How to Manage FASB & IFRS Lease Accounting in a Sea of Changing Standards
First, organizations were hit with accounting changes to revenue recognition. Then the new lease accounting standards went into effect at the beginning of this year. Intended to create more transparency around a company’s expenses and liabilities, FASB ASC 842 and IASB IFRS 16 (AASB 16 for Australia) require that leases now appear on the corporate balance sheet.
With this latest round of accounting changes, your finance team must once again adjust to a new normal. Now that you're compliant or on the road to compliance, you're faced with new challenges that extend beyond changes to reporting and auditing requirements. As leases move to the balance sheet, your Corporate Real Estate (CRE) portfolio takes on new proportion and significance.
If you are a finance leader, you'll be responsible for minimizing the impact of these liabilities on your organization's P&L. To do so, you'll need to partner with your real estate team to explore ways to optimize your real estate portfolio. This includes looking at real estate metrics like total cost of ownership (TCO) and collaborating with CRE professionals to evolve the portfolio in the most cost-effective ways. You’ll also need to synthesize those insights to inform the C-suite of the impact of liabilities and advise how best to communicate that impact externally.
As you gain a greater understanding of your organization’s real estate portfolio, you’ll be better equipped to respond to industry and economic shifts, as well as other changes that could further affect corporate assets and liabilities. You’ll also gain the ability to forecast where cost savings can occur to stay ahead of liabilities before they become red flags to your executive team or investors.
To do that, you'll first need a centralized source of accurate and reliable information.
How a Real Estate Center of Excellence Helps You Navigate Change
To confidently steer your company in the right direction, you need a centralized data center, or single source of truth. When you have a consolidated view of your real estate data, you can access, analyze and manage leases and property information, like:
- Occupancy rates
- Rent comparisons
- Building management practices
- Equipment and maintenance costs
- Total cost of ownership (TCO)
The concept of a center of excellence has gained steam across a number of industries. Driven by a growing need to flatten data and share it across business units, a center of excellence can help enterprises ride out market fluctuations and remain competitive. It provides the shared hub you need to access data and the foundation on which to build the processes, strategies and best practices that will allow you to weather more than just accounting changes.
Rather than maintaining separate processes, practices, and silos of information across departments, as has traditionally been the structure of most enterprises, a center of excellence pulls all pertinent information and knowledge together into a single source of truth that is accessible to and shared by everyone. When your real estate center of excellence is built upon a single, transparent data center, your organization is able to:
- Form a complete and accurate picture of the entire real estate portfolio
- Access detailed leasing information alongside real estate portfolio performance and utilization data
- Surface all relevant data about your properties and spaces to more easily capture and analyze needle-moving metrics
- Break down silos across teams to enable greater agility
- Be prepared for and responsive to ever-changing standards
Three Steps to Establish a Real Estate Center of Excellence
Your team has an opportunity to lead the way in developing a center of excellence that can help guide overall financial strategy going forward and lease accounting management on a day-to-day basis.
Here are three steps to get you started in establishing your own center of excellence:
#1: Think cross-functionally
Maintaining separate data silos for Finance and CRE is a structure today’s organizations can no longer afford. Both teams need access to the same up-to-date information to align efforts to reduce liabilities and optimize the real estate portfolio.
In service to a company-wide effort to reduce costs and prioritize space efficiency, cross-functional thinking also involves deciding which business units need to share and access leasing information – whether it includes only Finance and CRE, or other teams and stakeholders like HR and the C-suite.
Once you’ve identified the teams with whom collaboration will be most effective, invite each team to share in developing and contributing to the center of excellence.
#2: Engage an Integrated Workplace Management System
In PwC’s 2018 accounting change survey, 60% of companies had trouble identifying their lease population in preparation for the compliance deadlines. This lack of visibility still plagues many teams today, as they struggle to access complete and accurate leasing information necessary for long-term success beyond compliance.
A single software solution like an integrated workplace management system (or IWMS) can centralize all of the information you need in one place. You’re able to easily view, access, analyze, and report on liability-reducing activities and outcomes to investors, the C-suite, and auditors.
If you think of a real estate center of excellence as a living entity, the IWMS is its heart – the center of the center, if you will, from which critical information flows in and circulates outward to form a knowledge-rich environment.
#3: Develop a solid plan
Establishing a real estate center of excellence, and, more specifically, implementing new software like an IWMS, doesn’t happen overnight.
Using a basic model of change management as a guide, you'll need to develop a project plan over the course of several months to seek executive buy-in, communicate benefits, roll out and train employees on new software, provide ongoing support, and encourage engagement – initiatives that are imperative for user adoption and long-term success.
A Map for the Journey Ahead
By working cross-functionally, utilizing purpose-built tools, and following a well-developed plan, you can establish a real estate center of excellence that brings your Finance, CRE, and other key teams and stakeholders together to efficiently manage your real estate liabilities and optimize your entire portfolio. A center of excellence focused on an IWMS will not only meet your lease accounting needs in the months ahead but will prepare you for the inevitable shifts and changes that are yet to come.
To uncover more ways to manage your real estate liabilities and successfully navigate your post-compliance journey, click here to download Trimble’s FREE eBook.
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Managing lease compliance, measuring up-to-date occupancy and utilization information, IoT integration, detailed real estate cost analysis, reporting and portfolio benchmarking… What challenges do you face today? As a global specialist with over 35 years’ experience, Trimble helps customers transform the way they plan, manage and optimize their real estate portfolios, buildings and workplaces through cloud-based integrated real estate management software.
UPCOMING REALCOMM WEBINARS
Top GLOBAL INNOVATIONS of 2019 Impacting Commercial and Corporate Real Estate - 12/12/2019
2019 will likely be another year of great innovations for the Commercial and Corporate Real Estate industry. With a multitude of new companies and ideas being funded by an insatiable appetite of investors, the traditional workflows and processes of Real Estate are challenged daily. Add to this a desire by the established marketplace to also innovate and the pressure of change increases. This webinar will bring together some of the industry’s most prolific prognosticators who will discuss and debate the state of innovation in our industry for 2019. For those firms that are leaning into the change brought about by technology this is a perfect opportunity to hear about the leading solutions, case studies and best practices.
Founder of Realcomm Conference Group, an education organization that produces Realcomm, IBcon and CoRE Tech, the world's leading conferences on technology, automated business solutions, intelligent buildings and energy efficiency for the commercial and corporate real estate industry. As CEO, Jim interacts with some of the largest companies globally pertaining to some of the most advanced and progressive next generation real estate projects under development.
Jeff Chulick is the Technology and Innovation Leader for EY Real Estate Services. He leads a global team of professionals focused on the identification, innovation, design and realization of technology solutions that greatly enhance the workplace experience. His areas of focus include digital strategy, smart workplace, IoT, visual communications, workplace management, physical access and audio/visual technology. Jeff has over 20 years of enabling workplace strategies and delivering innovative solutions for EY and external clients across many different industries.