bear run. To learn more about lease management, click here.

   

  The post Why Lease Management Shouldn’t Be Ignored first appeared on Visual Lease.]]> https://visuallease.com/the-evolution-of-leasing-4-trends-to-expect-in-2023/ Tue, 25 Apr 2023 15:49:42 +0000 https://visuallease.com/?p=7948 The ongoing effects of the pandemic, evolving workplace trends and unique economic circumstances have driven businesses to reconsider how and why they enter into new leases.  But how exactly are...
  The post The Evolution of Leasing: 4 Trends to Expect in 2023 first appeared on Visual Lease.]]>

  The ongoing effects of the pandemic, evolving workplace trends and unique economic circumstances have driven businesses to reconsider how and why they enter into new leases.  But how exactly are companies adapting? Better yet, what are the implications of these new behaviors?

  A recent study from The Visual Lease Data Institute (VLDI) answers all these questions and more:

  1. Organizations are prioritizing lease terms that enable adaptability.

  The pandemic has changed how companies operate, and as a result, many have found themselves locked into leases for space that they no longer require.

  To combat this challenge, nearly 88% of companies report that they are planning for physical space needs only one year or less in advance, which is a 151% increase from 2022. The majority of real estate executives have also reported that their businesses were planning to add space as a part of their 2023 real estate strategy – but more than half (52%) of these companies are planning for some or all of this space to be in the form of new satellite locations.

  What does this all mean? Organizations value the ability to revisit lease agreements, negotiate flexible terms and explore alternative real estate options that align with their evolving business strategies.

  2. Business leaders are focused on new workforce needs.

  Business leaders are also looking for leases that support their ability to accommodate remote or hybrid work arrangements – something that has become a “must-have” for many when considering job opportunities. In fact, a 2022 survey by McKinsey found that the third-most-popular reason employees looked for a new job was to find a flexible working arrangement.

  To remain competitive in the job market, companies are reimagining how they utilize their available space. Forty-six percent of surveyed senior real estate executives say that shared desks or offices that can be booked as needed by workers provide the best office environment for their companies. The ability to sublease, communal building amenities and flexible lease termination were also identified as top priorities for companies, ideally providing business leaders with options when it comes to how and where they occupy physical space.

  By entering into lease agreements that provide these various possibilities, companies are more likely to be able to pivot to appeal to existing and potential employees.

  3. Poor lease management continues to cost companies… big time.

  It’s no secret that mismanaged leases can lead to expensive mistakes. In fact, 45% of senior real estate executives admit that their companies have overpaid rent or expenses due to inadequate lease controls. Further underscoring the need for strong lease management practices is the reality that lease accounting standards (ASC 842, GASB 87 and IFRS 16) require companies to accurately represent their leases on the balance sheet. Without controls in place, businesses open themselves up to the very real risk of regulatory scrutiny and costly fines or audits.

  Despite how high the stakes are, 83% of companies aren’t investing in the technology, people and processes required to properly manage lease-related expenses.

  To stay ahead of costly errors, organizations must prioritize implementing strong controls to safeguard their lease portfolio, which is often their second largest expense just after people-related costs.

  4. Organizations can leverage their leases in their ESG program development and reporting.

  Although 99% of senior real estate executives believe it’s important for their company’s future leases to help reduce its carbon footprint, 95% of companies still don’t have a fully established ESG program in place and 41% report they haven’t begun any ESG initiatives yet.

  But regardless of where organizations stand in their ESG journey, they need to be able to accurately track and record where the bulk of their carbon emissions occur, which is across its lease portfolio. Investing in the right technology that offers carbon measurement and reporting features will give leaders a clear line of sight into their environmental impact, allowing them to meet reporting requirements.

  For more information on how Visual Lease can help your business take control of its leases and take charge of what’s next, schedule time with our team.

   

  The post The Evolution of Leasing: 4 Trends to Expect in 2023 first appeared on Visual Lease.]]> https://visuallease.com/mastering-lease-accounting-internal-controls-part-2-top-7-control-activities-and-how-technology-can-help/ Mon, 24 Apr 2023 12:49:12 +0000 https://visuallease.com/?p=7944 This is part II of our Mastering Lease Accounting Compliance series. If you missed part I, you can read it here. Adopting a lease accounting standard can have a significant...
  The post Mastering Lease Accounting Internal Controls [Part 2]: Top 7 Control Activities and How Technology Can Help first appeared on Visual Lease.]]>

  This is part II of our Mastering Lease Accounting Compliance series. If you missed part I, you can read it here.

