If you’re in the beginning or middle stages of ASC 842 implementation, you may be wondering how to proceed right now. The coronavirus pandemic has hurled economic uncertainty with shared concerns for our health and well-being through astounding obstacles of global shutdowns.
Private companies were already facing a myriad of challenges to reach compliance in time. As of April 8, however, this financial turmoil has spurred FASB to extend the deadline until 2022. However, considering our currently unprecedented complications, the additional layer of a mandated implementation processes has proved paralyzing.
Witnessing that many lessees and lessors may need to modify leases as a result of the international crisis, FASB voted unanimously to delay the effective dates for its standards on lease accounting and revenue recognition for certain entities, due to the difficulties presented by COVID-19. However, the deadline for compliance will still be fast approaching and continuing with your implementation strategy is essential.
The best procedure to follow right now is to simply follow your original implementation plan. If you’ve put off the beginning stages, you still have a timeline and process in place for successful execution.
The first step is easy enough to accomplish remotely (especially if you have extra time) by familiarizing yourself with the requirements of the new lease accounting rules. The effort put forth in thoroughly undertstaning those details will benefit your company's reporting in the long run, esoecuakky with attention on the practical expedients portion.
It is also useful to read blogs and articles on specific aspects you know you’ll have to deal with later in the implementation process, such as the incremental borrowing rate, equipment leases and disclosures.
Add a “techie” to your project team
Maybe you recently initiated the process and have only gotten as far as assembling your cross-functional transition team. It likely already includes someone from IT, but that person is probably stretched pretty thin due to extra demands arising from the health crisis.
With this in mind, it’s a good idea to add someone to the team who has firsthand experience with working from home.
This new asset can reach out to the other team members and conduct worthwhile training about and on the tools that make remote communication and collaboration click. When invites are sent, make sure they include basic instructions on how to join a meeting as some team members may not have much experience with virtual meetings.
Video, rather than audio-only, meetings are preferable as they’re more personal and allow for screen sharing which is helpful when discussing documents or spreadsheets.
The novelty of conducting business online may give rise to straying off topic, and of course a little chit-chat is good for morale during stressful times, but try to impress on participants the need for business as usual--as unusual as it is.
It’s also important to always set an end-time for the meeting.
In addition to virtual meetings, your remote work expert can educate other members on how to use project management tools. These applications keep everyone on the same page with real-time updates, discussion threads and file sharing.
Locating leases from afar
If you’re a little farther along, but still trying to locate all of your leases in order to create an inventory, not having access to physical files will impede your progress. If it’s possible to designate someone who can go to your office safely without violating stay-at-home orders to search files for leases--including service agreements which may have embedded leases-- make sure that person is supplied with a formatted checklist of the basic data they need to collect:
- Name of the lessor/vendor
- Start and end dates of the contract
- Value of the contract
- Contact information for employee who knows where to find lease
This isn’t the only information you’ll need from each lease, (find out the 30 data points you’ll need later by downloading our Complete Guide to FASB ASC 842 Implementation Challenges handbook) but it’s what you need to create your lease inventory.
Scanning the documents is another option, but often the contracts are lengthy and scanning all the pages would take valuable time. It’s better that anyone who is charged with locating leases simply records the necessary information in Google Sheets to make it easier to compile all the data later.
Some leases may be stored electronically, but that still doesn’t necessarily mean they are accessible from anywhere. Again, if it is safe and allowed, the team will need to appoint someone who can go into the office and get the information to complete your lease inventory.
Shop for lease accounting software providers
If you have more than 50 leases-- including vehicle, equipment and real estate leases--you’ll find ASC 842 implementation rather unmanageable unless you use a lease accounting software solution.
Lease administration software is the foundation upon which your team’s preparation for FASB/GASB compliance is built. Purchasing and implementing a lease accounting software solution is essential to propel your team into the modern world of lease management and to automate those processes.
As these software providers are accustomed to dealing with clients remotely, they are well prepared to answer your questions so you can at least begin your vetting process.
One positive result may come out of these unstable times with regards to lease accounting software providers. With the release of the new standards came a flood of new providers that saw a business opportunity and quickly developed a product just to meet marketplace demands.
According to KPMG, only six out of ten lease automation software users are happy with their current vendor, and many more companies have not yet even converted to this type of software. For many companies this may be a beneficial time to consider updating the technology they are using to manage their lease administration and to consider their future accounting compliance needs.
Unfortunately, many lack the lease accounting expertise they need to help clients navigate the new guidance. These new providers may not have the staying power to continue in the long-term. Not that we wish ill for any company, but one of the factors you’ll want to consider when shopping for lease accounting software is how much experience the vendor has in the industry.
Focus on policies and procedures
With all that is (or is not) going on, other projects and businesses initiatives have likely been put on hold for the time being. As a result, you may now have additional time to perform an in-depth analysis of your data, and to consider all the ASC 842 practical expedients. Doing so will enable you to create and document detailed policies and procedures surrounding your lease accounting.
Since it’s highly beneficial to have auditors engaged in your policy making, consider this as another opportunity to utilize virtual meetings--which brings us to a word of caution on the subject of auditors.
If you don’t already have a relationship with an auditor, now is the time to start reaching out. The rapid changes in the economy and the ensuing regulatory responses have placed a burden on auditors. They are going to be inundated with work, much of which will be driven by unfamiliar situations and unchartered territory, which means more time needed to sort things out.
Expect to be on a waiting list for their services.
Additional tips for WFH
If you are one of the many businesses that wasn’t prepared for working remotely on a large scale, you should know that during this crisis quite a number of tech companies are offering free licenses to use their meeting, collaboration and remote work tools. Microsoft, Google, LogMeIn, Cisco and Zoom are among them.
The collaboration platform Slack has a robust free version, and Microsoft Office 365 subscribers can use Microsoft Teams for free. Both programs offer video meetings, instant message style conversations and file sharing.
Conclusion: Compliance and recovery are both in the future
No one knows how long we’ll be facing the challenges brought on by the current crisis. But we do know that our strength and resilience mean that we will recover.
We also know that compliance to the new lease accounting rules isn’t going away. Private companies can use this “altered state” to continue working on ASC 842 implementation by using the many WFH technology tools of virtual meetings, file sharing and project management applications.
Another source of help is our free Complete Guide to FASB ASC 842 Implementation Challenges. It covers:
- 6 points of implementation failure
- 30 data points to collect for each lease
- 7 costly implementation misconceptions
- A roadmap for best practices deployment
- And much more
At AMTdirect we’re still working--safely from home--and are happy to answer any questions you have about the challenges of implementation, compliance or lease accounting software solutions. With over 20 years of experience in the industry, our expert team is one you can count on.