TRANSPORTATION

Nakisa Lease Administration streamlines lease accounting for organizations
in the transportation industry.

Companies in the transportation industry employ large-scale lease portfolios to access the fuel efficient, reliable assets that are central to their success. The new lease accounting standards – IFRS 16 and ASC 842 – bring most of these leases onto balance sheets, exposing billions in lease liability across the industry.

Beyond the requirement to record operating leases on the balance sheet, under the new standards, many transportation companies will need to consider how other business arrangements fit into the lease accounting model. These include how to distinguish between and determine a relative value for lease and non-lease components in bundled service packages, how the lease of specialized assets impacts expense recognition of the arrangement.

“Entities in the transportation and logistics sector regularly enter into arrangements that involve the use of aircraft, rail cars, and ships, such as cargo capacity purchase agreements and terminal agreements, as well as warehousing arrangements. These arrangements must be carefully assessed to determine if a lease is embedded in the arrangement. If an embedded lease does exist, it typically involves substantial payments that may have a material impact when the lease is recorded on the lessee’s balance sheet.”