The countdown is on.
FASB 842 compliance must be reflected in the balance sheets for public companies in less than 90 days - on January 1, 2018. And private companies - whom FASB has given a deceivingly longer 15 months to make these changes - can learn from the mistakes of those who’ve gone before.
That’s right… we’ve heard a lot of uh-ohs and bleeps from public companies as we’ve helped them implement FASB 842 over the past year.
The lessons they’ve learned are not pretty.
To save private companies from experiencing this same hot mess, we’ve whittled down these pains and problems into the 5 common mistakes almost everyone is making when it comes to FASB 824 implementation.
#1: Underestimating the Scope
Most of our customers have massively underestimated the Mount Everest they have to climb to make FASB 842 implementation a reality.
Let’s think this through.
The updated accounting standards mandates significant changes to almost every part of your business:
- Real estate
- Financial reporting
Every… single… one of those areas will have to be thoroughly combed to pinpoint current lease data.
And you’ll have to look at it with fresh eyes to get the required information.
Want another buzzkill?
Equipment lease data will need to be sourced, analyzed, and integrated, too.
We can guarantee this is going to be a nightmare.
After all, FASB has never required you to include equipment leases on the balance sheet before, so you don’t have a process set up to accomplish it.
On top of that, your current systems will likely be unable to handle the complexity of what FASB 842 wants you to report on. You’ll need outside resources – most likely from your accounting and audit team and technology solution provider.
It’s a steep mountain to climb.
New technology will be required and must be integrated. New reporting will need to be built. And you’ll need a couple months to test.
It’s an overwhelming project requiring dedication from multiple stakeholders.
And most companies have severely underestimated the scope.
#2: Data Normalization, Data Hygiene and Data Refresh
Another common mistake is ignoring the necessary - and demanding - processes to ensure your data is accessible.
Truth is, your data is stored in a variety of places.
You house leases and the data they contain in spreadsheets, existing systems, and file cabinets. You can’t even begin the extraction process until all this data is normalized and has gone through hygiene to make sure it’s accurate.
FASB 842 isn’t everyday, business-as-usual accounting.
It requires you to include data elements you don’t track right now. And that’s why it’s so important to organize your data before diving into implementation.
Pro tip: Without regular hygiene and refreshing, your data will be a dumpster fire. Lease terms are updated constantly, so the data in your system must follow suit.
Avoid this mistake at all costs.
#3: Transfer from and Integration with Current Systems
Your FASB 842 implementation is a roller coaster ride.
And one of the biggest nausea-inducing drops is when you realize your current systems don’t integrate.
You see, the new FASB standard requires you to move a whole new data set from your real estate systems to your accounting and financial reporting systems.
If you don’t have a seamless integration to transfer all this data from place to place, you’ve made a heart-wrenching mistake. It’s not that this problem can’t be solved. It just means you’ll have to build a new integration to allow your systems to talk.
And it’s not as easy as plug and play. It will require significant resources and testing.
It’s a huge mistake a lot of companies are making.
#4: Product vs. Vendor Based Selection Criteria
Executing FASB 842 the right way requires an exhaustively detail-oriented software system. So the vendor selection process should be at the top of your to-do list.
There are 3 key areas you’ll want to evaluate in a solutions provider:
First, the features must meet your spec requirements. Second, the solution has to be within your budget.
But finally - and most importantly - you must consider quality and quantity of services.
Services are mission-critical when choosing a vendor. We’ve heard too many horror stories about vendor selection gone wrong.
Stay in the clear by identifying who will support you after the sale and how.
Before signing paperwork, note what you’ll receive as far as:
- Ad hoc reporting
- Abstraction process and timeframe
- Support availability
The mistake most companies make when choosing a vendor is deciding based on features and price, instead of service.
Our advice is to pick a vendor, not a product.
#5: Solving for Today’s Problem vs. the Future
We get it. FASB 842 compliance is a fire drill.
It’s today’s problem… the one everyone is focused on.
No doubt you need to get this right. And most likely you’ll be pressed to meet the deadline.
But there’s also another consideration: What if you used this opportunity to transform your real estate, accounting and finance processes?
A common mistake we’ve seen is companies playing whack-a-mole.
They focus on the problem in front of them. Instead, they should be thinking about how they can use this change as an opportunity to upgrade their entire data storage and reporting systems.
While it’s tempting to focus on the looming deadline in front of you, our advice to is spend time with your team thinking forward.
The time you put into this now will be well worth the outcome in the end.
Conclusion: Starting Now is Better Than Starting Later
There’s one lesson that should be taken from the mistakes of public companies over the past year when it comes to FASB 842 implementation. Starting sooner rather than later is your best bet for success.
More than likely, the process will be time-consuming.
And you’re almost sure to run into issues with your current systems and processes.
Rather than scrambling at the last minute, private companies should create a compliance timeline and make it a priority to implement now.
Use the FASB 842 Timeline. Plug In Your Dates. Get Your Project Plan.
“I had no idea it was going to take 5 months…”
It’s something we hear every day as we walk clients through the onboarding process and timeline for FASB 842 implementation.
And it’s not just our clients, it’s everyone.
The harsh truth is FASB 842 implementation is a 123-day project (and that doesn’t include testing).
There’s been a major miscalculation about deployment time for FASB 842. In order to help companies better understand the cycle, we created The Real FASB 842 Implementation Timeline Calculator, Gantt Chart and Project Plan.
It’s designed to give you a better vision for the project phases, their individual timelines, and the overall timeline.
Just plug in your dates and you’ll get a complete timeline with a series of milestone dates.
So you can move closer to your “go live” moment with a few less surprises.
Of course, if our expert FASB ASC 842 team can answer any questions or show you how our software is automating the entire implementation process, just reach out.