Accounting professionals have undoubtedly been busy for some time now. COVID-related opportunities and disruptions on top of increased employee turnover have resulted in prolonged battles for the top of many priority lists. As a result, the important, but less imminent, task of preparing for the implementation of the new lease accounting standards under ASC 842 and GASBS 87 has repeatedly been pushed down the list by many organizations. Some may believe there is still plenty of time; however, the reality is, if you haven’t started, you’re likely further behind than you realize. Sikich has been building the necessary tools to prepare for these changes, from webinars to creating an Excel-based solution, Lessee Ledger.
Consider the following questions to see how prepared you and your firm are for implementing the new lease accounting standards.
Are your clients ready?
Do your clients have a sufficient understanding of the new requirements to implement and remain compliant in future periods?
Clients are going to want and need training, and it’s impossible to educate them all one-on-one. That’s why Sikich prepared a downloadable lessee accounting handbook, numerous articles and recorded webinars.
Do your clients understand how the new standards will impact their financial statements and key ratios?
This is where any one-on-one time with clients should be focused. If, for example, a company’s debt covenants will be negatively impacted, they need to understand this to have conversations with affected third parties.
Have your clients made available policy elections, which could significantly impact how they implement the standards and amounts reported?
There are several policy elections and practical expedients available in the standards that can impact transition, recognition, measurement and presentation. This foundation must be established early in the adoption process. Our ASC 842 Lessee Handbook includes a two-page policy election template.
Do your clients know what contracts make up their lease portfolio, including embedded leases?
Finding agreements with the word “lease” isn’t the difficult part. Much consternation is around the new emphasis on “embedded leases.” Explaining this to clients will likely result in them wanting your advice on how to identify them. Be prepared with suggested questions that finance personnel can ask of management around the organization and tips to examine historical expenditures for recurring expenditures that may indicate a long-term lease.
Have your clients selected a lease accounting software?
If you’ve researched software solutions, you know there are many options. And if you haven’t researched them in a while, there are more than you remember. Clients won’t have the time or interest to do this research – they will ask for your recommendation. One thing seems almost certain: clients preparing and maintaining calculations themselves is a recipe for disaster, and it’s not likely to save them money.
Is your firm ready?
Are your staff trained on the new requirements and confident in advising clients on implementation?
The new standards are among the more complex we have seen issued in some time. In staff training, focus on real-world illustrations and provide opportunities for hands-on experience with your lease accounting tool.
Have you considered independence issues for clients needing a bit more help?
The level of involvement in implementation may require us to carefully consider independence requirements. Relevant sections of the Code of Professional Conduct may include General Requirements for Performing Nonattest Services (ET 1.295.040), Assisting Attest Clients with Implementing Accounting Standards (ET 1.295.113, effective 12/31/22), Information Systems Design, Implementation or Integration (ET 1.295.145), Referral of Products of Others (ET 1.520.040) and Sale of Products to Clients (ET 1.520.060).
Do you have sufficient knowledge of lease accounting solutions to help inform your clients of their best options?
There are options with different features at various price points, most using an SaaS model. In our research, we didn’t find a product that was the right fit for our client base, so we developed proprietary Excel-based solutions, Lessee Ledger, for ASC 842 and GASBS 87. We offer these tools to CPA firms and practitioners for a one-time license fee.
Do you have the resources capacity to assist your clients with implementation?
Simply put, implementation takes time. Clients may want to outsource much of the implementation effort, so engagement and resource planning is critical. It’s in our, and our clients’, best interest to complete the implementation work now, while we are not consumed with traditional busy seasons.
At Sikich, we’ve worked hard to make sure our staff and clients are ready for the implementation of the new lease accounting standards, but there is still much work to do. We’re happy to share our resources and talk more about how we can help.