{"id":1855,"date":"2019-08-22T13:28:44","date_gmt":"2019-08-22T17:28:44","guid":{"rendered":"https:\/\/visuallease.com\/?p=1855"},"modified":"2021-01-16T01:53:09","modified_gmt":"2021-01-16T05:53:09","slug":"6-frequently-asked-questions-about-lease-accounting-remeasurements","status":"publish","type":"post","link":"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/","title":{"rendered":"6 frequently asked questions about lease accounting remeasurements"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/#1_What_are_lease_accounting_remeasurements\" >1. What are lease accounting remeasurements?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/#2_Why_is_doing_remeasurements_important\" >2. Why is doing remeasurements important?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/#3_What_types_of_changes_require_lease_accounting_remeasurements\" >3. What types of changes require lease accounting remeasurements?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/#Amendments\" >Amendments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/#Impairments\" >Impairments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/#Events_Related_to_Unused_Space\" >Events Related to Unused Space<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/#4_What_are_the_unique_remeasurement_triggers_under_IFRS\" >4. What are the unique remeasurement triggers under IFRS?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/#Index-based_Change_of_Payments\" >Index-based Change of Payments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/#Interest_Rate_Changes\" >Interest Rate Changes<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/#5_How_can_you_spot_the_need_for_lease_accounting_remeasurements\" >5. How can you spot the need for lease accounting remeasurements?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/visuallease.com\/6-frequently-asked-questions-about-lease-accounting-remeasurements\/#6_How_does_Visual_Lease_make_lease_accounting_remeasurements_easier\" >6. How does Visual Lease make lease accounting remeasurements easier?<\/a><\/li><\/ul><\/nav><\/div>\n<p><span style=\"font-weight: 400;\"><img decoding=\"async\" class=\"aligncenter size-large wp-image-1856\" src=\"https:\/\/visuallease.com\/wp-content\/uploads\/2019\/08\/Lease-Accounting-Remeasurements-1024x683.jpg\" alt=\"Lease accounting remeasurements\" width=\"1024\" height=\"683\" srcset=\"https:\/\/visuallease.com\/wp-content\/uploads\/2019\/08\/Lease-Accounting-Remeasurements-1024x683.jpg 1024w, https:\/\/visuallease.com\/wp-content\/uploads\/2019\/08\/Lease-Accounting-Remeasurements-300x200.jpg 300w, https:\/\/visuallease.com\/wp-content\/uploads\/2019\/08\/Lease-Accounting-Remeasurements-768x512.jpg 768w, https:\/\/visuallease.com\/wp-content\/uploads\/2019\/08\/Lease-Accounting-Remeasurements-900x600.jpg 900w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/span><\/p>\n<p><span style=\"font-weight: 400;\">With the big push to achieve compliance, a lot of businesses have been laser-focused on making the transition to the new FASB\/IFRS <a href=\"https:\/\/visuallease.com\/software\/lease-accounting\/\">lease accounting<\/a> requirements.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">While that is understandable, it\u2019s important to also think beyond the transition and look to what is next \u2014 namely, keeping up with the required <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In this blog, we\u2019ll take a look at the common types of <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\"> and offer some tips on how to make sure your data stays up to date.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"1_What_are_lease_accounting_remeasurements\"><\/span><span style=\"font-weight: 400;\">1. What are <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\">?<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The work doesn\u2019t stop once you\u2019ve done your initial lease accounting based on your knowledge of all your existing leases. That\u2019s because, while you might think of contracts as being inflexible, the truth is that leases often require changes.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">And according to FASB and IFRS codification and guidance, whenever there is a <\/span><b>material change<\/b><span style=\"font-weight: 400;\"> to a lease, the way in which you do your accounting must also be adjusted to reflect that change.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So, when circumstances cause changes in either the payments or the value of the lease assets themselves, it triggers the need for these <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\">.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"2_Why_is_doing_remeasurements_important\"><\/span><span style=\"font-weight: 400;\">2. Why is doing remeasurements important?<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">According to FASB\/IFRS, if you don\u2019t do <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\"> as required when material changes occur, you are no longer in compliance, and your financial statements will be materially misstated.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It\u2019s that simple \u2014 and <\/span><i><span style=\"font-weight: 400;\">that <\/span><\/i><span style=\"font-weight: 400;\">critically important.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"3_What_types_of_changes_require_lease_accounting_remeasurements\"><\/span><span style=\"font-weight: 400;\">3. What types of changes require <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\">?<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Material changes are major events that can commonly occur during the life of a lease and require you to change the accounting pattern that you set up initially.