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FASB ASC 842 – Reporting/disclosure practices and controls

The approach to practices and controls under FASB ASC 842 will be bit different than in the past. In addition to making the connections early on that involve other departments, there are controls that seemed previously removed from lease accounting but now need to be considered.

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Transcript:

Attendees:

  • George Elefther, Vice President, Real Estate Accounting – Bed, Bath & Beyond
  • Gabe Sugar, Director, Financial Planning & Analysis – Darden
  • Kevin Fossee, Director Advisory Services, Real Estate – PwC
  • Theresa Meier, Director of Accounting – Bed, Bath & Beyond
  • Rick Zelinsky, VP Product Strategy – Tango

Gabe

The workshop that we’re holding with all the non-accounting functions next month is  two-fold, to fill out the survey to understand our inventory now, but then going forward to try to get more into our processes. So whether it’s supply chain or IT or some other function, that’s the goal.

Bart

Rick, how about on the system side? What are we doing to kind of help throw these red flags and then automating some of the downstream impacts of that? Is that something that’s a focus that you’ve been working on?

Rick

I think what we’re seeing in the implementations is we’re approaching things a little bit different than we would in the past. I think the questions were asking up-front and the people we’re asking those questions to have kind of evolved. We would, in some respects, be able to kind of put in a system with just dealing with lease administration and that those days are gone. And so I think it’s making those connections early on in terms of understanding what accounting’s expectations are, understanding where the information’s coming from in the first place, to the point of these non-real estate leases or kind of the contract process.

I think those are all important considerations and where we can kind of facilitate that through the system, be it through workflow, be it through automation, and journal entries, and approvals, and audit trail and all kinds of other things. I think there’s plenty of technology we can throw at solving that and making that an efficient process, as efficient as possible, but certainly we need to know really how this is going to flow in the organization, both how it flows today and how it needs to change because I think what we’re finding across the board is it’s evolving somewhat in all instances and in some cases dramatically, and in some cases a small amount, but everybody has some change in the organization.

Kevin

I think a couple points, definitely significant amount of new controls being implemented. We have one client we implemented, they’re implementing I think 35 new controls to this process, so across more. And the other piece that’s maybe good about this is that when we talk about change management and getting people on board with the process, if you insert controls into this, they’re a stick, right? They’re a stick that, “Hey guys, you need to do it now.” Right? So when they tell you, “This could be a material weakness and an audit if you don’t do this.” Then that wakes people up a little bit. It’s interesting, too, because kind of a the step-by-step process is one thing, but when we talk about this change, and I think this is interesting for retailers, we got one client who’s implementing the standard and they’re assuming every lease they have, they’re not likely to exercise any renewal options. That’s the policy they have decided. But I know how they operate, and they have a real estate committee once a quarter and they make decisions 12, 18 months out where they actually do decide and that sort of just sits in their head, I guess. And maybe there’s a real estate committee document that somebody signs or I’m not sure exactly, it’s very one by one, but at that point then you need to remeasure, you got to reassess it. So the controls that are even from esoteric processes, but processes that were pretty removed from this now become relevant to the scope, too.