4 mistakes to avoid when dealing with foreign language lease agreements in the context of FASB’s ASC 842

4 mistakes to avoid when dealing with foreign language lease agreements in the context of FASB’s ASC 842With FASB’s new lease accounting update, ASC 842, companies may be struggling to establish procedures that make the transition easier. But with any new process, companies will make iterative improvements. Here are four mistake to avoid when dealing with foreign language lease agreements.

1. Improper storage or organization of lease files

Most leases are scanned as PDFs, making them difficult to search or machine translate. Most companies do not go to the trouble of converting them to a uniform access-friendly format. File conversion makes it simple to extract key data needed for financial reporting and for translation.

Lease files may be scattered across the globe on various computers rather than online, where they are easy to access for everyone, from the translators to the accountants, at any time. A simple and effective folder structure would be:

  • Lease Agreements
    • US
      • Address 1
      • Address 2
      • Address 3
    • Canada
    • Mexico
    • ….

The lease agreements folder would be accessible by everyone and everyone would know exactly where their files should go.

2. Abstract a foreign language lease contract without translation first

Typically, an internal resource in a foreign office who is bilingual will be called upon to abstract the lease directly – skipping the translation process.  However, being bilingual may not be sufficient to read a technical document such as a lease contract.  Lay people oftentimes have trouble comprehending lease contracts in their native language, which is what bilingual internal resources may be if their training was only in one language. Moreover, validating that the work was done correctly may be challenging to people in the US office or even a third party auditor.

3. Improper leases translation methodology

The standard translation process includes a professional translator and editor.  This is excessive for the goal, which is sufficient comprehension to abstract the lease.  The cause of this is requesting a translation company to translate a lease.  Without explaining the purpose for needing the translation, the translation company risks applying an improper methodology.  

On the other extreme, machine translation is not sufficient for lease contract abstracting because machine translation translates words rather than meaning, and thus the meaning of the translation may be incorrect (it almost always is).  

The entire lease does not need to be translated by a professional; machine translation as a first pass is sufficient.  However, to avoid misunderstanding the translation output, use a professional only on the sections of relevance.  This is the most cost-effective approach.  

Finally, take advantage of machine learning technology and train the machine translation engine to learn from the professional translator.  As a result, the machine translations improve with each lease.  This exponentially improves both the speed and cost-effectiveness of this process.  

Partnering with a specialized translation firm overcomes this mistake completely.  

4. Improper use of internal resources to translate a lease contract

Keeping the translation of foreign leases in-house is not only incredibly time-consuming, but it is also expensive. Any translation firm will agree that a professional translator is less expensive than an accountant or nearly anyone else that works at an accounting firm.  The opportunity cost of any internal resource dedicated to this task over any other more profitable task is immense.  

It is more cost- and time-effective to work with a professional translation firm who has deep experience translating foreign leases. The task will be handled with minimal resources and intervention.

Contact us today to learn more about how to improve your lease agreement process.

Why it’s important to streamline your lease agreement translation process

Because businesses are now required to disclose lease commitments on the balance sheet with FASB’s ASC 842 standards update, there is going to be significantly more work for corporate accountants and lawyers, especially if foreign leases are involved. Developing a streamlined lease agreement translation process with the right technology and lease translation partner can mitigate time, cost, human error and cut down on the stress that this new requirement can bring.

There are many reasons for taking the time to create a workflow that is as automated and effective as possible.

1. You may be dealing with potentially hundreds or thousands of lease contracts

Large corporations may work with a sizable number of foreign lease operators, and that means they likely have those leases in foreign languages. Even if you have translators in-house, this work could flood their desks for years.

Automation is the answer when it comes to having so many leases that need translation. The more that can be taken care of through established processes, such as converting all scanned documents to a searchable and translatable file format and having a centralized file management system will save time for the rest of the workflow.

2. This is not a standard translation process

With standard translations, human translators are essential. While they have their place with lease translation documents, much can be handled through an enhanced machine translation process. A human translator can review the machine translation for accuracy, so translators spend less time overall on the process when machines assist, which means the translated leases can be processed quickly and moved on down the workflow process.

3. Leverage each lease translation to minimize costs

Because much of the legal verbiage will be identical from lease to lease, computers can automatically parse those sections and insert these previously human translated content using unique translation memory, saving time and money on the translation process while still retaining human-quality translations.

4. This is a people-intensive process

With so many people involved in the workflow, from administrators who scan the initial lease, organize the files, direct them for translation and then for abstracting; to the translators, editors, and project managers involved in the translation process; to the accountants who ultimately utilize the lease information, it can be easy for things to get out of control. That’s why having centralized file management, and an established and streamlined workflow process is essential.

Take the time to identify what your lease agreement translation process will look like, including all participants in the planning process. Having an established workflow will mitigate stress, problems and costs.

Contact us today, if you’d like to discuss how to streamline your lease agreement translation process.

5 significant issues to consider regarding the FASB’s lease accounting standard ASC 842

5 Significant Issues to Consider Regarding the FASB’s Lease Accounting Standard ASU 842The Financial Accounting Standards Board (FASB) functions as an independent and not-for-profit organization that establishes financial accounting and reporting standards for all organizations that follow Generally Accepted Accounting Principles (GAAP). After nearly 10 years in the making, FASB announced its most recent standards update in February 2016:

ASU 2016-02, Leases (Topic 842)

Intended to address some of the most common criticisms of the current accounting and reporting rules, the most recent amendments focus on transparency. In the aftermath of the SEC’s 2005 report on off-balance-sheet activities, which recommended changes be made to lease agreement regulations, the FASB and the International Accounting Standards Board (IASB) developed and published a joint guidance that, in the words of FASB Chair Russell G. Golden, “responds to requests from investors and other financial statement users for a more faithful representation of an organization’s leasing activities.” Read more

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