Have you ever been scrolling through job listings in the accounting field and stumbled upon a position titled “Lease Accountant”? If you found yourself pausing and wondering what a lease accountant does, how this role fits into the broader accounting landscape, or if it might be a suitable career path for you, you’re in the right place.
We’ll explore the role of a lease accountant, explaining their responsibilities and the significance of this position in the accounting sector. Without further ado – let’s take a look.
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Background of Lease Accounting
Lease accounting is the practice of managing and reporting financial information related to leases. A lease is a contract in which one party, the lessor, allows another, the lessee, to use an asset for a specified period in exchange for payment.
The evolution of lease accounting standards has been significant, particularly with the introduction of IFRS 16 and ASC 842. These standards were developed to provide greater transparency in financial reporting by requiring companies to recognize almost all leases on their balance sheets.
Before we get lost in the definition, let’s summarize it this way: to comply with updated lease accounting standards, businesses must now significantly enhance their accounting processes. There are more journal entries to record, more amortization schedules to calculate, and more checklist items for companies to go through if they don’t want to get in trouble with the auditors. And no, this is not just for the public companies. Private companies are now also required to follow the guidance.
Responsibilities, Expectations, and Daily Activities of a Lease Accountant
The responsibilities and daily activities vary moderately, depending on whether the employer is mainly a lessor (the party that leases out asset or property) vs a lessee (the party that receives the assets)
How can you tell whether the job poster is a lessor or lessee? Take a look at what this company does. They may be a lessor if they are an equipment manufacturer or a real estate developer. They may be a lessee if they sell generic products or don’t look like their business model can lease out any assets. Still not sure? It’s not going to hurt if you just send them an email and ask.
Let’s look at what it takes to be a lease accountant. We will break up the responsibility into three sections: 1) applicable to both lessor and lessee, 2) applicable to lessor only, 3) applicable to lessee only.
For Both Lessors and Lessees
- Recording and Reporting: Accurately recording lease transactions in financial statements, ensuring compliance with relevant accounting standards like ASC 842.
- What this means: You will be booking journal entries following the guidance of ASC 842.
- Lease Classification: Classifying leases correctly based on specific criteria, which has an impact on how they are reported.
- What this means: You will decide whether a lease is an operating lease vs. finance lease (for lessee) or a sales-type lease vs. direct financing lease vs operating lease (for lessor). The classification is very important as the journal entry requirement and calculation are drastically different for each type.
- Documentation Management: Maintaining comprehensive and organized documentation for all lease agreements, including terms, payments, and renewal options.
- What this means: this is the less technical part. You are expected to organize all leases and be familiar with them.
- Communication and Collaboration: Working closely with other departments (like legal and operations) to ensure that all lease-related information is accurate and up-to-date.
- What this means: Often, you will get a call from legal or procurement asking for guidance, or your finance team will start asking you what the different types of leases mean to the company’s financial landscape. To summarize, lease accounting involves more than just accounting and journal entries.
Specific to Lessors
- Revenue Recognition: Recognizing lease income over the lease term and ensuring accurate reflection of earned and unearned revenues.
- What this means: The journal entries you booked will directly reflect the company’s income from leasing out those assets – a big role with a big impact.
- Fixed Asset Management: Managing the leased assets on the balance sheet, including tracking the depreciation of these assets over time.
- What this means: You are expected to understand how fixed asset works, such as how depreciation works and how to prepare fixed assets rollforward.
- Credit Risk Assessment: Evaluating the creditworthiness of lessees to minimize the risk of lease defaults.
- What this means: Just like a credit card company, you can’t lease out the assets without reviewing who the lessee is and whether they are trustworthy. In some cases, lease accountants are expected to perform some credit analysis – but you shouldn’t worry too much about it as different companies have different standards and will introduce you to their evaluation process – just be sure you are a good learner.
Specific to Lessees
- Expense Management: Recording lease expenses and understanding their impact on the company’s financial statements.
- What this means: instead of recognizing revenue as a lessor, you are expected to know how much expense the lessee has incurred from the journal entries you booked.
- Lease Liability Management: Calculating and reporting liabilities associated with lease obligations, including future lease payments.
- What this means: you will likely be tasked to keep track of the actual cash outflow of these leases, confirm whether the monthly bill is accurate and whether the liability schedule is still on the right track.
- Budgeting and Forecasting: Assisting in budget preparation and financial forecasting by analyzing lease commitments and their long-term financial implications.
- What this means: your FP&A colleague will reach out to you and ask forecasting questions, as what the company pays is often different than what is recognized as an expense (again, it depends on the lease classification).
