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Challenges to the adoption of FASB ASC 842

Companies face a number of challenges in the adoption of FASB ASC 842. The need to get a handle the whole lease portfolio (including real estate leases, embedded leases and equipment leases), ensure the company is cooperating with the accounting team to get the support they need, systems, processes and controls, In this segment from our Road to FASB ASC 842 and IFRS 16 lease compliance roadshow, industry and accounting experts from Darden, Bed Bed & Beyond, PwC and Tango share the challenges they face with the lease accounting changes and how to overcome them.

Learn more about each stage in the Road to lease accounting compliance, and about Tango’s leading lease accounting software solution.



  • 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
  • Mark Zygmontowicz, SVP, Business Development – Tango


I have to say it’s new for everybody, and it’s a lot of work. I guess the tough part is getting your hands around everything, especially on non-lease stuff, the equipment leases or the unknown contracts that are out there, and trying to centralize and getting everything on board. We had an email go to all the Vice Presidents to make sure they had… to get us back all the contracts that we don’t know about, and that was confusing for them as well.

We’re trying to get a system, where we’re going to centralize all the new leases coming on board, so it’s somehow going to hit my department, and to make sure that we find out if there’s any embedded leases there, so that’s kind of a challenge right there.


Gabe, how about on your side?


So if this was multiple choice I would say D, all of the above. It’s just such an impactful guidance, right, so for confidence at least you have to look at your systems, your processes, your controls, how you’re working with the other departments, which leases do you own, which leases are in your department, which leases are outside of your department. So for us we have all the real estate leases so we feel really good about those, but all the unknown, the embedded leases and the different service contracts, and equipment leases are around the company.


The last time they issued regulations it was more like 1976, or something like that. So it’s been quite a while. Theresa, how about the accounting side over at Bed Bath?


I would piggyback on George’s, the completeness of the lease population, and like Gabe, it has been a very good understanding of the real estate leases, but trying to talk to all VPs, getting them to fill out a questionnaire, because they’ll see it and automatically say, “I don’t have any leases.”

They don’t understand like, “We just want your contracts. We’ll decide if there’s a lease, let us review it.” So getting ready to respond it is a challenge, and then what will be a challenge going forward is redocumenting all the processes and the controls. There’s a lot of new attributes that we’ll have to have controls over it, disclosures. Right now it’s probably just controls over already deferred rent, not over the whole house, the right of use asset, liability calculated, who should be doing it, is there a report that’s generating that? That will be up the fun to come in the future.


Yeah, I definitely echo all these points. I think probably one other key element of this is sort of the organizational readiness for it. So a lot of folks who were rolling off the revenue recognition and weren’t really thinking this was going to be as complex as it was, weren’t preparing for it, starting to wake up right now. I think the accounting teams are typically leading the effort, right? But then when you look at Lease Admin like you mentioned, and you look at IT and the other groups, they just really weren’t aware that it would impact them, and so we started to go down this path, look at solutions, look at processes, and you’ve got in Lease Admin, and in a lot of cases was kind of: putting the stiff arm up and saying, “Just go do your thing, and leave us alone.” But we know that doesn’t work, right?

You can’t really replicate these systems without having some impact to their processes. So, getting those folks on board, getting controls and other folks to recognize what this is going to take. Probably the biggest challenge is to mobilize all of those folks. So every project we start with the client the first thing we do is we lay out all the different work streams that are needed to sort of achieve compliance in the end, and force the client to really identify stakeholders that own each of those and get some accountability built into it. So that’s one of the key things.


One question, it would seem to me based on the comments that you all made, functionally you guys have responsibilities that you’re managing inside your department. It would seem to me that it’s really a management issue. So in your case when you talk about VPs outside, and say, if they get an email and they say, “Well, we don’t have any leases.” I would think somebody above in the management capacity needs to be the one funneling down the directive from on high to say, “Look, this is important. I don’t care if you’re in real estate, or accounting, or operations, or whatever, you need to pay attention to the requests that are coming from here.” Are you seeing a resistance there, or a lack – or Kevin, your guys are the ones probably pointing it out. How do you manage that?  To get the leadership to really push to make sure that people are cooperating with accounting in order to get what they need?


Yeah. I think that’s important because I think you do. You have to go pretty high up to get to that executive champion that can put the directive out to the folks, right? So if I’m dealing with accounting, I go up to, let’s say, the Chief Accounting Officer of one of my clients, they have no real influence over the real estate folks. Right?

