How Many Leases Are Involved in Selling That Coach Bag?
- Structured process can uncover hidden leases
- Silver lining: New standards could streamline process
Unpacking how many leases fit into a Coach handbag has been a challenge for accountants at Tapestry Inc.
The New York-based house of luxury brands Coach, Kate Spade, and Stuart Weitzman has spent months gathering data and identifying leasing arrangements in preparation for new accounting rules that take effect Jan. 1.
“Obviously all of your contracts won’t just say ‘lease’ in big bright letters at the top of those agreements,” Brian Satenstein, chief accounting officer for Tapestry Inc., said Dec. 11 during a panel discussion at an American Institute of CPAs conference in Washington.
“So having a structured and formalized process to help identify those leases is going to be very important,” Satenstein said.
Satenstein’s observations came as companies worldwide scramble to adapt to the new lease accounting rules, which require companies to report lease obligations on their financial statements for the first time.
Implementation of the new standards, ASC 842, will impact businesses around the world because it changes how leases are recorded and tracked. Switching to the new standards has forced accounting staffs to review contracts for a wide-range of assets, including information technology equipment, vehicles, and the leasing of buildings.
Tapestry is a $6 billion company with about 1,500 directly operated stores, currently accounted for as operating leases, and a number of ancillary agreements, Satenstein said.
Looked at Everything
To account for all the leases, his department focused on everything from IT contracts for server and cloud computing, to manufacturing agreements that might have dedicated tooling, to advertising contracts that might include right-to-use language for billboards.
Tapestry held training and data-gathering sessions with all key teams and created questionnaire templates to make sure they got the data they needed, Satenstein said.
Global companies will face additional challenges of different languages, fragmented systems, large numbers of leases, and multiple processes.
“Probably a lot of companies out there don’t have a centralized process,” said Cheryl Levesque, a CPA and partner with Dixon Hughes Goodman LLP in New York. “They may have departments throughout the country or throughout the world and they all do their own contracting.”
The silver lining is that the new accounting standards may encourage companies to streamline systems, such as technology, going forward, Satenstein said.
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This article was originally published in Bloomberg Tax’s Financial Accounting Resource Center. Rely on expert practitioners for practical guidance and real-world approaches to complex accounting issues.