  Adopting a lease accounting standard can have a significant impact on your organization’s balance sheet and financial statement footnotes. Moreover, it also expands lease disclosures and comes with the added burden of complying with lease accounting standards. In this post, we’ll share insights on controls and how technology can help organizations meet the challenges of lease accounting compliance.

  What are some of the top lease accounting control activities?

  Today we’re highlighting 7 of the top control activities that can help organizations with lease accounting compliance.

  These activities can be classified into two buckets: control activities and monitoring activities.

  The control activities include standardization of documentation, separation of duties, authorization and approvals, system access controls, and safeguarding of assets. The monitoring activities are audit trail and reconciliation.

  What are the Control Activities?

  • Standardization of Data and Documentation

  Every lease agreement is different, and the concept of standardization helps control both documents as well as the data they contain. Standardization helps control chronology such as original lease, amendments, renewals, etc. Also, completeness of both the document and package as well as any missing data elements and consistency that everything shows up in the same place within the platform. It also provides for ease of auditability through input templates defined, data fields, a contract repository, and the ability to set up fields for clauses, this is truly the concept of a single source of truth.

  • Separation of Duties

  Separation of duties is a critical control activity in lease accounting compliance. Organizations should ensure that folks in accounting should not be allowed to make changes to the system for things that can be operationally critical, such as term dates, and other aspects of the lease that are critical to the operations of that lease. User-defined roles can be set up in a system to ensure that lease admins have a certain level of activity within the system, while lease accountants can perform other activities, but never the two shall meet, so to speak.

  • Authorization and Approvals

  Authorization or approvals is another control activity that intersects with system access controls. Someone who is not in the system daily making changes, updates, etc. should be the one that approves the change log right these changes and reviews the log. They shouldn’t be making it the same way that someone who is inputting data daily is.

  • System Access Controls

  System access controls are vital in ensuring the security and integrity of lease data. Setting up user profiles that grant specific access levels is a good way to restrict access to sensitive data. For example, you can set up different profiles for admins, accountants, supervisors, reviewers, and auditors. Additionally, security features like SSL and two-factor authentication provide extra security not just for internal users but also for external users accessing the system.

  • Safeguarding of Assets

  Lease agreements often involve valuable assets that are critical to a company’s operations. Thus, it’s important to safeguard these assets by ensuring that you have a system in place that alerts you to critical dates and events related to lease agreements. For instance, if a lease agreement is coming to an end, you should be notified in advance, giving you enough time to renew the lease or negotiate favorable rates. Failure to safeguard these assets can result in a loss of critical business locations or unfavorable rates, which could be detrimental to the business.

  What are the Monitoring Activities?

  • Reconciliation

  Reconciliation is a vital process in lease accounting that ensures the accuracy and completeness of lease data. It involves comparing lease data across different periods to identify any discrepancies or errors. However, reconciliation is not 100% satisfied by the system, and compensating user controls are necessary to complete the process properly. Fortunately, lease accounting software provides a variety of role reports that enable the reconciliation of different activities within the lease accounting process.

  • Audit Trail

  Auditing is a critical part of lease accounting that ensures compliance with lease accounting standards and regulations. In addition to compliance, audit trails are also essential in establishing the accuracy and completeness of lease data. In Visual Lease, for example, there’s a quantitative disclosure report that provides a summary of all the information needed to pop into your footnote. The report also allows users to drill down into each of those summary numbers to see how they were built up. This feature provides an audit trail that users can use to establish the detail behind those numbers. Furthermore, the audit trail can be handed off to auditors to test the report and the audit trail that has that drilled-down feature.

  How can I implement better controls?

  Adopting a lease accounting standard can have a significant impact on an organization’s balance sheet and financial statement footnotes. To comply with these standards, organizations need to implement controls around accounting and reporting, which must be audited and continuously monitored. Collaboration between departments is necessary to ensure compliance, and auditors may need to engage with folks outside of accounting to test the controls in place. Fortunately, technology like Visual Lease can help organizations meet the challenges of lease accounting compliance. To learn more about Visual Lease’s Lease Accounting solutions, click here.

