In the last few years, Workday Financial Management has adapted to recent changes in lease accounting requirements. This article explains the implications of these changes and how you can stay in compliance using Workday’s updated configuration.
The Financial Accounting Standards Board (FASB) introduced new accounting standards that supersede the nearly 40-year-old ASC 840 accounting standards for how to report on operating leases. Prior to ASC 842, operating leases were permitted to be reported only in footnotes in corporate financial statements or off-balance sheet operating leases. ASC 842 closed this long-standing loophole, which brings more transparent financial reporting for both public and private companies.
ASC 842 took effect for public companies in 2018 and the new lease accounting standard is scheduled to take effect for private companies and private not-for-profit companies on December 15, 2020.
How can Workday Financial Management help you manage operating leases?
Workday includes a multitude of features that allow users to:
- Record the initial recognition of the lease asset and liability
- Create an expense schedule while factoring in direct costs and incentives, as well as the supplier invoice schedule for lease payments
- Use supplier contracts without needing to fully implement the purchasing module and includes the maintenance of operating leases using supplier contracts as part of the Core Financials functionality
- Configure supplier contract types and manage variable payment amounts
- Create an expense schedule with installment dates and amounts
Helpful account posting rules
Workday has also created the following Workday delivered account posting rules to assist in creating the correct accounting. These rules allow your accounting team to manage the process more effectively and minimize the risk of a gap in compliance. To view these rules, search View Account Posting Rule Set in your Workday tenant.
- Lease Asset for the initial recognition entry and expense recognition installments
- Lease Asset Contra used by initial recognition entry for indirect costs, lessor incentives and prepaid lease payment as well as the supplier invoice installment
- Lease Expense for the expense recognition installment to reclassify the ongoing expense automatically
- Lease Liability leveraged by initial recognition, expense recognition installments and supplier invoice installments
Lease accounting reporting
Workday also provides a robust reporting framework to allow you to manage the report aspects of operating leases for financial statement quantitative disclosure requirement. Your data can be readily available for you to use when reconciling balance sheets and lease contracts, as well as when transacting with multiple entities and currencies by providing the seamless ability to represent right of use across entities.