“What do you do when it rains?"

The captain answered frankly. "I get wet.”

                                                              ― Joseph Heller, Catch-22

The forecast is in: Private companies may see their valuations decline as a result of FASB ASC 842 compliance...or lack thereof.

Not exactly what you want to hear at the beginning of a new year.

Nor is it what you expect to happen when you’re conducting business as usual, simply following the rules--as in the new lease accounting standards--and doing your best to be in compliance by the new 2021 deadline.

The good news is that you’re not alone. When it comes to FASB ASC 842 compliance, all private companies face the same catch-22: 

Implement the new lease accounting changes to avoid non-compliance and penalties. And consequently face the negative impact reporting under the new standards could have on your company’s valuation.

It doesn’t seem fair.

Compliance under FASB ASC 842 is not all gloom and doom.

Although, if you’re in the throes of implementing the new lease accounting standards, it can feel like a perpetual dark cloud hanging over you with no hope of ever seeing sunny skies again.

While it’s true that preparing for compliance--the monumental tasks of gathering leases, analyzing them, creating policies, evaluating lease accounting software providers, training staff, abstracting and migrating data and then testing—is challenging, the new lease accounting changes present a golden opportunity for strategically optimizing your finance and lease accounting practices.

And that’s best accomplished through the tool of automation.

Why now?

Despite the deferred deadline, compliance is not a choice. Any business with even one lease over 12 months in duration must report under the new requirements. So, if you’ve ever considered an automated solution for either lease management or lease accounting, there’s no better time to dive in.

You may have just breathed a huge sigh of relief. 

The ball dropped at midnight ringing in 2020, giving private companies one more year to achieve FASB ASC 842 compliance.  

To many, that sounds like adequate time to accomplish all the necessary steps to implement the new lease accounting standards, but several factors will crunch that one year into a time span barely sufficient to successfully meet the new deadline.

Fewer available vendors. With 52% of private companies admitting that the delay has pushed their timeline back, you’ll be one of thousands of businesses vying for services from a limited number of lease accounting specialists, software providers and auditors. Most of these experts have already been secured by the other 48%.

More complex than you think. Based on what public companies experienced during the implementation process, the adoption of FASB ASC 842 will be more complicated and time-consuming than you expect.

Added responsibilities. Even if you’ve budgeted for additional employees or a consultant, your staff will have to complete a myriad of additional tasks associated with implementation while maintaining their normal workload.

The lease accounting software industry is booming.

And one of the main reasons why is because software automates the entire process of moving leases onto the balance sheet, a requirement of FASB ASC 842.

Before the new accounting standard, many companies managed their lease portfolios using manual processes and separate systems for real estate, procurement, contract management, and accounts payable.

All that has changed. 

In fact, 72% of public companies onboarded or upgraded lease accounting software to implement FASB ASC 842 and 61% of private companies plan to follow suit when their 2021 deadline hits. This allows stakeholders from across the company to access all lease data in a central repository.

There’s a catch, though. While lease accounting software providers are essential for completing the new accounting standards accurately and on time, there’s just not enough capacity in the industry to handle the demand.

An ounce of prevention is worth a pound of cure.

That warning has stood the test of time for one reason: Because it’s true.

And public companies that have implemented FASB ASC 842 are wishing they had taken it to heart.

Prevention means taking as much time as possible to prepare for the worst case scenario. And although public companies that weren’t of this mindset suffered the consequences, private companies needing to implement the new lease accounting standards don’t have to. 

In fact, private companies have been handed the incredible opportunity of more time to prepare, more time to take preventative measures, and more awareness about the repercussions they may face.

There are 5 main ways private companies can prepare now and trade a panicked rush to the finish line for a world-class FASB ASC 842 implementation plan.

FASB ASC 842 may not seem like a big deal. 

After all, compliance has been pushed back and budget planning for the new year is pressing in. It would seem there’s no need to start implementing the new lease accounting standards just yet.

Unfortunately, this perspective is what put so many public companies in the dog house with their implementation timeline.

And while the deadline change brings good tidings to private companies on the surface, when FASB ASC 842 hits the floor in January of 2021, it could have devastating effects on companies that drag their feet on implementation.