ASC 842 – A Comprehensive Guide to Aid the Transition

Data: 2024.01.11

Transitions are never easy, especially when they concern financial compliance, like in the case of ASC 842. However, we’ve decided to create a comprehensive, whole-engulfing guide to help businesses navigate the intricate creaks and crevices of this process. Concerning private companies and all nonpublic enterprises, ASC 842 lease accounting is set to make the whole sector of finance and accounting much clearer and much easier to manage in terms of US GAAP and other applicable principles.

How to prepare your organization is ready for the transition?

It could seem like all an organization must do is to make a checklist and just go along with it. That’s far from the truth because it’s very likely that you’ll encounter issues and/or obstacles that weren’t part of the plan. By merely following a checklist, your business won’t be able to accommodate unexpected issues and hence, will fall behind schedule more than necessary.

Experts who have handled this particular or similar transitions, recommend beginning with internal records and gathering info on all of the leases that are currently active. Managing the transition of data will require thorough registration of ASC 842 leases and crunching numbers associated with them.

Detailing master leases, assigning inventory, counting capital – it will all play a major role during the initial phases and throughout the process.

Managing people and processes

Some consider these two aspects – people and process management to be the keys to a successful transition.

Whilst it may seem very fundamental, managing these two aspects (people and processes) is quite the challenge.

How to manage people during a transition to ASC 842?

When it comes to ASC 842 lease accounting, you can assign the people involved into three different groups. The first group can be the transition managers and the decision-makers. They should oversee and coordinate strategy implementation and look at the bigger picture.

The second group can be other employees within the leasing or financing department, etc.. They have to be in the loop with regards to changing things and should have the knowledge and the practice to wield programs, understand new concepts. Even though their input is valuable, they are not making the decisions.

Finally, you have everyone else or the secondary column which should consist of people within your organization but outside of your department or team. Mutual communication is crucial, but apart from lease inventory, legal matters and IT solutions, involvement of others is quite minimal.

How to manage processes during the transition to ASC 842 lease accounting?

Aforementioned decision-makers and coordinators should be responsible for planning and/or implementation. The handiest tool in this situation is the software that you will be using for lease accounting. It should be ready for compliance with the new protocols.

Process management is all about delegating responsibilities and having appropriate outlining of responsibilities. So, for example, coordinators can delegate the handling of IT tasks to one person, and the tasks related to the legal department to another. This way, when you have dedicated employees managing data, concerning to ASC 842 leases, it allows to transition smoothly. When someone can plan and delegate, a new system and new documents are more likely to be ready for use on time.

Software solutions optimize delegation and management because you can create tasks, assign them, update their status, share info, upload related files, etc.

ASC 842 and Overseeing Your Lease Portfolio During the Transition

The necessity of implementing capable software solutions was already mentioned in the previous paragraph. But it is necessary to go into a bit more detail when it comes to ASC 842 leases.

Your software selection will impact not only the work efficiency after the transition is completed but throughout the entire process. Experts encourage businesses to pick out software a few months before the transition really begins as staff needs to be properly trained and fully prepared for the very first day amidst new regulations.

Your software solutions can help by:

  •       Reducing the time, it takes to complete repetitive administrative tasks
  •       Simplifying the implementation of process automation for certain tasks
  •       Make auditing much easier
  •       Have a centralized source for information regarding leads and potential clients
  •       Better analytical capabilities for more informed decision-making

Amongst many other things, software for ASC 842 lease accounting will help your business be compliant from the very first day. Established lease capitalization threshold and other figures, values and indexes can be input into the program to make things much easier.

Adjustments and Validity Management in Real-Time

Leasing business is all about financial commitments. Every business with ASC 842 finance lease portfolio should be focused on obtaining information about their upcoming 3-5-year periods with regards to financial reporting and statements. In simpler terms – forecasting is necessary.

Throughout the transition, your auditors and coordinators will generate lease inventory listings and commitment schedules. These must be lined up with one another to check the validity of all estimates.

Just an example of what needs to be validated, we can list rent expenses. Any business should consider looking at the list of recurring payments and active obligations with recurring payments active right now. Lining up this tab with lease agreements that you already have compiled is a great way to ensure a complete lease inventory. Lessees should also look for reasonability within the portfolio. By comparing the sum of rent expenses taken from the GL with the estimate expenses on rent, you can either see consistent or inconsistent numbers. If they’re not, it can either mean that the proper numbers and records are listed somewhere else or that your listing is not fully complete.

To sum things up

It’s critical for corporations to make the appropriate actions throughout the change process. Following all of these stages will help you make the right decisions and handle the transition better.

You may save money by eliminating duplicate data, duplicate bills, and invoices that have already been paid or submitted for approval before the number of months expired. The elimination of this waste will assist you in reducing costs related to information technology as well as other operational expenses. Additionally, software like SOFT4Lessee makes the transition process much more efficient!