The new lease accounting standards require companies to explain changes to leases on the balance sheet. They are obliged to divulge the amounts gained or lost, as well as the reasons behind these gains or losses. Roll-forward reports prove to be a valuable tool in meeting these lease accounting standards. They furnish a comprehensive account of lease financials, encompassing changes from one period to the next regarding right-of-use (ROU) assets, in addition to short-term and long-term liabilities.
As we know, a company’s leases and liabilities undergo continuous fluctuations due to events like adjustments, terminations, and other transformations. Roll-forward reports serve as an effective means of disclosing these and other modifications that transpire throughout the life of a company's leases.
The concept of roll-forward reporting bears a resemblance to a statement of cash flows, which reconciles disparities between the cash position on the balance sheet and that on the P&L statement. A roll-forward report accomplishes a similar objective, albeit for leases. These reports offer a glimpse into a company's lease portfolio and the rationale behind business decisions, including the causes of additions or subtractions in lease financials. For example, a report might indicate a substantial alteration in a liability but concurrently reveal that it is offset by additional lease assets.
Roll-forward reports can segregate, and report lease information based on asset classes.They can also delineate the alterations in your balance sheet from one period to the next. Hence, the initial step towards creating a roll-forward report entails ensuring that your lease information is accurate, current, and comprehensive. Typically, roll-forward reports encompass lease data compiled from various sources, including the disparate departments responsible for real estate assets. The content within roll-forward reports varies depending on company structure, assets, and accounting and reporting requirements. The report must elucidate both the reasons for changes in lease financials and the associated amounts. Roll-forward reports for a ROU asset or short- or long-term liability typically include the following:
- Beginning Balance +Value of New Leases -Amortisation Expense = Ending Balance
- Beginning Balance, Short-Term Liability + 12 Month Obligation for New Leases - Payment, Principal - Payment, Interest Expense + 1 Month Rolled from Long Term (If applicable) = Ending Balance, Short-Term Liability
Roll-forward accounting manifests the shift from the beginning-of-period balance to the concluding period balance. In the context of leases, applicable standards require us to carry the asset value of the underlying asset and the liability, divided between short-term (<12 months) and long-term (>12 months). Every month, these values fluctuate based on the amortisation of the asset value (a decrease in the asset) and the recognition of the payment plus interest expense on the liability (along with shifts between long-term and short-term). The cumulative impact of amortisation expense and interest expenses constitutes your lease expense for the month – a correctly executed process should result in consistent monthly expenses over the lease's duration.
Roll-forward reports are pivotal for both lease accounting compliance and sustained lease transparency. They enable us to easily monitor lease alterations, comprehend their causes and consequences, all within a single report. Implementing a technology platform that automates roll-forward reporting empowers companies to streamline information gathering while ensuring compliance with applicable standards and requirements.
Accruent's lease accounting platform, Lucernex, supports roll-forward reporting for enhanced transparency. The platform's roll-forward reporting capabilities furnish users with a lucid understanding of lease modifications and their business implications. Users can conveniently access all pertinent data and lease activity directly within the platform. Lucernex can also segregate, and report lease information based on asset classes.
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