   

   

  The post Mastering Lease Accounting Internal Controls [Part 2]: Top 7 Control Activities and How Technology Can Help first appeared on Visual Lease.]]> https://visuallease.com/mastering-lease-accounting-internal-controls-part-1-unveiling-the-key-categories-for-compliance/ Mon, 24 Apr 2023 12:44:59 +0000 https://visuallease.com/?p=7942 This is part I of our Mastering Lease Accounting Compliance series. If you’re looking for part II, you can read it here. Lease accounting standards such as ASC842 and IFRS16...
  The post Mastering Lease Accounting Internal Controls [Part 1]: Unveiling the Key Categories for Compliance first appeared on Visual Lease.]]>

  This is part I of our Mastering Lease Accounting Compliance series. If you’re looking for part II, you can read it here.

  Lease accounting standards such as ASC842 and IFRS16 have significantly changed companies’ financial reporting requirements. These standards require companies to be more diligent in their financial reporting and lease management processes. The implementation of these standards requires a series of controls to ensure accuracy and compliance.

  What are some of the key categories for Lease Accounting Internal Controls?

  Lease accounting internal controls fall into four main categories: Transition-related Controls, Financial Reporting Controls, Activity-related Controls, and IT General Controls.

  1. Transition-related controls are short-term controls that focus on the transition period when implementing the new lease accounting standards. These controls include ensuring accurate lease listings during the transition, appropriate documentation, and other related processes. It is important not to lose track of these controls, as some of them have ongoing relevance even after the transition period. Some of these controls may become relevant again when companies move across the technology maturity spectrum.
  2. Financial Reporting Controls are critical to ensuring that companies comply with the new lease accounting standards. These controls include familiar checklists for disclosure and IFRS16 reporting and existing internal controls for financial reporting. In addition, lease-specific controls such as reconciling lease disclosures with related system reports are essential to ensure accuracy in financial reporting.
  3. Activity-related controls refer to controls around lease management processes such as lease modifications, lease terminations, and lease renewals. These controls include ensuring that there are appropriate approvals in place for these processes and that lease modifications and renewals are reflected accurately in the company’s financial statements. Activity-related controls also include lease classification reviews, which ensure that leases are classified correctly as operating or finance leases. This is important because it affects the way leases are recorded in the company’s financial statements.
  4. IT General Controls are controls that ensure the integrity of the company’s IT systems, data, and processes. These controls include ensuring appropriate access controls, data backups, and data security. IT General Controls are particularly important for lease accounting standards as they involve significant data and calculations.

  To learn more about lease accounting internal controls – including the top seven control activities and how technology can help with lease accounting, check out part II of this blog. If you’re looking for reliable lease controls and audit-ready financial reports, learn more about Visual Lease’s Lease Accounting Solution.

   

   

  The post Mastering Lease Accounting Internal Controls [Part 1]: Unveiling the Key Categories for Compliance first appeared on Visual Lease.]]> https://visuallease.com/what-lease-accounting-compliance-can-do-for-your-business-next/ Wed, 08 Feb 2023 13:49:46 +0000 https://visuallease.com/?p=7824 In response to lease accounting standards, your business may have already set in place certain lease accounting systems and technology to achieve compliance. But did you know these solutions can...
  The post What Lease Accounting Compliance Can Do for Your Business Next first appeared on Visual Lease.]]>

  In response to lease accounting standards, your business may have already set in place certain lease accounting systems and technology to achieve compliance. But did you know these solutions can do more than help your company stay audit-ready?

  With today’s shortage of finance workers, higher workloads and increasing compliance regulations, companies need to find more efficient ways to manage their lease portfolios. By implementing the right technology, people and systems, your business can leverage its expensive lease portfolio as a more strategic asset. Here’s a closer look at how lease accounting compliance can help your business improve the financial, legal and operational performance of its leases.

  1. Identify cost-saving opportunities

  Financial leaders can use their technology to implement controls that help identify areas where they can reduce costs. This can be done through visibility into options and exercise windows, using insights into actual costs to guard against inflation and securing earned incentives by tracking requirements and timing.