You go up to the CFO maybe, so you really do have to… depending on the culture of the organization and how… the willingness to partner and work together. A lot of times we’re not seeing that, right, so you do have to get to that pretty senior level, role that really aligns the organization behind it, and you got to think through the whole change management aspect. But yeah, I think you have to go up pretty high to make sure that these different groups are supporting it, and a lot of times, I won’t say they’re kicking and screaming, but they’re definitely slow to respond, and at this point that’s really not feasible. So you’ve got to, you’ve got to go high.


Yeah. It would seem to me that you’ve got the army ready to move, but you don’t have a General calling out the orders. That would likely be a major impediment to moving this along.




So how are you guys dealing with that internally?


We sent out the survey to the VPs. I think we sent it out in March or February, late February, and we have to make those phone calls, I can get it back in October, where we’re going to have a meeting at corporate,  plus we’re going to have call-ins for everybody, it’s going to be mandatory for them to be on call, and we’re going to give, I guess, a better guidance.

Maybe the first time I sent that email, maybe it wasn’t as good, but this is going to be like, “Okay guys, we have to have this done,” and we’ll probably have the support of upper management as well.


So Rick, what’s the top couple of challenges you’re seeing across all the folks who are working with?


Sure. So I think there’s really two. One is that historically these initiatives, in that looking at it from a system standpoint, are typically run by real estate and run based on real estate leases. So I think that’s definitely a shift, which is, as everybody’s kind of alluded to, all these non-real estate leases, and kind of: “What should we do?” Even they may have a small, financial impact in a huge quantity, right? So there’s some disparity of administrative work to the value. So there’s a lot of discussion around, “Can we summarize? Who should own these?  Are we adding head count?” From a resourcing standpoint, so I think that’s one unanticipated challenge I think people are dealing with.

I think the second is a little bit along the lines of management support, but I would say just generally collaboration. So I think there is really a need for a system to be able to make that collaboration happen in a way that is kind of unprecedented into the past. So, in then the past there didn’t need to be that level of collaboration, there wasn’t the handoffs as formally of the information to ensure that there’s both integrity to the process, but that we are capturing the right data to support the accounting processes, and the system is keeping everything in check.

Audience Member

Rick, if you could, talk a little bit about the integration between the contract management system and the lease management system, and how some companies are dealing with that? Because with the non-property related leases this can become challenging, so I’m curious to hear how others are handling that.


think from our vantage point, our going-in strategy is we feel that generally the contracts, in a broad sense, can be addressed via our application. Our primary strategy is, bring those non-real estate agreements into our lease accounting application and have that be the single source. Obviously depending upon the type of organization that may and the type of agreements that may not work for everyone, but I think with the industries that we typically find ourselves dealing with most commonly, we think that the flexibility in our lease accounting software tool provides that ability, and obviously that further simplifies it.

We are finding some upfront work that may be done by other systems that perhaps are systems that are managed within the procurement organization, then feed information, so once it’s at a point of execution, or whatnot. But I guess the short answer is, we would expect that at a minimum the lease accounting for all contracts would be done within our lease accounting software tool.


I agree with that. I think the lease accounting piece for sure, right. But I think where it gets complicated, obviously the real estate makes sense, full lifecycle, operational and in a Tango lease accounting software solution – equipment as well, maybe cars. But some of these, certainly ones that are embedded leases, service agreements are different. I’ve got some clients that have a lot of the technology, social media companies that have massive infrastructure around data centers, fiber co-location that’s a huge piece of their business that has these massive operational systems and processes behind.

They’re not moving into anything. They’re not even… They’re barely talking to us. They’ll just give us the data. So then it becomes an interface, and building an interface to send data from A to B is not that difficult, but the process and controls behind that. So when there’s a lease or a contract gets set up, when does it move over? What are the… you’ve got Lease Admin or the Operational folks adding it to the system, reviewing it on their end, then it comes to an accounting side of the house where there’s a preparer, and a reviewer, and the timing that needs to happen around that. So A to B data interface, it’s not simple, but it’s not that complicated, but making sure the process and controls behind it, that’s tricky.


Or sometimes a third-party company is managing it all. Right? So, you’re outside of your own organization.


Yeah. So the cars, is a big one, right? You’ve got Alphabet and these other groups in EMEA that are doing this, and talking about having some interfaces they’ll give you. But I’ve yet to really see that. So you’re getting sort of PDFs of data and things like that. So that’s definitely a tricky one.

For the retailers, you don’t do this as much in terms of outsourcing the real estate, but a lot of larger corporates do, and you have the CBREs, and Cushmans, and those folks that are doing that and… I’m sure we have some on the webcast right now, so they’re adopting well, but it took them some time to realize that, “I can’t just wait 60 days to abstract a lease in the system. I need to do it, potentially, in 24 hours, right?” The big lease closes at the end of the quarter, it’s got to be there.