Many private companies breathed a sigh of relief when the deadline for transitioning to FASB’s newest lease accounting standard was once again extended — this time, until 2022. But make no mistake, it would be a serious miscalculation to put aside the task of preparing for ASC 842 compliance.
The smart approach is to not see the latest lease accounting deadline extension as a reprieve, but instead look at it as an opportunity to get the ASC 842 adoption process on track and where it should be.
Why make the lease accounting deadline a top priority?
A lot of time and effort goes into preparing for lease accounting compliance. Just the labor-intensive and complex task of gathering all your leases and identifying critical lease information before implementation can take a year or even 18 months for some companies.
Just ask Apex Tool Group (ATG), a company that implemented Visual Lease to streamline its ASC 842 compliance process.
“We began compiling data about a year prior to our targeted implementation with Visual Lease,” said Nick DeNichilo, Director of Financial Reporting and Technical Accounting at ATG. “We knew it would be a daunting task to gather all our lease information, considering our vast entities located throughout the world and robust number of leases — including multiple complex leaseback real estate agreements.”
That’s why, despite the lease accounting deadline extension, it is still critically important to prioritize preparing for the transition — and to get started by completing the tasks below as quickly, efficiently, and thoroughly as possible.
Inventory your leases ASAP.
Depending on your company, you might have hundreds or even thousands of leases in different departments and different locations. While real estate leases are generally the more costly contract that a business holds, most companies have a higher number of leases for equipment such as:
- Office tools including computers, printers, copiers, phones, servers, and routers
- Vehicles ranging from automobiles, vans, and trucks to equipment used for farming, construction, or product transport
- Advertising resources such billboards, signage, and corporate sponsorships
- Telecommunications, IT, or energy infrastructure
In addition, you might have to account for some embedded leases — components within a contract that provide for the use of particular assets.
Lease Inventory Tip: Be sure to check with the different departments in your organization —such as real estate, facilities, operations, procurement and IT — to ensure that you have a comprehensive list of all the leases throughout your company.
To learn more, read our 5 Tips for Smooth Lease Data Collection.
Compile and validate your lease accounting data.
Gathering the specific lease information required for the compliance deadline is another time-consuming task. That’s why is it important to designate responsibilities and steps up front, including:
- Who will review each lease and pull out the information you need to track?
- What will your review process be?
- How will you ensure that it is all accurate and up to date?
Once your lease information is compiled and entered into a lease accounting system, you need to validate the data and make sure the reports that the system generates will:
- Accurately reflect all your lease assets
- Meet ASC 842 compliance requirements
Lease Data Validation Tip: The right lease accounting software partner will work with you to validate your data and help to ensure that the system is capturing all the information you need.
Track any lease changes and updates.
Leases are not a stagnant thing. Especially when you have a large lease portfolio, you may have to deal with lease changes quite often. And as we have all seen, an unexpected event such as the COVID-19 pandemic can create disruptions that also have an impact on leases and therefore, lease accounting.
Implementing a system for ongoing lease accounting and management will allow you to track your leases and automatically update the data to reflect changes such as:
- New leases
- Terminations or amendments
- Variable rent payments
- Clauses that trigger lease modification
- Deadlines for renewal, purchase or buy-out options
Lease Tracking Tip: A lease accounting and management solution such as Visual Lease allows you to set reminders to alert you of lease events and deadlines, so that important changes don’t take you by surprise.
Run lease accounting reports long before the compliance deadline.
To have a successful audit, you need to be confident that your lease accounting, tracking, and reporting system is up and running well BEFORE the ASC 842 compliance deadline.
So, as soon as your lease accounting system has been implemented, be sure to run your outputs and make sure your process works ahead of when it’s required. Running reports ahead of the deadline will help you determine if:
- You are running the right reports
- You are capturing all the right information
- You have configured all the fields that are important to accounting and to the business
Test Report Tip: Allowing time to run reports ahead of the lease accounting deadline helps you wring out potential last-minute problems that could cost you your audit.
Get ahead of the ASC 842 lease accounting deadline!
Now is not the time to take your foot off the gas as you undertake the lengthy and complex process of adopting the ASC 842 lease accounting standard. Instead, you can take advantage of this much-needed “extra” time to gather the data needed for lease accounting and implement a technology solution that will help to ensure that your organization is ready for compliance.
A combination lease accounting and administration software will help you manage your leases and also give you an important head start — enabling you to automate your lease accounting and reporting process to meet (or beat) the compliance deadline. When you select a software provider who prioritizes implementation, it can be complete in an average of 90 days.