If you are a fan of 70s Rock and Roll you’ll know that time keeps on slippin’ (slippin’, slippin’) into the future. If you have attended any accounting CPE in the last few years you’ll know that the future is now for lease accounting. After a series of delays, the time has come to face the music and adopt ASC-842 lease accounting standard.
Originally published in February of 2016, ASC-842 was developed to increase transparency in regard to off balance sheet leased assets. The Financial Accounting Standards Board (FASB) issued an initial one year delay after realizing that the effort required to comply was greater than initially expected. A second delay was issued during COVID-19 while the world figured out how to work from home. Now that we have passed the half way point of 2021, ASC-842 is very much on the horizon and is something that should be addressed sooner rather than later.
If you have been holding off in adopting ASC-842 you should keep that first delay in mind as you are preparing to incorporate the lease accounting changes into your accounting practices. The initial delay was put in place because the effort in adopting ASC-842 was substantial. While a few things changed with that delay (the removal of the prior two year restatement requirement as an example) the amount of overall effort required to adopt ASC-842 has not changed.
If you have a lease portfolio of any size and have not yet adopted ASC-842, you have your work cut out for you. You’ll have to organize all of your existing lease agreements and make the necessary determinations to classify them as either finance or operating under the new standard. Once that work is done, you will need to calculate amortization schedules for the full life of each of the leases. Once the schedules have been calculated you will need to start to make balance sheet entries for your leases. While this may be straight forward initially, things start to get more complicated once you have to adjust a lease during the agreement term. Adjustments to any lease agreement will often involve updating the discount rate and recalculating the remaining amortization schedule. All of these things take time and patience and require a high level of accuracy. ASC-842 also has the added requirement of a footnote disclosure that can be rather onerous depending on the size of your portfolio.
None of this is to be taken lightly. Your auditors will need to review your lease accounting policy and practice after you adopt ASC-842. Additionally, since there is a change to the balance sheet any debt covenants may need to be reviewed so accuracy is all the more important.
On Thursday, August 19th we will be hosting our "Lease Accounting: The Final Countdown to ASC 842" webinar, explaining some of the complexities of adopting ASC-842 and how simpLEASE can help. Not only is the webinar a great way to learn more about some best practices you can earn 1 hour of CPE credit and potentially find a solution to all your lease accounting needs. Hope to see you there.
Adopting ASC-842 is not a one time event, lease accounting will now require more time and attention moving forward. With all that in mind you may want to consider a software solution to help make lease accounting as simple as possible. Schneider Downs has developed a tool, simpLEASE Accounting, that aims to minimize the time and effort spent on lease accounting.
simpLEASE is a software program that provides easy-to-understand guidance to analyze each individual lease. The program was developed in conjunction with the accountants at Schneider Downs, one of the nation’s 60 largest public accounting firms. Schneider Downs has been tracking and anticipating the changes to lease accounting standards for years, and has worked extensively to understand the specifics and intricacies of the standards. Thus, simpLEASE is not only easy to use, but also serves as an extremely insightful and intuitive tool to provide accurate analysis for all lease computations.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.