  2. Reduce legal risk

  Lease mismanagement exposes businesses to serious risks, including legal action and, as a result, damaged credibility. However, business leaders can reduce these risks by firmly establishing control of lease terms. As a result, they can rest easier knowing that:

  • They now have visibility into rights and obligations.
  • They’ve limited their exposure to indemnification and other serious obligations.
  • The business is less likely to default by failing to comply with lease terms.
  • They’ve eliminated confusion and wasted time over repair and maintenance responsibility.

  3. Save employee time

  In the current economic conditions, it’s pertinent that businesses save time wherever they can. A Visual Lease report showed that private companies were able to save an average of 600 hours with lease accounting software.

  With the right technology solution, your business can easily integrate, manage and automate lease data between systems to generate detailed disclosure reports, compliance checks, automatic remeasurements and customized data options.

  This means your employees can focus on tasks that drive your business forward instead of rigorous, time-consuming reporting. Reliable, complete data—along with better cross-departmental collaboration—eliminates time spent on redoing accounting work or lengthy audits, and even increases confidence in year-end reporting.

  4. Support agile business decisions

  Businesses with the systems and technology in place for lease accounting compliance are also now equipped with greater visibility into their leases, which leads to making more informed business decisions.

  This is necessary as many organizations are currently spending less time to make plans for their space needs. According to a , 88% of senior real estate executives say their companies are planning for their physical space needs just one year or less in advance.

  Having the right technology and systems already in place also protects your business’ ability to pivot should any unforeseen circumstances arise. And as we learned from the COVID-19 pandemic, these types of predicaments can happen at any time. Yet your organization can quickly react to changing circumstances by reducing footprints, subleasing where needed or opting for shared workspaces.

  With the right lease controls and management solutions established, your business can move past lease accounting compliance and look forward as you leverage this technology to create even greater financial, legal and operational outcomes for your business.

   

   

  The post What Lease Accounting Compliance Can Do for Your Business Next first appeared on Visual Lease.]]> https://visuallease.com/4-common-risk-areas-found-in-a-lease-portfolio-what-to-know-and-how-to-avoid-them/ Tue, 10 Jan 2023 21:25:45 +0000 https://visuallease.com/?p=7801 Today, many organizations lack control over their leases, which increases the risk of making costly errors, such as overpaying or missing a date for termination or renewal. (90% of senior...
  The post 4 Common Risk Areas Found in a Lease Portfolio: What to Know and How to Avoid Them first appeared on Visual Lease.]]>

  Today, many organizations lack control over their leases, which increases the risk of making costly errors, such as overpaying or missing a date for termination or renewal. (90% of senior Real Estate Executives do not believe they have access to the data they need to make an informed decision about their company’s lease portfolio.)

  With leases usually serving as a business’ second-largest expense, they are far too valuable to overlook and undermanage.

  Here are four common risks areas found in your lease portfolio and how to avoid them.

  1. Inaccurate, unreliable lease data

  Leases contain hundreds of unique terms and options that evolve over time. To remain aware of each liability and option, you’ll need to have visibility into the details within your leases.

  As leases change, it’s important to keep track of every update or modification that has been made to your leases. By doing so, you will ensure that your data – and as a result, your financial reporting – is always accurate.

  To get a firm grasp on your lease data, first identify all lease contracts within your organization and then, centralize your lease data within a reliable lease accounting solution that enables you to view and maintain your leases as they change, and also, know what updates were made and when.

  2. Lease misclassification

  To comply with the lease accounting standards, companies are required to classify leases as operating or finance leases at their inception. The distinction is important since misclassification can impact:

  • The balance sheet
  • Expenses related to operating and finance leases
  • Understanding of credit agreements and covenants that may limit the number of finance leases
  • Company metrics, bonuses or incentive plans due to misclassified “geography” of the respective accounts in the balance sheet

  To ensure accurate classification of leases, it’s important to implement processes that support the criteria for reporting on operating and finance leases. Utilize your lease accounting solution to help your team properly classify leases and record them on the balance sheet.

  3. A lengthy, expensive audit process

  Your audit will likely take more time without a view into the lease accounting calculations and adjustments made to your lease data. To reduce time (and money), provide auditors with a complete view into your lease data, along with a full audit trail of every change – both of which can be accomplished by utilizing a strong lease accounting and administration platform.

