Change, it is a-coming.
We’re talking about the looming deadline for public companies to make FASB ASC 842 changes. And private companies aren’t off the hook… they have just one short year to roll out their implementation.
Either way, you’ll be challenged with complexity and encounter roadblocks and unforeseen challenges when it comes to the accounting standards changes.
Truth is, the new FASB 842 requirements will force you to manage lease and accounting data in a much different fashion.
As we’ve worked with our clients to complete implementation, we’ve come across 7 misconceptions that could prove costly, if not managed appropriately.
1 - Deployment Time
The number one misconception of all has to do with implementation time.
Standard deployment of FASB 842 will take 6 to 9 months. You’ll need to find, normalize, abstract, and analyze lease data in that time period.
It’s a handful.
Then you’ll need to deploy and test your technology solution.
And this will likely be performed by a cross functional team who have full time positions outside the scope of the FASB project.
In fact, a recent EY study indicates 78% of private companies don’t have teams or processes in place in preparation for the new standards changes.
There’s a lesson here... get real about how long implementation is going to take and plan wisely.
2 - The Data Transfer and Lease Abstraction Process
If you’re approaching the FASB 842 changes thinking the data you’ve already collected in spreadsheets and current systems will work… you’re dead wrong.
That’s because the data elements you’ve collected might not meet the new definitions.
And that leads to system integration having challenges.As discussed, lease abstraction is a timely process. Your FASB 842 timeline and project plan must stay on track… there’s no room for hiccups.
Start the FASB 842 implementation process NOW by putting fresh eyes on the data you’ve already collected.
The goal is to make sure it complies with the standards changes requirements.
3 - Software vs. Implementation Costs
This one is usually a shocker.
The year one support costs for FASB 842 implementation will likely be 2x the software costs.
It’s true… lease administration software is affordable. The online software model offered by most providers makes it an easy decision to “buy” vs. “build’.
The real costs for FASB 842 modules and preparation are in the setup fees.
With that in mind, be sure to understand the cost structure from your supplier up front. You’ll need to know the pricing for:
- training abstraction
- ad hoc reporting
- custom fields integration
- ongoing support
Every provider has a different model. The software costs are only a part of the equation. Ask for a year one and year two price plan.
Get a full picture of cost to avoid surprises down the road.
4 - The Challenge of Equipment Leases
Accounting for equipment leases is new with the FASB 842 standards changes.
This probably means you don’t have lease data outside of the agreement.
And in many cases, you might not even know where the leases are housed since this is typically handled at a local level by operators, not your real estate team.
Even if equipment represents a small percentage of the overall liabilities, they’re likely to be the biggest time suck in the entire process.
It’s a major headache.
Most private companies are building the equipment lease process and data from the ground up. You’ll likely have to do the same.
Don’t get caught misunderstanding the time involved here.
5 - Internal and external resource allocation
To complete implementation, you’ll need to build a cross functional internal team.
But you’ll also need external help. Your external team will likely include your accountant, a consultant (or two), and your solution provider.
As you get closer to the effective dates, resources will be thin.
Demand for consultants and suppliers will outstrip supply. So that means you should build your internal and external teams early and get ahead of the project.
Resources will be pressed the closer you get to the end of 2019.
6 - One Source Solution Fallacy
Many companies are leaning on their ERP providers to deliver a solution. Or they’re looking for a bolt-on solution just for the new FASB 842 standard.
The problem is these are undeveloped and untested solutions.
Most ERP companies haven’t ever produced a FASB 842 model. Bolt-on solutions are new and untested, and are also thin on feature delivery.
While these types of solutions may work if you have a low number of leases, it’s risky business if you hold hundreds of leases. And integration and testing will deliver an extra layer of challenges on untested systems.
If you hold a significant number of leases, you’re going to want to use one of the established providers.
Another consideration is the opportunity to transform your accounting function. As a part of the project, you’ll likely want to build a solution that allows you to comply and also upgrades your lease and accounting reporting.
It’s an opportunity to transform.
Spoiler alert: Patch and bolt on solutions won’t provide that opportunity.
7 - Vendor Differentiation
If you manage a large number of leases, you’ll need technology from a third party.
If you look at enough vendors, you’ll think they’re all the same.
And while it’s good there’s no massive product gap or killer feature on the surface, there is a big difference.
We think there are 4 big questions you should ask every provider:
- How long has your FASB model been in service?
- What customers do you have in my industry segment?
- How do you handle lease complexity (income and expense leases)?
- What are the costs for abstraction, training, reports, custom fields, and ongoing support?
Getting clear answers to these questions will differentiate the mediocre vendors from the ones you want to be working with.
Conclusion: Don’t Underestimate FASB 842 Implementation
Not understanding what FASB 842 requires - the time, effort and expense it takes to execute it - can lead to costly mistakes.
Missed deadlines, missed data, missed money.
It’s just not worth the risk.
Instead, private companies should start the research and discovery phase of FASB 842 implementation, avoiding challenges, complexities, and roadblocks that are par for the course.
With so much to understand about the accounting standards changes, and so little time to do it in… we encourage you to begin the process now.
Take FASB 842 implementation seriously. Don’t push it off. You’ll only be causing needless pain for yourself down the road.
Navigate the Roadblocks of FASB 842 Implementation
By now you know what FASB 842 is.
And you understand the eminent deadlines.
But if you’re in the statistical majority - the 78% who aren’t ready - you have a lot of work to do.
Being caught in the middle of preparation, transition and testing is where the real work gets done. It’s also where mistakes, delays, and problems happen.
That’s why we created The Complete FASB 842 Implementation Challenges Guide.
It’s a complete resource for the complications, challenges, and trials you’ll face as you get your accounting, finance, IT, and lease administration team together to tackle FASB 842.
Make it easy on yourself and your team to avoid the roadblocks.
And if we can help your team with implementation, schedule a demo to see our software.
It’s designed to help you execute the accounting standards changes in the least amount of time, effort and expense.