As a recruiting and consulting firm for accounting and finance, it’s important for our teams to understand and stay on top of the important issues affecting our clients.
For more than three years now, since the new lease accounting standard (ASC 842) was released in February 2016, we’ve witnessed the challenges our private-company clients face as they prepare to adopt the new standards taking effect in 2020.
Public companies began adopting the new lease standard at the beginning of this year, and for those who haven’t yet, they have the remainder of the year to do so.
Some say this is the biggest change to the accounting field ever – as the standards bring various leases previously off-balance sheet now onto the balance sheet, significantly impacting a business’ financial statements.
A recent study by LeaseAccelerator found that nearly 40 percent of private companies are behind schedule, or worse, haven’t even begun to ready their practice for ASC 842.
What are the main issues that private companies are experiencing in their preparation process?
We’ve found that some accounting teams are not only having issues locating their lease contracts and identifying leases that might be embedded in other contracts, but in extracting all the data needed to comply with the Financial Accounting Standards Board (FASB)’s guidelines.
I recently came across an article on AccountingToday that discusses just how many private companies are falling short on adopting the least accounting standard. I thought I’d share some tips to help ready their accounting practices for the new standard. Take a look at the 3 Lease Accounting Tips for Private Companies list below.
1. Take a calculated approach.
Just as you would any other initiative, it’s critical for businesses to take a calculated approach when it comes to implementing the lease accounting standards by the beginning of 2020. No matter how far along in the adaptation process your team is there is always room to improve the organization of your efforts, systems and data. Vetting out exactly what the requirements are and what is needed to be in compliance is key. Make sure your processes are tight and you have the right individuals in the roles to carry out the execution of these changes. Doing so should put you (back) on the right track.
2. Identify your inventory.
As you go through your data to identify leases, be sure to first confirm what constitutes a lease with your CFO. You may come to find leases you were unaware of – simply because they’re located within another contract. No matter the instance of locating the leases, just be sure that everyone is on the same page, so the accounting leaders can correctly move forward with the necessary changes.
3. Know your technology.
It’s imperative that you are mindful in the selection of the technology you use to help manage your data. Further, the technology selected must be cost effective as to not negatively impact the revenue of the business. Capturing the right data in the right way from the beginning is key. You do not want to have to go back and reexamine the leases. Having a tight plan for technology from the start will help you navigate the implementation of the new lease accounting standards.
What are some other tips for private companies to consider when preparing for FASB’s new lease accounting standards taking effect in 2020? Share your thoughts in the comment section below.
Need help hiring quality talent for your team? Email email@example.com and mention this blog.