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Both FASB and IFRS require <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\"> when the following changes happen. Additionally, IFRS has some unique and somewhat more subtle requirements, which we will discuss a bit later.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Amendments\"><\/span><span style=\"font-weight: 400;\">Amendments<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">When a lease is renegotiated, a remeasurement must be done to reflect the changed terms of the lease. For example:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">At the 2-year mark in a 5-year contract, you\u2019re confident you will want to remain in the same space beyond the current lease term. So, you decide to renegotiate to extend the lease term for an additional 5 years.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Just 2 years into a 5-year contract, your mall loses a key anchor store \u2014 and potentially, a lot of foot traffic. So, you decide to renegotiate with the owner for better terms.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Halfway through a 10-year lease, a neighboring office on your floor becomes available. Your needs are growing, so you and your landlord amend the lease to add the extra space for the remaining 5 years of the lease.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In each case, your accounting was set up based on the previous lease pattern, so you now need to adjust the numbers in accordance with the renegotiated lease terms.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Impairments\"><\/span><span style=\"font-weight: 400;\">Impairments<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Changes to the leased assets themselves can also require <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\">. For example:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Your building is damaged in a flood, making part or all of the office space unusable.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">A leased truck is damaged in an accident. While your driver was not at fault and the truck is still drivable, it is no longer as described in the contract.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In circumstances like these, you have the opportunity to write down some portion of the asset value because the asset is no longer worth what it was before.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Events_Related_to_Unused_Space\"><\/span><span style=\"font-weight: 400;\">Events Related to Unused Space<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Here, there are two common scenarios that trigger the need for remeasurements:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><b>Abandonments<\/b><span style=\"font-weight: 400;\"> \u2014 When you are not using a space but cannot get out of the lease, you must continue to pay and account for the space. Here, remeasurement requires you to write down the asset value over a short period of time while still retaining the liability and making the payments.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Terminations<\/b><span style=\"font-weight: 400;\"> \u2014 When you are not using a space and the landlord is letting you out of the lease, remeasurement requires you to include any one-time termination fee you might pay, along with writing down the asset and the liability.<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"4_What_are_the_unique_remeasurement_triggers_under_IFRS\"><\/span><span style=\"font-weight: 400;\">4. What are the unique remeasurement triggers under IFRS?<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">As we mentioned above, the new IFRS standard requires <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\"> based on some additional, and more subtle, lease changes.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Index-based_Change_of_Payments\"><\/span><span style=\"font-weight: 400;\">Index-based Change of Payments<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Under <a href=\"https:\/\/visuallease.com\/compliance\/asc-842\/\">FASB ASC 842<\/a>, indexed-based changes to payments are considered variable rate payments and do not materially change a lease; therefore, those changes don\u2019t require remeasurements.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, IFRS requires <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\"> whenever you have changes to lease payments based on indexes. For example, if the amount of your payment changes every 6 months or yearly based on inflation according to the CPI, you must do a remeasurement to reflect that change.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Interest_Rate_Changes\"><\/span><span style=\"font-weight: 400;\">Interest Rate Changes<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Under IFRS, if the interest rate under which your lease payments are made is changed \u2014 due to changes in the market rate, your credit rating, or some other factor \u2014 you must do a remeasurement.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">That\u2019s true even if the interest rate change is small, because the appreciation schedule you had before was based on an interest rate to which you no longer have access.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">An interesting difference: Under FASB, most lease accounting remeasurements must be updated to reflect the current interest rate. However, a change in the interest rate in itself does not trigger a remeasurement requirement.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"5_How_can_you_spot_the_need_for_lease_accounting_remeasurements\"><\/span><span style=\"font-weight: 400;\">5. How can you spot the need for <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\">?<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Lease accounting is not a one-and-done process, and keeping track of remeasurement requirements is an important part of the ongoing task.