The Key Points
In reality, all of them can be boiled down to three key points:
- Getting the Numbers Right: You will need to be familiar with your lease journal entries. The focus is on ensuring that the numbers accurately represent the lease activities, from monitoring payments to understanding the impact of these entries on the company’s financial statements.
- Knowing Your Leases Inside Out: You’ll need to be savvy about distinguishing between different types of leases. Is it an operating lease or a finance lease? Sales-type vs. Direct Financing? Getting this right is crucial, as it changes how you report these figures in the books.
- Team Player Skills: You won’t be working in a silo. Expect to collaborate a lot with folks from other departments. Whether it’s discussing details with the legal team or planning with FP&A, your role is critical in keeping everyone on the same page about the company’s lease commitments.
Just a note: While the job description might seem daunting with its long list of requirements, don’t let that intimidate you. Employers typically don’t expect you to be an expert right from the start. Even if you’re already well-versed in ASC 842, remember that each company has its own unique scenarios and specifics. So, anticipate a bit of guidance and support as you settle in. Having a solid foundation in lease accounting, though, will put you ahead of the game and make you a valuable team member.
Related reading: Interested in learning more about the “Lease accounting journal entries”? Check out these guides:
Career Path and Pros & Cons of a Lease Accountant
Curious about where this job can take you? Let’s break down the career journey and check out the upsides and downsides of being a lease accountant.
- Entry-Level: Typically, you’ll start as a Lease Accountant or Lease Analyst, handling day-to-day lease accounting tasks such as booking journal entries, preparing schedules, and reviewing lease agreements.
- Mid-Career: With experience, you could move up to a Senior Lease Accountant, overseeing more complex lease arrangements and leading a small team. You might also start taking the reviewer role, signing off on work prepared by the Lease Accountant.
- Senior Roles: Further down the line, you could step into roles like Lease Accounting Manager, Director of Lease Accounting, or even broader roles in finance and accounting, depending on your skills and interests.
Pros & Cons
- Specialization: Leasing is one of the most common types of transactions among businesses. Having specialization in this field will make you more marketable in certain industries, such as real estate, equipment manufacturing, airlines, etc.
- Demand: Lease standards are complex and keep evolving, which means there will always be demands for accountants with expertise in lease accounting.
- Job security: Just like any other type of accountant, lease accountants will not have difficulty staying employed, as businesses consistently need professionals adept at managing and complying with leasing standards.
- Routine work: The role can sometimes involve repetitive tasks, such as regular updating and monitoring of lease agreements and journal entries, which might not offer much variety on a day-to-day basis.
- Complexity & Regulatory Changes: Frankly, lease accounting can be complicated with all the nuances. Moreover, keeping up with frequent changes in lease accounting standards can also be challenging.
- Niche Field: The specialized nature of the job might limit exposure to other areas of accounting and finance. To be transparent, if you’re aiming for top-tier positions like a controller or CFO, specializing in lease accounting might restrict your learning and growth opportunities.
Compensation of a Lease Accountant
The compensation for lease accountants can vary based on factors like geographic location, industry, company size, and individual qualifications. But here is some range and ballpark number:
Entry Level Salaries: Range from around $40,000 to $97,500, with the national average of $72,130 annually (Nov 2023)
Senior Level Salaries: Range from around $75,000 to $116,000, with the national average of $93,000 annually (Nov 2023)
Manager Level Salaries: Range from around $97,500 to $130,000, with the national median of $111,755 annually (Nov 2023)
- Basics of Lease Accounting:
- Involves managing and reporting lease transactions in accordance with standards like IFRS 16 and ASC 842.
- Job Responsibilities and Expectations of a Lease Accountant:
- Proficiency in lease journal entries and their financial statement impacts.
- Understanding and classifying different types of leases.
- Collaborating with other departments for accuracy and compliance.
- Career Path:
- Starts at entry level, with the potential to advance to senior or managerial roles and possibly broader finance positions.
- Pros and Cons of Being a Lease Accountant:
- Pros: Specialization, high demand, and job security.
- Cons: Routine tasks, complexity, need for continuous learning, and limited exposure to other areas.
- Entry-level salaries typically range from around $40,000 to $97,500. (I know it’s a big range, but again, this varies by location, education, qualification – many factors)
- Potential growth to over $100,000 in senior or managerial positions.
- Overall Summary:
- Being proficient in lease accounting journal entries and regulations is crucial for success in this role.
- A career in lease accounting offers stability, a well-defined growth path, fair compensation, and the opportunity to specialize in a niche yet vital area of accounting.
- It’s important for potential lease accountants to weigh the advantages of being a specialist against the limitations, especially if you aspire to reach top positions in broader accounting or finance areas.