In December of 2018, new lease accounting standards for real estate were put into effect by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). These new standards, labeled ASC 842 and IFRS 16, require public and private companies to include lease accounts in balance sheets in order to give a complete comprehensive view to the investors, lenders, and other financial statement users of a company.
These required modifications will have a great impact on the real estate side of any company and the deadline to make the changes is rapidly approaching. For public companies, the new leasing standards (ASC 842) affect fiscal reporting periods that began after December 15, 2018. For private companies, the new leasing standards (IFRS 16) will be put into effect for financial reporting periods that begin after December 15, 2019. If it hasn’t happened already, companies need to assess how these new standards will affect their financial statements by taking steps such as taking inventory of any leases and applying the new processes.
As a company that implements SAP (SAP ERP), how does this affect us?
If there are multiple building entities that are leased to third parties and you are a company that implements SAP, your SAP ERP system can do the real estate work for you to reflect the new standards. The SAP solution lies within the SAP Flexible Real Estate submodule (RE-FX) which is integrated with SAP FI and CO. The RE-FX submodule acts as a comprehensive contract management solution that allows the set-up of several different types of contracts, is able keep track of dates/finances and manages all the lessees/lessors. The RE-FX sub-module will valuate lease contracts according to the different GAAP standards that need to be implemented (ASC 842 or IFRS 16). It will calculate various real estate data such as present values, depreciations, and rents. Other functions of the RE-FX submodule include master date management of real estate which captures details about real estate entities such as size, location, market value, etc.; lease-in and lease out functions which details the process of leasing/renting real estate/land; and space management which allows the lessors and lessees to be aware of the amount of usable space available in a real estate entity.
The RE-FX submodule can be implemented in both SAP ECC and SAP S/4HANA. If the switch from ECC to S/4HANA is currently underway, the RE-FX submodule can be implemented in SAP ECC and allows for an easy transition into the switch to S/4HANA.
Have any more questions or want a talk more about the integration of real estate and SAP? Shoot me a message – let’s talk!
If you are interested in viewing similar articles, visit our blog, here.
View our LinkedIn, here.