With the new Lease Accounting Standard (ASC 842 Leases), all long-term operating leases need to be capitalized on the balance sheet, and financial disclosure requirements have been expanded.
According to our clients, the most difficult aspect of implementing the new lease accounting standard has been identifying applicable terms within commercial contracts that could potentially meet the criteria of an “embedded lease” as defined by the new lease standard.
So, how are your implementation efforts going?
The FASB received feedback from public entity stakeholders regarding challenges encountered while implementing ASC 842. These organizations have taken much longer than expected to implement ASC 842 because of:
- Time and effort required to identify all qualifying leases, including embedded leases.
- The complexity of commercial lease terms and applying the new guidance to those terms.
- Data gathering and system selection.
- Post implementation maintenance and workflow.
Allow yourself enough time to fully understand how ASC 842 defines a lease and to complete your implementation.
How To Prepare If You Lack Lease Accounting Expertise or Staff
SECURE THE RIGHT EXPERTISE
Consider seeking out expert assistance in understanding and executing your implementation efforts. Particularly with expertise in:
- Project Management
- Technical Accounting (including embedded lease assessments, discount rate estimations, & accounting policies)
- Data Collection
- Processes, Procedures, and Internal Controls
- IT System Selection (or outsource)
- IT System Implementation & Interfaces
WHAT IF I DON’T HAVE THE RIGHT EXPERTISE ON STAFF?
- Give yourself time to begin implementation of ASC 842 leases for 2022.
- Carefully examine all service contracts to assess if there is a lease component.
- Examine your debt covenants carefully, especially any leverage ratio requirements, to see if the new liabilities will be factored into existing debt covenants.
- Continue to plan ahead. The implementation of ASC 842 can be difficult, time-consuming, and resource intensive.
WORKING WITH SIRIUS SOLUTIONS
Working with Sirius Solutions means working with experienced Lease Accounting leaders and has numerous advantages. We have demonstrated success in assisting businesses with their ASC 842 implementation, and our team can assist with all aspects of the implementation process.
Our detailed approach reduces risks and potential challenges, beginning with conducting preliminary impact assessments, analyzing and categorizing existing leases, establishing policies and procedures for ongoing lease activity, addressing technology and infrastructure requirements, and project management.
