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Sustain compliance to FASB ASC 842 lease accounting standards

To sustain compliance to FASB ASC 842, the interaction between the operational lease administration and the accounting side has changed and needs to be better aligned. Additionally, there is an increase in staffing and resource considerations that need to be factored in.

For more insight and content along the key stages to FASB and IFRS compliance, visit Tango’s Road to Lease Compliance Resource Center.
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

Trying to get to the goal line is just a little more of a priority right now. You’re going through software implementation. We also have the benefit of being a May fiscal year end. But it’s the education process that we’re doing right now around the company, to help it sustain going forward. As opposed to in the past, the accounting projects where accounting jumps in, grabs all the information from other groups, figures it out, and gets the financials right.

This is a little bit different. We’re bringing everybody along for the ride so they can learn from it because it is pretty complicated. We don’t need them to be accounting experts, but we needed them to know what questions to ask when they’re signing new contracts.

George

Yeah, we’re looking … Right now, obviously it’s getting ready for the next year, first quarter. But fortunately for us, everything flows through my department. Like I said, I have the accounting, the facility department, the lease admin department in my group. So all decisions were made in my department, so it’s going to centralize that.

It’s the other leases that we’re going to have to somehow flow into us. But again, it’s all going to funnel through my department.

Bart    

And will you guys be managing the administration side of those non real estate leases or is that the TBD?

George    

That’s TBD. But it, we will probably end up making the decisions if there’s an embedded lease or not. So those leases have got to come somehow to us, so we can make that decision. I don’t know if we’re going to let anybody else make that decision, but that’s not finalized yet.

Bart

Any thing to add, Theresa?

Theresa

No, I would just echo that. We’re thinking about it. Number one concerns the implementation, but we have our ideas, and just need to implement them.

Bart

Kevin?

Kevin         

Yeah, I mean I’m helping my clients think about it, typically. I think that one of the keys is just, if it’s all in your group, that’s helpful. But the interaction between the operational, lease admin side and the accounting side is the big change. 

So a step in the process now … and there’s some sort of decision tree logic that we’ll put into this … as a new lease comes on or a new contract, lease admin goes to input it into the system. They’re now … Before they even get there, there’s flags that say, “Let’s sync with accounting before we put this into the system, before we structure it, before we do that, so we’re all moving forward.”

I think that’s one of the key steps that we’re seeing some folks do. In addition to what you said around the controls are in place, and the system’s automated and whatnot. But definitely more interaction up front.

Bart

Rick, anything to add?

Rick         

We’re seeing some changes around organizations that historically maybe didn’t have to put leases in a system at such an early point, in fixturing periods, and things like that, are typically finding they need to do it now. So it’s kind of, in some respects, kind of reversing the flow.

It went from, “We’ll wait until some point in time, and then we’ll put it in somewhat complete.” Now it’s, “We have to put it in right away.” And then figure out how we’re going to go back to that, and adjust it when the rent commencement date moves, and when all these things happen, that just, as if course of business are going to happen.

So I think that’s where the … From a sustainability standpoint, I think it’s … The process needs to be thought through in the new way, not just assume that the current state processes. Organizations need to get through both their implementations, they need to get through their adjustments to process, and policy adoption and all that, before they can really truly assess how that then sustains and resourcing.

I think there is some elements around the resourcing that are still on the table for many organizations of who’s going to do the work. I think we hear that in different ways here this morning. Everybody’s having those discussions, right? There is, unquestionably, more work. That hasn’t totally come to a head, but I think every organization’s going to be raising their hand saying, “We need more people to do more work.”

Kevin                                  

They’re asking me, “What’s our benchmark of staffing to support this going forward?” And unfortunately, I don’t have the answer, right? Because it’s future. It’s future, so I can try to predict it for you, but yeah.

Audience Member

Question, a quick point to Kevin and to the whole group. You mentioned additional resources and the whole sustaining whatever policies and procedures you have in place.

And now that we have all these additional, I’ll call them variables, elements, departments, that are now, their data is critical to keeping that compliance up, does it make sense to have a solution that has some type of enterprise workflow, where you can automate the work streams to assure the sustainability and reduce the complexities on an ongoing basis?

Kevin

Yeah, I mean I think you need to have the workflow and controls in place, regardless of whether or not you have a system automated for you across departmental. And if you don’t have a system to help automate it, then you have to put in manual controls, right?

So one of the things, to the extent we can … at least admin systems historically didn’t have great workflow capabilities-

So we’re definitely, to the extent we can, when we implement a system, we are putting in controls, cross-functional, cross-department controls to route the approval, that obviously are prepared to a reviewer on accounting side. But in each case we’re having to identify multiple manual controls, key control reports, things like that, that are being done to check because we can’t automate it more effectively in the system without-

Audience Member

Even extending to other areas, like the facilities maintenance, where they might be finding assets, which typically never really exchange information right away with the accounting department or the lease, had any impact on that lease, but now it does.

Gabe

I would say one silver lining is with getting this new system now, is it’s just there … or with this lease implementation … is getting a new system and making things a little bit more automated. Getting out of the Excel more. On the other side, that will be probably offset by the additional requirements, additional reporting. But it’s necessary.

Bart

Well, we’re getting close to wrap up time here. Any questions from the audience? Eric, go ahead.

Audience Member

Compared with other alternatives out there, other providers, top couple reasons why you chose Tango?

Gabe   

So for us, we were looking for a life cycle solution, so really an integrated platform. We’re still opening restaurants, always modifying leases. So it was something that they can start with our development and construction group as they’re looking for a new site, and then start that process there all the way. It gets through property law, through accounting, and until the end of that restaurant’s life cycle.

George

We were looking for a system solution that did both the lease accounting, the lease administration, and the facilities, which Tango had. I mean, all the providers will pay rent. They’re all going to pay rent. It’s what is user friendly, what’s easier to the eye, what works. And as you look at them all, you make a decision.

First, we needed to have both facilities and at least administration. So that knocked out a few people. But then again, you just do your homework and say, “What’s your company? What’s it going to benefit, your company? Which of the system’s going to help you guys as most?” And for us, it was Tango.