Transitioning to ASC 842 lease accounting – insights from experts
Transitions and changes always bring with them questions and uncertainties. As private companies transition to ASC 842 lease accounting, there are a lot of those questions and uncertainties that come along. But, since there already are people and professionals who have overseen or been around successful implementation of the new accounting standard, it’s beneficial to see their point of view and have them address the biggest concerns you might have about ASC 842. As lease accounting professionals who have first-hand experience with ASC 842 implementation and transitioning to it in private companies, in this article, we’ll be sharing some insights from our and others experience.
Have trust in the long-term vision
One thing that early adopters emphasize is looking further into the future than just adoption day. It seems that too many accountants are focusing solely on the transition and overlook the fact that any work, done after adoption day will have to be done so, in accordance to the new standard – ASC 842.
It’s a big hurdle for the staff to overcome. Hence, they need to be familiarized with the vision and work models after the transition is completed. Senior staff members or outsourced US GAAP consultant services as well as accounting tool developers can help with day-to-day. However, when it comes to the big picture, ASC 842 lease accounting has to be prepared for, in advance.
Be ready for the unexpected when transitioning to ASC 842
Almost every transition period has its hurdles and challenges. The same applies to when your lease accounting moves to ASC 842. Sometimes things don’t go according to plan or don’t exactly fit into the timetable. Be ready to hire outsourced help or dedicate sufficient resources to solve surfacing problems, speed up implementation processes or adapt to unexpected circumstances. With that being said, if you have already laid out a plan, consulted with your own staff, and chosen the right accounting tool, the risk of unexpected issues is greatly reduced.
Choose the right lease accounting software
Legacy systems or current accounting tools that you use are highly likely to not do a good enough job under ASC 842. For such a complex standard that’s very important to the financial side of your business, you need something that’s dependable, capable and very functional.
Depending on Excel calculators isn’t enough these days. If you have more than a few accounts, these calculators are just very inefficient in terms of time expenditure. Doing regular tasks is much more demanding than with a dedicated tool. Legacy software also isn’t suited to solve problems due to the fact that ASC 842 leases require different calculations than previous standards.
The right way to go is to employ a dedicated tool for lease accounting that is fully ready or compatible with the ASC 842 lease accounting standard. Such tools minimize the risk of human error. They can also be cloud-based, meaning 24/7 access for employees, seamless and quick integration as well as continuous updates without any disruption. Software for ASC 842 leases management can sometimes even be customized to fit the needs of the clients.
By using such software, your accountant will be able to automate tasks, have more insights, offer more valuable data, and do the same amount of work in much less time. All while auditors remain happy and the risk of error greatly diminishes.
Do your research
Experts suggest that private companies don’t necessarily have to try and invent the wheel. Public companies were made to adopt this standard a while back. This is why there are resources and information available online and by 3rd party consultants, with regards to smoother implementation.
By doing research on what others have done in order to make their transition, you can find similar and relevant topics as well as issues that worry you, as well as answers and solutions to those issues. Don’t improvise and rather focus on how you can use the good practice of public companies for your benefit.
Also, don’t delay. It’s better to start on the back foot and get everything in rhythm sooner than later. Most adopters indicate that the process took longer than it was anticipated. If you start later, unexpected issues can greatly disrupt the timetable. As a final suggestion, those familiar with ASC 842 recommend using only top-rated software solutions. There are benefits beyond compliance, as we mentioned earlier in the article.
Understand the impact of the transition
A business is like a mechanical clock. It’s full of mechanisms, cogs, and various components that have to be in sync, in order to work. If one cog is damaged, the whole clock can stop working. This analogy should metaphorically, but pretty accurately indicate, how the transition to ASC 842 can impact your business.
For accountants, after the implementation, there’s a need to create new accounts, reconciliations balance sheet, new periodic tasks, etc. The transition also impacts other departments. With a centralized data source, the organization can delegate and more efficiently communicate between departments.
And since the benefits and impact are mostly positive, you have to take advantage of them. Top-level tools for ASC 842 lease accounting will provide you with forecasting and budgeting analytics that are accurate, advanced, and useful.
Apply IBR or risk-free rate for the transition
Experts and early adopters say that private companies shouldn’t worry too much about IBR’s because scrutinization from auditors can be quite severe. Only consultations and a very strong analysis can make it work. Instead, private companies can opt to implement a risk-free rate which is slightly easier to do, even though the process is the same for IBR and risk-free rates.
As a company that is trying to implement ASC 842, you should be looking at past examples of successful implementation (we already have done 95 successful IFRS 16/ASC 842 projects). Early adopters and public companies are guidelines that anyone can follow. Make enough time, choose the right software, and prepare for the unexpected. Tools like SOFT4Lessee can be vastly helpful throughout the transition!