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here are some tips to help you stay spot events that might signal the need for <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\">:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><b>Stay on top of the data and monitor lease information for changes in key areas.<\/b><span style=\"font-weight: 400;\"> For example, changes in key dates usually happen when there has been a material change to a lease. So, new commencement and expiration dates might indicate an event such as signing a new or renegotiated lease, exercising a termination option, or other adjustments to the length of a lease.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>With real estate leases, keep an eye on information related to the rentable area.<\/b><span style=\"font-weight: 400;\"> For instance, look for changes indicating that area has been given up or new space has been added.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Monitor the payment structure.<\/b><span style=\"font-weight: 400;\"> An unexpected change in payments might suggest there is a new contract or a change in lease terms that requires a remeasurement.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Partner with your real estate team.<\/b><span style=\"font-weight: 400;\"> With lease remeasurements triggers such as impairments and abandonments, the signs can be hard to spot through data monitoring alone. Keeping the lines of communication open between the accounting team and the real estate team \u2014 the people who typically handle the lease administration tasks \u2014 helps you stay on top of important yet subtle events.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Use Visual Lease for lease administration as well as lease accounting.<\/b><span style=\"font-weight: 400;\"> That way, you\u2019ll have all the key fields set up for tracking lease modifications, events, and activities on an ongoing basis. Plus, you\u2019ll have all the tools you need to do the necessary calculations, including remeasurements.<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"6_How_does_Visual_Lease_make_lease_accounting_remeasurements_easier\"><\/span><span style=\"font-weight: 400;\">6. How does Visual Lease make <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\"> easier?<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Visual Lease not only helps you transition to the new standards. We\u2019re here to help you stay compliant, with data tracking, reporting, and notifications for the life of every lease.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Visual Lease implementation team uses a structured, robust process to set up the system the way you need it, to track the data points that are important to <\/span><i><span style=\"font-weight: 400;\">you<\/span><\/i><span style=\"font-weight: 400;\">. As part of the process, the team works with you to set up any system notifications you might need based on key fields.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Visual Lease system also provides the ability to upload your own accounting schedules as your needs change or as new scenarios arise. This helps to ensure that Visual Lease always contains a complete picture of your portfolio for creation of your consolidated reporting for the SEC or investors.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In addition, Visual Lease continuously enhances the system, adding new scenarios and nuances to your data tracking and reporting capabilities so that you can keep up with changes over time \u2014 including events that require remeasurements.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To learn more about <\/span><span style=\"font-weight: 400;\">lease accounting remeasurements<\/span><span style=\"font-weight: 400;\"> and other capabilities of the Visual Lease platform, <\/span><a href=\"https:\/\/visuallease.com\/visual-lease-software\/\"><span style=\"font-weight: 400;\">contact us today<\/span><\/a><span style=\"font-weight: 400;\"> and we\u2019ll be happy to help.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>With the big push to achieve compliance, a lot of businesses have been laser-focused on making the transition to the new FASB\/IFRS lease accounting requirements. While that is understandable, it\u2019s&#8230;<\/p>\n","protected":false},"author":3,"featured_media":1856,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","footnotes":"","_links_to":"","_links_to_target":""},"categories":[109],"tags":[185,186],"company_size":[],"company_portfolio_size":[],"company_industry":[],"case_study_topic":[],"class_list":["post-1855","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-lease-administration","tag-asc-842","tag-ifrs-16"],"acf":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/posts\/1855","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/comments?post=1855"}],"version-history":[{"count":0,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/posts\/1855\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/media\/1856"}],"wp:attachment":[{"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/media?parent=1855"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/categories?post=1855"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/tags?post=1855"},{"taxonomy":"company_size","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/company_size?post=1855"},{"taxonomy":"company_portfolio_size","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/company_portfolio_size?post=1855"},{"taxonomy":"company_industry","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/company_industry?post=1855"},{"taxonomy":"case_study_topic","embeddable":true,"href":"https:\/\/visuallease.com\/wp-json\/wp\/v2\/case_study_topic?post=1855"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}