It’s a slow clap for companies who’ve implemented the new lease accounting standards.
That’s because most organizations made a mad dash for the finish line. In an October 2018 survey by PwC, more than 15 percent of public companies hadn’t even started implementation of FASB ASC 842 that took effect a few months later.
Private companies aren’t far behind.
News of a deadline extension - most likely due to procrastination and an overwhelming to-do list - is hot off the press.
Even for those who did meet the compliance deadline, most would admit it was little better than a hack job with an all-hands-on-deck approach and little-to-no expertise directing the veritable financial circus.
With 6 months to go before public companies submit reporting under the new FASB ASC 842 compliance standards once more, it’s time to start the cleanup process.
Companies must push themselves to rework the way their team functions to create processes, procedures, and controls for long-term success under post-FASB ASC 842 implementation.
Process, Process, Process
At the apex of every well run organization is written-down processes.
And it should be no different for post-FASB ASC 842 adoption.
With year one under your belts, your team probably has a good idea of what to put into a handbook about the topic. It should include long-term, sustainable policies about the still-new lease accounting standards:
- Training procedures and documentation
- A quality control checklist
- How automation, systems, and integrations work
- How to handle audit procedures and reduce the risk of an audit
- How to perfect the close process so as not to delay earnings announcements
Ironing out these items is a significant task. However, it will be well worth the clarity it brings to the entire team.
ASC 842 Adoption Training
FASB ASC 842 compliance is now a yearly procedure. It’s not going away. That means it’s not financially feasible for your company to rally extra hands to check off this box every year.
Ongoing training and hiring best practices are essential to operational efficiency.
Unfortunately, there’s a lack of talent when it comes to lease accounting today. That means new hires and in-house teams must be trained about the topic. We recommend creating a training playbook and reviewing it on an ongoing basis to keep the information fresh and share new developments.
Training should cover:
- Lease accounting and lease administration best practices
- Lease accounting compliance: FASB ASC 842, IASB IFRS 16 and GASB 87
- Lease accounting technology, software, and integrations
- New accounting standards reporting
Sometimes you’ll need to lean on consultants and your software’s team of experts to help you with compliance efforts.
But a thorough training process is a more cost-effective solution in the long run.
Training your team about the lease accounting standards is a must. But we’d also recommend assigning subject matter experts, too.
You’ll find that even with training, lease compliance can be time-consuming and intricate.
Specializing individuals or small teams in this area can be a money and time saver.
After all, the new accounting standard is such a niche topic. These employees can act as in-house experts in the area and can even assist with training.
And they can stay abreast of new developments so your team doesn’t run into surprises in the future.
Double-checking is one of the best ways you can ensure accuracy. A lot of companies don’t do it because, let’s face it, they don’t have the resources.
It’s imperative to set aside time for setting up controls, though, as you consider the long-term effects of post-FASB ASC 842 adoption.
A lot of these controls will address accounting accuracy for leases. Many companies are instituting new financial controls for leases to ensure that the accounting is accurate for:
- New leases
- Changes to existing leases
- Expiring leases
- Equipment leases
One of the controls many companies are instituting is to have the accounting department review all contracts before being signed.
These contract reviews make sure accounting understands the complete layout of your lease portfolio. It also allows them to double check for embedded leases, which is common.
Those companies who chose to execute lease accounting compliance manually will need to seriously consider onboarding a cloud-based solution to automate compliance.
After almost two years of compliance experience under their belts, many lease accounting software companies have worked through the bugs that plagued so many users early on. Some have also developed new functionality that wasn’t ready at the time of the first round of implementation, but is now usable for post-FASB ASC 842 adoption.
You can save significant time and money by automating the entire process.
If your company did sign on with a solution for lease compliance, now is the time to work out all the kinks. Or, if it’s falling down, now is the time to make the decision to switch.
Start the evaluation process as soon as possible.
Make sure you’re ready for 2020 reporting. Understand all the nuances of the system and how you can use them to your benefit.
Integrations weren’t a priority at first go-around.
Now you have more time and resources to accommodate integrations with accounts payable and other systems.
The benefits are pretty obvious: Seamless data transfer, less manual work, and accuracy.
Now is also the time to evaluate how you want your lease management processes and software to integrate with your contract management.
All of these new processes will allow you to streamline your budgeting and financial planning.
Post-FASB ASC 842 adoption will see standardization of new accounting processes. Things will never be like they were before, but you will enjoy a new normal.
You’ll be able to properly budget according to manpower, software fees, and other line-item expenses.
This presents a significant benefit for organizations. In the first year of implementation, no one really knew what compliance would cost. There were a myriad of unknown expenditures associated with hiring, software and auditing fees.
Now there are more foreseen than unforeseen costs.
Conclusion: Preparation is Key for Post-FASB ASC 842 Adoption
Companies should be anticipating year two compliance with a little more confidence. Starting preparations early is always a good choice.
It’s also wise to understand what’s required in the case of an audit.
Assume the worst case scenario that it will happen to your company. Prepare accordingly with documentation and support for the areas that will be scrutinized the most.
Most importantly, take into account the lessons you learned from first-year implementation. There are plenty of post-compliance insights from the experts to lean on as well. Pinpoint the specific areas your team fell down on and zero in on controls and processes to make sure it doesn’t happen again.
If you get stuck or need help planning, reach out to our team.
We’re well-versed in lease accounting compliance and are always happy to share our expertise. And if you’d like to take a peek at our FASB ASC 842-compliant lease administration software, schedule a demo.