Lucernex Real Estate Solutions Strategist, Mike Hammerslag, MS(RE), MBA, CPM® (see Mike’s management summary here), discusses what CFO’s need to know about the new FASB rules.
Time, Resources, Processes, and Impact … New Systems, New Rules … More SOX!
Some people refer to the moment in time when everything is finally laid out before them by all their constituents and the pieces all finally fall into place as an “Aha Moment.” That “Moment” is closer than you think; that moment is NOW!
Take the typical 14-month cycle presented in graphic below. This represents a major project implementation when no time constraints are imposed and no additional resources are provided. In terms of a project to enact change to meet the FASB rule changes, this would mean that with the two (2) prior years financial statements needing to be reported, i.e. 2014 and 2013, a project kick-off date of October 2011 would have been ideal.
As of this date, we are more than six (6) months past the aforementioned kick-off date, and hence in the middle of any “ideal” implementation window regardless of whether 2015 or 2016 is the effective date.
While the final details of the regulation are still unknown there has always been a limited, if not large, set of data associated with leases. The data challenges of a new lease management system have always been known, however, the methodology of the calculations associated with the new lease reporting rules have been the moving target.
We are clearly aware of certain inherent aspects of the Right-Of-Use model that has been proposed, therefore:
1) Your balance sheet will increase, with more dollars going to Liabilities on an ongoing basis.
2) Through improved lease design, data collection on ALL active leases, and software selection the transition and going-forward effects can be managed so they are minimally impactful.
a. Take the space over as late as possible, have the landlord build it.
b. Have all service related costs specifically identified in dollars.
c. While upgrading your system, review and audit leases, to capture possible over billings.
d. Mitigate liability impacts by choosing a lower discount rate, lowering interest costs.
3) A flexible and effective cloud based system that is SSAE 16 compliant, will:
a. Better enable SOX compliance
b. Lower compliance and hardware costs
c. Go-live FAST to get your systems ready in time
4) Allow new processes to be implemented in departments, to streamline and take full advantage of new system features. Consider a complete Store Lifecycle Management system with rent accounting at its core.
5) Evaluate and measure quickly after system implementation; find enterprise related impacts through active modeling and forecasting.
These points are important in establishing a process framework for successful project execution and enterprise alignment. That alignment will enable a swift transition, improved processes, and a competitive advantage.
Shameless Plug
Lucernex has been on top of the upcoming FASB changes from the very beginning with members of our staff staying abreast of every phase of the board actions. Lx Contracts, the Lease Administration and Rent Accounting Module of Lx Retail, was the FIRST product updated to meet the expected standards back in late 2010 with an update to our FASB financial engine and Lucernex continues to update the product with each release as the eventual rules become more and more clear.
Lucernex has been recognized as the leader in transitioning retailers from legacy lease administration systems to our market leading cloud based lease administration solution, Lx Contracts. Learn more about our Legacy Lease Administration Upgrade Program.