  Further, automated calculations backed by a SOC 1 Type 2 certification ensure everything is by the book for a seamless audit process. This added layer of necessary verification ultimately reduces the time auditors spend verifying accuracy and decreases the risk of any miscalculations.

  4. Lease overpayments

  Leases are complex, expensive contracts with many different terms, options and important dates. However, nearly three-quarters (71%) of private companies say they are not confident about the complete cost of their leases.

  This lack of visibility into your leases can put you at risk of making significant overpayments and costly mistakes. Luckily, this can be addressed by implementing technology and processes that make it easy to keep track of your lease terms.

  By keeping close tabs on your leases through technology, you can identify opportunities to save money within your lease portfolio, be aware of options and exercise windows and avoid confusion regarding repair and maintenance costs.

  Protect your business from risks with end-to-end lease administration and lease accounting.

  To avoid the risks associated with not having complete visibility into your lease portfolio, it’s important to maintain automation, lease controls and strong collaboration across all departments that touch the leasing process.

  Choosing software like Visual Lease can help you reduce risk, drive confident and sustained lease accounting compliance and provide the visibility required to make agile business decisions. We can help you implement robust lease controls that support continued compliance with FASB, IFRS and GASB lease accounting standards, while empowering you to maximize the financial and operational performance of your leases.

  The post 4 Common Risk Areas Found in a Lease Portfolio: What to Know and How to Avoid Them first appeared on Visual Lease.]]> https://visuallease.com/how-to-prepare-for-the-perfect-year-end-close/ Wed, 28 Dec 2022 13:59:43 +0000 https://visuallease.com/?p=7750 Accounting teams are often left scrambling to find lease information needed to wrap up the year and prepare for their audit. As businesses approach year-end, how can they ensure an...
  The post How to Prepare for the Perfect Year-End Close first appeared on Visual Lease.]]>

  Accounting teams are often left scrambling to find lease information needed to wrap up the year and prepare for their audit.

  As businesses approach year-end, how can they ensure an easier closing of the books? It starts by having visibility and control of lease information, maintaining strong lease accounting procedures and open communication between accounting and real estate teams throughout the year. Let’s take a closer look at these strategies.

  The role lease accounting plays in a year-end close

  Closing the books for the year is an annual process that most companies have to perform. Although this process can be tedious and time consuming, it’s vital to make sure all financial information about your business is accurate.

  To be as efficient as possible, companies should work throughout the year to ensure processes are in place each month for a straightforward monthly close. A regular, clean month-end close sets businesses up to successfully and seamlessly execute a final closing of the books at the end of the year.

  No year-end close checklist is complete without making sure all leases and related financial documents are up to date and correct. After all, for most businesses, the cost and value of their leases are second only to the cost of their people. As a result, if a company’s lease accounting information isn’t complete and accurate, it can lead to expensive errors (such as findings, like a material weakness, significant deficiency or control weakness) and waste time during the year-end closing process.

  Monthly procedures to maintain accurate lease accounting

  Without accurate lease accounting, businesses risk making costly mistakes. According to the Visual Lease 2021 Lease Accounting Readiness report, 99% of senior finance and accounting professionals surveyed at private companies expressed concern regarding several pitfalls of misreporting company lease information, including:

  • Increased audit fees and fines (51%)
  • Risk of legal action (48%)

  To avoid these expensive risks and stay on top of monthly lease accounting, accounting teams should implement the following procedures.

  1. Centralize financial information for leases: A lease accounting software like Visual Lease can help keep track of this critical information for the company.
  2. Set a clear timeline: Ensure teams are on the same page and are on track to deliver all necessary information.
  3. Standardize all processes: Having a system for your lease accounting procedures allows your accounting teams to easily repeat them each month.
  4. Communicate regularly with the real estate team: Make sure your business’ real estate team knows what information they must relay to the accounting team and by when. It’s important to work with lease accounting software that can create a system audit trail and show what changes are made to which leases, who made the changes, and when.

  If your accounting teams use the right lease accounting software, maintain clear expectations and processes, and collaborate with the real estate team, your business will have an easier and more accurate closing of the books each year. These steps also set up your company for financial success for years to come.

