Is Your Company Prepared to Implement the New Lease Accounting Standards?

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The revised deadline for implementing the new lease accounting standards (ASC 842) for private companies is fast approaching.

Private companies are required to adopt the new lease accounting standards for financial reporting periods beginning on or after December 15, 2021. ASC 842 requires lessees to carry most leases on their balance sheet as right-of-use (ROU) assets with related lease liabilities.

Complying with the new lease accounting standards

contract and form; silver ink pen placed on top of formsAdhering to the new lease accounting standards may require a detail review of your company’s lease agreements and other contracts, which may contain lease components. Gathering and reviewing the contracts to ensure completeness of lease accounting may require significant effort and time – not only by your company’s accounting personnel, but personnel from other departments, too. You may require assistance from employees in procurement, security and maintenance, transportation, information technology and legal, to name a few. Depending on whether your operations, administration and company management are centralized or decentralized as well as domestic or foreign, you may need to establish appropriate, adequate policies and procedures to gather and analyze lease related information.

Lessons learned

As public companies were required to implement the standards for reporting periods on or after December 15, 2018, private companies have the advantage of learning from public companies’ implementation experiences. One of several lessons learned was that it is never too early to start the implementation process. Implementing ASC 842 often takes longer than expected, due to various factors including:

  • It requires more than the estimated time to gather, analyze and summarize the lease information, such as verbal agreements, to establish “completeness.” i.e., a comprehensive list of all the ROU assets.
  • There is often a lack of available internal resources with the knowledge and ability to dedicate the time necessary to effectively implement ASC 842.
  • There are several intricacies involved in the assessment and selection of an appropriate lease accounting software and other tools, which vary depending on the volume and complexity of the contracts and the lease portfolio.

Trusted partners

We advise business owners to partner with an organization equipped to help simplify the transition from the existing lease accounting standards (ASC 840) to the new lease accounting standards within a realistic timeline and budget. A professional can help by:

  • Assisting management with formulating an implementation plan.
  • Scoping the project, including discussions about policy elections and practical expedients.
  • Reviewing contracts and abstracting relevant information.
  • Evaluating lease accounting software.
  • Executing deliverables such as lease amortization tables, monthly journal entries and financial statement disclosures.
  • Documenting lease accounting policy memos and offering guidance on appropriate procedures for compliance with the new lease accounting standards.

Learn about Sikich’s capabilities in implementing the new lease accounting standards by contacting our team today.

About our authors

Sylesh Babu

Sylesh Babu

Sylesh Babu, CPA, CFE, ACA, DipIFR, is a partner in the audit and assurance practice. Sylesh has nearly 30 years of experience providing accounting and audit solutions, with extensive knowledge in addressing challenges facing clients in manufacturing & distribution, business and professional services industries such as engineering, law, staffing and IT consulting services. In his role, he offers financial statement audit, review and compilation services as well as agreed upon procedures, due diligence, forensic and consulting services to businesses.

Cheryl Bayer

Cheryl Bayer

Cheryl Bayer is an audit manager with over 10 years of experience serving both public and private companies. Cheryl provides audit and accounting services, including evaluating transactions and performing complex applications of accounting. In her current role, she provides attest services, implementation of new accounting pronouncements and due diligence. Cheryl works closely with her clients to address their challenges and has prior experience managing the accounting policy function at a Fortune 100 company. She has particular expertise serving manufacturing and other for-profit businesses.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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