Toward the end of 2020, we published a Lease Accounting Holiday Wish List for organizations that still need to adopt ASC 842, IFRS 16, and GASB 87. This is the second in a series of articles to provide detail for each of those wish list items.
2: Management Sponsorship
Securing management sponsorship for a regulatory compliance project is easy. If regulators require disclosures, the audit and financial teams will support an effort to provide them. The focus of compliance projects will be the time it takes to meet the requirements and keeping the costs as low as possible.
Sponsorship for transformational projects requires a bigger sell and a return on the investment in the project. The transition to the new lease accounting standards can be the impetus for that transformational process. Never have companies had so much lease data at their disposal, nor has the available data ever been as accurate as it will be after a successful implementation.
Better data on expirations and cost will allow real estate departments to assess end of term decisions earlier and develop leverage in negotiations with landlords. Additionally, this will give teams the time to address non-financial terms. This is especially true for companies that have grown by acquisition, but companies that grew organically may find that their negotiating power is much stronger now than it was at the company’s beginning. Standardizing items like insurance coverage amounts, notice timelines and maintenance responsibilities allows for more programmatic management and decision making and reduces the likelihood that a company will miss out on rights in the lease.
Having more data will allow existing teams to be more productive and begin new initiatives to improve operational efficiencies. Getting help from third-party providers familiar with the chosen lease administration and accounting systems can allow those employees to execute higher value work as users of the data, instead of lower value work as the compilers of data.
The benefits of better negotiations, reduced risk, reduced costs of administration and value created by more informed decision-making are permanent improvements to a companies bottom line. Identifying specific goals beyond compliance in your organization will help you gain stronger sponsorship from management, including from groups outside of the finance and accounting vertical.
We at Jackson Cross wish you strong support from management, and we are available to help execute this critical project.