   

  The post How to Prepare for the Perfect Year-End Close first appeared on Visual Lease.]]> https://visuallease.com/how-to-use-the-4-methods-of-calculating-depreciation-under-us-gaap/ Thu, 22 Dec 2022 20:20:03 +0000 https://visuallease.com/?p=7736 What is depreciation in accounting? The 4 depreciation methods in accounting Can you change depreciation methods from year to year? Straight line method Declining balance method Units of production depreciation...
  The post How to Use the 4 Methods of Calculating Depreciation Under US GAAP first appeared on Visual Lease.]]>
  • What is depreciation in accounting?
  • The 4 depreciation methods in accounting
  • Can you change depreciation methods from year to year?
  1. Straight line method
  2. Declining balance method
  3. Units of production depreciation method
  4. Sum-of-the-years’ digits method
  • Interested in lease accounting?

  To maintain accurate accounting, many companies must follow generally accepted accounting principles (GAAP or US GAAP), which work on the assumption that almost every type of business asset loses value over time.

  What is depreciation in accounting?

  Depreciation allows organizations to account for this lost value and allocate the cost of a tangible asset over its useful life – the estimated lifespan of a depreciable fixed asset, during which it can be expected to contribute to company operations. In accounting, useful life is an important concept since a fixed asset is depreciated over this period of time.

  GAAP introduced a set of accounting procedures for asset depreciation to ensure consistency and accuracy among organizations.

  The 4 depreciation methods in accounting

  To properly depreciate an asset under GAAP, accounting professionals must calculate the total cost of the asset, how long the asset will last before it must be replaced and how much an asset can sell for at the end of its useful life.

  There are four methods for calculating depreciation:

  • Straight line method
  • Declining balance method
  • Units of production method
  • Sum-of-the-years’ digits method

  Can you change depreciation methods from year to year?

  The depreciation method can change from year to year, however it’s best to remain consistent to ensure compliance with the US GAAP standards. Proper documentation to demonstrate the change and justification must be provided.

  Accountants are responsible for figuring out the correct GAAP depreciation method to use based on which method will achieve the most satisfactory allocation of cost. Let’s look more closely at these methods and how businesses can apply them.

  Accountants are responsible for figuring out the correct GAAP depreciation method to use based on which method will achieve the most satisfactory allocation of cost. Let’s look more closely at these methods and how businesses can apply them.

  1. Straight line method

  The simplest and most popular method of depreciation is the straight line method. This involves deducting the salvage value from the cost of the asset and dividing the resulting number by the asset’s useful life.

  To illustrate this formula, let’s say a company buys a $15,000 machine with a salvage value of $4,000 and a useful life of 10 years. If the company in this example used the straight line method of depreciation, the annual depreciation cost would be $1,100. 

  2. Declining balance method

  The declining balance method — a form of accelerated depreciation — allows an organization to depreciate an asset more heavily during its earlier years using a fixed percentage rate. The double declining method is a subset of the declining balance method, but as the name implies, it doubles the rate of depreciation.

  These methods are most useful for assets that lose value quickly, such as vehicles, computers, cellphones or other technology.

  

  3. Units of production depreciation method

  The formula for the units of production method is similar to that of the straight line method. But instead of using time to define the useful life of an asset, this method uses the number of units produced or hours of operation.

  The units of production method allows organizations to deduct higher depreciation costs during years when an asset is used more or produces more units. For example, this may be utilized by a manufacturing company that used a specific piece of machinery to produce X units in 2022 but that will be phased out in 2023 so they will have a lower rate of depreciation next year.

  

  4. Sum-of-the-years’ digits method

  The most complex method is the sum of the years’ digits, which is another form of accelerated depreciation. This method provides a better indication of value for fast-depreciating assets. Because the depreciation formula for the sum of the years’ digits is difficult to calculate, it can present a cumbersome challenge for asset-heavy businesses.

  

  Knowing when and how to apply these various depreciation methods in compliance with GAAP can be complicated. Leveraging an innovative software solution such as Visual Lease can help your organization streamline the process, eliminate risk exposure and save more on taxes.

  Interested in lease accounting?

  Take the next step and schedule a demo with Visual Lease to ease your lease accounting needs today!

