Wall Street Journal - A Sure-Fire Way to Harm The Economy: A proposal to count leases as liabilities
Just as it seems the U.S. economy might be turning a corner, a little-known and seemingly benign change in accounting rules could cost millions of jobs and billions in lost economic growth.
Many controllers and auditors are reluctant to take physical inventory as they know they will need to face numerous unreconciled items. The fact is that about 10-15% of the assets on the books are not there (ghost assets) and a significant amount of assets physically there cannot be identified on the books (zombie assets).
Tracking a large number of fixed assets across multiple locations is a significant challenge for companies and barcode-tracking technology can help to transform this process. With barcode-tracking technology, fixed asset audits can be managed with speed and accuracy but the quality of the barcode labels is imperative to the success of this process. Organizations have the option to print barcodes in-house or to opt for those from a supplier; however, the quality of professionally printed barcodes surpasses in-house barcodes.
As two of the accounting world's major governing bodies—the FASB and the IASB—converge, they're scrutinizing how businesses track lease expenses. Under existing accounting standards, a majority of leases are not reported on a lessee's balance sheet. The amounts involved can be substantial, as many firms lease much of their equipment. Affected companies need to have a strategy in place.
Real Asset Management sits down with the Executive Director of Finance and Information Systems at Erie 1 BOCES and board member of New York State Association of School Business Officials (NYASBO), Jim Fregelette, to discuss how Series4000 has helped Erie 1 BOCES gain control of their inventory and assets.
50% - Percentage of global companies with bank-debt covenants potentially affected by lease accounting changes
U.S. and international accounting-rule makers are edging closer to completing a decadelong effort to overhaul lease accounting rules. The rules, which could be issued next year, threaten to bring roughly $2 trillion of off-balance-sheet leases onto corporate books.
Don’t try to keep track of numerous smaller assets. There is no need to put an asset tag on everything that you have purchased with the intent of lasting for more than one year, and some experts advise organizations to charge off small items as acquired to expense. There are companies that use a $500 minimum capitalization but doing so could result in thousands or tens of thousands of line items in your fixed asset register, making the task of controlling these assets nearly impossible. A fixed asset record should be kept for the major items that are of significant importance.
“Simplicity is the ultimate sophistication.” – Leonardo da Vinci
Companies can find themselves with multiple fixed asset registers and systems after years of change within departments and decisions based on immediate or specific needs instead of an overall vision or plan for a scalable system to accommodate future growth. The issues with having multiple fixed asset systems and non-finance asset databases are primarily inflexibility and inefficiency. Merging data together for year-end reporting can be a nightmare, especially if the systems do not integrate. The simple solution is to invest in a single asset register accessed across departments.
Asset Retirement Obligation (ARO) accounting guidelines are laid out by the SFAS 143, which is Topic 410-20 in FASB Accounting Standards Codification, and by IFRS IAS 37. ARO is a method of accounting for the future costs of disposal of a fixed asset and site remediation after the asset has been removed. The ARO liability must be recognized during the period in which it was incurred—at acquisition or construction—and the total ARO liability is equivalent to the total present value of the expected remediation and retirement costs.