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AMTdirect Insights Blog

Lease Accounting Compliance Q3 2019 Update

Lease accounting: Q3 Update

The final month of Q3 2019 is here. 

And in just the past two months, there have been a lot of changes flying around when it comes to lease accounting compliance.

Because of all the decisions being made around the new lease accounting standard recently, it can be difficult to keep track of what everything means and how it affects you. 

We’ve got you covered.

As experts in lease accounting software, our team stays updated on the latest in lease accounting and on the details of any policy, standard and rule update. 

With that in mind, here are the top stories and informative articles that reveal important information about lease accounting compliance. Use them to inform your decisions for the rest of the year, and beyond. 

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Moody’s Isn’t a Fan of the New FASB ASC 842 Deadline Delay

In a surprise move in July 2019, the FASB pushed the deadline for private companies to comply with ASC 842 out a year to January 2021. 

And although the FASB’s reasons for the lease accounting deadline change aren’t entirely clear cut, Moody’s outcry against it is the opposite. In fact, the investment company giant blasted the delayed deadline in late August.

There are a couple of reasons Moody’s isn’t a fan:

  • It would hinder the credit analysis process by compromising comparability between public and private issuers.
  • It would delay enhanced disclosures, which in turn hurts reporting transparency.
  • It would complicate mergers, initial public offerings and carve-outs.

The lesson for everyone is that even if a change seems good at first glance - and this one certainly did for private companies - it may actually have detriments. 

To avoid Moody’s predicted disadvantages, we recommend getting started with lease accounting compliance as soon as possible.

 

The GASB 87 Implementation Guide Is Finally Here

In a much-anticipated release, the GASB has released its user’s guide for standard 87

The long-awaited implementation document was promised by the issuer about the same time the organization released the standard itself. 

But private companies who needed it to execute compliance - mostly institutions of higher education and government organizations - have had to wait until Q3 to understand their roles sufficiently.

The implementation guide is similar in format to the FASB ASC 842 guide: A Q&A session on paper of common problems companies will run into including:

  • Scope
  • Lease terms
  • Short-term lease exceptions
  • Multiple-component leases
  • Modifications and terminations of leases

GASB 87 will present a huge hurdle for applicable private companies to overcome. The new guide should make it a little bit easier.

 

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Lease Accounting Compliance: No Biggie?

It appears accountants are giving lease accounting compliance little more than a shrug.

A recent study says 63% of private companies haven’t started implementation yet. But - shockingly - they’re not really worried about it, either.

The rest of the stats tell the true story.

67% of companies who are in the trenches of compliance implementation say it’s been a beast to tackle.

It’s clear accountants are ignoring the major warning signs left behind by their public company predecessors. With only 5% of private companies fully compliant with the new standards, the deadline push may only add to this lackadaisical attitude.

If this sounds like you, listen to our wakeup call. We’ve helped hundreds of companies with implementation over the past two years. 

A lack of urgency will be your undoing.

 

FASB ASC 842 Brings Coworking Giant to Its Knees

WeWork dropped its IPO filing in August and there’s one thing to blame: the new lease accounting standard.

As a coworking space, WeWork’s business is primarily handling leases. 

And when they moved onto the balance sheet, it threw everything off. The numbers look completely different with more risk visible to investors. As you can imagine, that didn’t sit well.

This transparency is exactly what the FASB had in mind when it enacted ASC 842. 

And it’s a tell for what very may well happen to other companies as they release the first waves of reporting under the lease accounting compliance rule.

For some, it’s a dream come true. For most, it means a whole different way of financial life.

 

The Toughest Part of Implementation

Bet you can’t guess what the hardest part of implementing the new lease accounting standards is. It’s not the reporting. It’s not the data abstraction. It’s not even the cross-silo organization.

You probably won’t guess it offhand because it seems like the simplest part: Finding your leases

Yes, just locating all of your leases will be your biggest challenge.

Mid-size companies have to find and organize hundreds - sometimes thousands - of leases. Large companies are dealing with tens of thousands. 

Then there’s equipment leases that have to be added into the equation. Oh, and embedded leases in contracts also have to be included on the balance sheet.

So if you thought this part was going to be easy, think again.

 

The Confusing-But-Welcome Deadline Change

No one saw the announcement coming. 

Or if they did, it sounded too good to be true: The FASB would move the deadline for private companies to comply with ASC 842 back a whole year.

We’ve already touched on this decision in August 2019 that sent shock waves around the financial world.

There was a sigh of relief from private companies, albeit a confused one. To what did they owe this reprieve and more importantly, how should they act moving forward?

To get these questions answered, join us for our upcoming webinar, The FASB ASC 842 Deadline & What It Means for You

It’s 45 minutes of Q&A with subject matter experts. 

Find out how to take advantage of the delay and avoid mistakes that many others have made.

 

Conclusion: Big Lease Compliance Changes Are Underfoot

Everyone knew the lease accounting standards would affect big changes.

But some of the specific difficulties, challenges, and headaches have come to light only as companies have started the implementation process.

In the first two months of Q3 alone, the financial world has been rocked by the ripple effects. Only time will tell what other significant changes are on the way.

Whether you’ve started lease accounting compliance implementation or not, we recommend taking the first step. There’s a large amount of time and money you can save by using lease accounting software.

Calculate your total man hours and money savings today with the Lease Administration & Accounting ROI Calculator.

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Posted on 9/3/19 9:00 AM by Taft Tucker in Lease Accounting

Taft Tucker

Written by Taft Tucker

Taft is the Chief Customer Officer at AMTdirect and is a resident expert about lease administration and accounting. Taft's passion is to share practical, helpful information about our industry.