  The post How to Use the 4 Methods of Calculating Depreciation Under US GAAP first appeared on Visual Lease.]]> https://visuallease.com/how-do-the-lease-accounting-standards-impact-your-footnote-disclosures/ Wed, 05 Oct 2022 17:18:35 +0000 https://visuallease.com/?p=7583 Do your lease footnote disclosures comply with the new lease accounting standards?   The footnotes of your financial statements must include certain information from your lease contracts. And with the newly...
  The post How Do the Lease Accounting Standards Impact Your Footnote Disclosures? first appeared on Visual Lease.]]>

  Do your lease footnote disclosures comply with the new lease accounting standards?  

  The footnotes of your financial statements must include certain information from your lease contracts. And with the newly implemented FASB, GASB and IFRS lease accounting standards, disclosure requirements have become more complicated. 

  What are footnote disclosures? 

  Footnote disclosures explain how an organization determined the numbers in their financial statements, such as their balance sheet (or statement of financial position), cash flow statements and income statement (or statement of activities). They highlight any differences the organization has made to its accounting methodologies from previous years and give an overall sense of its current and projected financial well-being. 

  Organizations must also fully disclose future contingencies, commitments and contractual obligations in their financial statements. Often, they use footnotes to provide this information.  

  How footnote disclosure requirements changed under ASC 842 

  Before ASC 842, footnote disclosure requirements were less detailed, and many organizations could easily manage their leases through spreadsheets. But the new lease disclosure requirements are much more complicated, making it nearly impossible to use spreadsheets to manage leases and track updates anymore. 

  For example, under ASC 840, finance leases (formerly called capital leases) had to be recorded on an organization’s balance sheet, but operating leases didn’t. Instead, they were listed in the footnote disclosures. 

  Under ASC 842, operating lease assets and liabilities must be “on the books” and recorded on the balance sheet, which can impact the ratios used to measure the organization’s financial health. To avoid confusion, it’s important to explain these differences in the operating lease footnote disclosures in a clear and organized way. 

  Disorganized footnote disclosures waste time and money 

  Leases are complex contracts that come in many shapes and sizes. Moreover, they can often be overlooked if not itemized and managed properly, resulting in increased financial risk for an organization. 

  Proper lease accounting management hinges on accurate footnote disclosures. Inaccurate disclosures can waste accounting professionals’ time and undermine an organization’s operability and reputation. 

  Furthermore, footnotes that are unclear or disorganized can easily bury important information. This can lead to mistakes and additional costs when preparing the annual financial statements both internally and externally. 

  The right tool can simplify footnote disclosures 

  Although footnote disclosures under the new lease standard can be overwhelming and complex, the right tool can vastly simplify the process. 

  To stay compliant, you’ll want to use a software solution that meticulously tracks lease accounting updates. It should also be easy to use yet robust enough to organize data from various sources. 

  A comprehensive tool like Visual Lease can generate audit-ready journal entries, disclosures and reports to help you comply with ASC 842, IFRS 16 and GASB 87 lease accounting standards. 

  The right lease management software should also keep all your lease accounting data in one place so you can easily generate statements and find the insights you need. After all, lease accounting shouldn’t just keep your organization compliant — it should also uncover new strategies to help you save money and time. 

  The post How Do the Lease Accounting Standards Impact Your Footnote Disclosures? first appeared on Visual Lease.]]> https://visuallease.com/the-future-of-accounting-goes-beyond-excel/ Fri, 30 Sep 2022 15:57:20 +0000 https://visuallease.com/?p=7560 By: Joe Fitzgerald, Senior Vice President of Lease Market Strategy  Spreadsheet applications are easily the most important and universal accounting tools used today—so much so that you’d never guess the...
  The post The Future of Accounting Goes Beyond Excel first appeared on Visual Lease.]]>

  By: Joe Fitzgerald, Senior Vice President of Lease Market Strategy 

  Spreadsheet applications are easily the most important and universal accounting tools used today—so much so that you’d never guess the first version was actually developed as a school project.

  As the story goes, in 1978, computer programmer Dan Bricklin was pursuing an MBA at Harvard Business School. His finance class was tasked with an assignment to make financial projections for a hypothetical corporate merger using ledger sheets, the painstaking way that accountants manually tallied numbers in the bygone analog era.

  Bricklin, apparently intent on getting an A while also eluding the heavy workload, developed a spreadsheet on a personal computer to electronically process the calculations. The idea was completely novel and would prove to be revolutionary. In less than a decade, spreadsheet programs like Lotus 1-2-3 and Microsoft Excel were dominating the market. Nearly 40 years later, not much has changed. Excel and (now) Google Spreadsheets are still widely used applications in accounting – a fact that astounded Bricklin himself. “It’s like whoa, we haven’t thought of something better yet,” he said in a 2015 interview with Quartz.

