Under the new standard (ASC 842), lease disclosures are intended to help accounting services in Dubai analyze how leases affect cash flow and assess how much uncertainty there is. Check out some common pitfalls and how to make sure you get it right.
Revenue Recognition: What We've Learned
Lease disclosure requirements in ASC 842 have been expanded and made much more comprehensive. Some UAE companies didn't think about disclosures until they were too far into implementing the new revenue recognition standard.
For many accounting services, the priority was implementing a complete and accurate lease accounting model, so they scrambled to meet the lease disclosure deadline.
Under the new lease accounting standard, qualitative disclosures are as extensive as revenue recognition and require a thorough understanding of quantitative models.
Early in the implementation process, accounting and financial services in UAE should understand the disclosure requirements-ideally before choosing a technology vendor. It might even be necessary to draft qualitative disclosures to better understand requirements and challenges.
How Companies in Dubai Can Avoid Pitfalls
Public companies have already gone through the implementation process, so learning from them may be useful to private firms in UAE racing to meet the deadlines.
So, you can avoid the same pitfalls they made, and have a smoother rollout. Farahat & Co has identified key common pitfalls to avoid in this process after working with hundreds of global public companies:
Preparation Takes Time, So Don't Underrate It
In recent years, many accounting services in the UAE underestimated the amount of time and resources that would be required. Most teams assumed that gathering data, doing a few calculations, and producing a journal entry would be straightforward.
It should be noted, however, that the requirements and scale of transition to FASB ASC 842 and IFRS 16 are far more complex, logistical, and technical than people may think.
Creating a realistic timeline for your organization to follow will help to ensure that you are prepared to meet compliance deadlines. Therefore, it is prudent to take into account the factors that could potentially derail your implementation, including the timetables of other projects. To meet the compliance deadline, you should start as early as possible to avoid dealing with unexpected problems.
Include Stakeholders From Across Departments
We have observed that problems occur when a company's designated team does not have competent personnel during implementation - or even when it includes too many people. The cost of having to go back and fix mistakes made without vital team members is time and money.
Various stakeholders in your business should be involved in the implementation. The right internal stakeholders can help ensure the right data is being captured. At the very least, you need:
Responsible for leading the effort would be an experienced project manager. It could be someone from your internal project management team, external consultants, or a member of your acting advisory firm.
Key representatives from other teams, such as real estate and leasing. You can count on lease experts to gather the data you need for journal entries and calculations.
Don't Delay Accounting Decisions
Lease accounting technology simplifies the day-to-day accounting and administration tasks you need to perform as part of your leasing process. You might still not be ready to choose the specifications and settings of your system and data if you haven't yet made accounting decisions.
Making accounting decisions while exploring lease accounting technology vendors is a better choice than deciding when you've already decided. Your time and resources will be more efficient during both implementation and purchase.
Here are a few examples:
You need to structure and break down your data based on the practical expedients you decide to take.
Most firms choose to use the same rate across the board for all leases, while others use a complex table of rates for different calculations.
Make Sure Your Data is Validated
With ASC 842 and IFRS 16, lease data has a greater impact on your balance sheet. There must be both an asset and a liability for all leases. Validate your lease data before you import as soon as you have identified the lease data to capture.
When lease accounting software calculates financial reports based on your data, it is important to ensure that your data has not been compromised - or you could breach debt governance.
We recommend testing your lease data to discover any potentially missing items and developing models based on your data. Consider these questions:
- Is your set of lease payment data complete?
- Are the dates accurate?
- Are lease amendments included?
At Farahat & Co, we are always ready to help companies in Dubai and UAE conduct accurate lease analyses. If you are looking for a reliable chartered accountant in Dubai and UAE, we are one phone call away.