  It is surprising that Excel continues to be the prevailing accounting practice because it is limited in addressing today’s sophisticated accounting practices and standards, and for that reason, it has become notoriously error-prone.

  Here are some of the ways that spreadsheets are falling short for businesses.

  Managing Stakeholders and Line Items

  Accounting requires managing a lot of moving parts. Many businesses have several – and sometimes, even hundreds of assets and multiple stakeholders (Real Estate, Finance, Legal and HR, among others), which each translate into different line items on a balance sheet.

  When it comes to spreadsheets, this ever-growing list of assets and stakeholders is a hotbed for errors. Research has repeatedly shown that 90% of spreadsheets contain errors and 50% of spreadsheet systems have “material defects.” Not only can these errors be destructive to business fundamentals and operations, but poor accounting practices can lead to failed audits, internal control deficiencies, fines, blown debt covenants and reduced credit ratings.

  Some companies have been transitioning to sophisticated and targeted software programs to help mitigate errors in bookkeeping, while also giving financial professionals time to perform higher-level tasks. In lease accounting, for example, specialized software is designed to address the critical and often nuanced needs of managing real estate leases, creating space for collaboration across different departments and stakeholders. These types of systems can track lease details both at the property level and throughout a portfolio, resulting in accurate financial reporting, efficient auditing and also, guaranteeing that critical deadlines are met.

  This has become a common trend throughout the business sector. There is a widespread exodus to more targeted accounting solutions. Mark Garrett, the former CFO at Adobe Inc., summed up the problem with spreadsheet applications back in 2017 when he told the Wall Street Journal, “I don’t want financial planning people spending their time importing, exporting and manipulating data, I want them to focus on what the data is telling us.” Adobe transitioned away from Excel last year.

  Navigating Complexities

  New lease accounting standards are also minimizing the effectiveness of spreadsheet applications like Excel. The Financial Accounting Standards Board (FASB) issued accounting guideline ASC 840 in 1976, two years before Bricklin first dreamed of a spreadsheet. ASC 840 has been the practicing standard until 2019, when FASB’s ASC 842 went into effect for public companies, requiring these enterprises to record leased assets on the balance sheet. And this year, the ASC 842 standard goes into effect for all private companies, as well. These regulations are a shake-up to the standard accounting practice, requiring more sophisticated financial calculations and involved accounting practices—and spreadsheets just aren’t designed for this level of complexity.

  The business community at large is recognizing the limitations of spreadsheet applications as a result, and many companies—Levi’s, P.F. Chang’s and Coca-Cola, to name a few—are transitioning to tailored accounting solutions that better address modern practices. “Excel just wasn’t designed to do some of the heavy lifting that companies need to do in finance,” said Paul Hammerman, a business applications analyst at Forrester Research Inc., in an interview with the Wall Street Journal.

  The pandemic has also ushered in changes in business strategy that is leading to the need for more sophisticated technology. Real estate has been central to these changes because for many businesses, real estate costs became a major liability during the pandemic. In the Commercial Real Estate in 2022: Outlook for an Industry in Recovery survey from Visual Lease, 100% of real estate professionals reported their tenants had requested changes to a commercial property lease in response to the pandemic, and in a separate survey conducted by Deloitte, 67% of respondents said they are executing a real estate rationalization program to either reduce, rightsize, expand or reduce ownership responsibilities. Under new lease accounting standard ASC 842, accountants are required to record these modifications.

  Bricklin was right; it is time to find something better. As accounting standards and business practices evolve, business organizations need to upgrade their technology, as well—and the toolkit should include a dedicated accounting software program that is designed to accommodate accounting complexities and modifications while empowering companies to maintain compliance with the new accounting standards.

  That is certainly true when it comes to proper lease management and accounting. We are seeing more and more organizations recognize the need for dedicated technology solutions to not only achieve, but maintain compliance with new standards and regulations. These solutions are bringing the industry into a new age, and it’s about time.

  The post The Future of Accounting Goes Beyond Excel first appeared on Visual Lease.]]>