Waiting to start FASB 842 implementation is like waiting to do your taxes.
Hunky-dory in the beginning...
...but potentially costly, time-consuming and painful in the end.
Just ask any public company that had to do it last year: The longer you wait, the more expensive - in dollars and days - implementation will be.
Those that start sooner rather than later will have the advantage of extra time to gather their information and contracts, work out potential bugs in the process and address unforeseen issues. Solution providers with technology to help will be so focused on these companies, they won’t have the time or resources to address companies that are late the game..
Even if they do squeeze you in, it very well could be at double the price and timeline.
In fact, there are three reasons waiting to begin your private company’s FASB 842 implementation could do major damage to your bottom line.
#1 - Paying for Extra Resources
Time is money, right?
If you’re in any kind of management position, you know for a fact this old adage is true.
And FASB 842 implementation takes a lot of hours… probably more than you’d expect. In fact, on average it took public companies 4 - 6 months in 2018 to complete the entire implementation process.
That number includes companies that had everything in order.
Companies who didn’t know where their contracts were stored or whose data wasn’t easily accessible faced on even longer timeline.
Solving this problem is often a matter of hiring more warm bodies on your team. It’s a simply equation of more people = more work accomplished. But this also means more salaries to pay and more sliced off your profits.
In addition, when you wait to begin your FASB 842 implementation, it means your software provider will have to hire more employees, too. The influx of late-comers to the FASB 842 game means they’ll have to find smart people to get the job done fast.
And hard workers who know the accounting and lease administration space - and who are familiar with the specific rules of the FASB 842 mandate - don’t come cheap.
The closer you wait for the hourglass to run out on this important process, the more time both your people and your vendor’s employees are going to have to spend on this project. Overtime hours are not uncommon, and these often cost you double the going rate.
Waiting to begin the implementation process isn’t going to just cost you a few extra dollars and take a couple additional hours.
It’s going to eat into your bottom line significantly.
#2 - Paying Fines and Late Fees
Getting FASB 842 up and running with your lease administration processes wouldn’t be such a big deal if there weren’t consequences.
But there definitely are. And they require you to hand over money… lots of it.
Although FASB has yet to detail the specific fallout for private companies, we can safely assume it will be the same as or at least similar to what public companies faced.
The SEC’s Division of Corporate Finance selectively reviews filings made under the Securities Act of 1933 and the Securities Exchange Act of 1934 to monitor and enhance compliance with applicable disclosure and accounting requirements.
If a public company is selected for review - and we can assume this will happen for private companies that aren’t compliant by the due date of Jan. 1, 2020 - they’ll have to:
Deal with lawsuits from investors for the misstated financial statements
Bring in fraud examiners to investigate (if it’s determined fraud was involved)
Respond to an SEC Comment Letter
Hire Big 4 consultants to restate prior years
Pay fines for auditors who misstated financials
The dollar amount on each of these 5 items can’t be calculated exactly and will differ from company to company. However, it should be pretty obvious non-compliant companies won’t be dealing in pennies.
These are big numbers, numbers that could seriously impact your profits.
Only you can calculate in total what this would cost your company. But the price tag associated with these consequences for non-compliance should deter you from procrastinating your FASB 842 implementation.
#3 - Paying in Lost Customers
Let’s say you start FASB 842 implementation late.
You reluctantly pay the extra costs and hire more people. But it’s still not good enough and you run into issues with your data and integrations.
You’re late on the deadline and end up slugging through the miry details of making things right with the SEC.
Because of this distraction, you can’t service your current customers as well. And you can’t bring on new customers as fast. Word gets out through competitors and the media about your failed compliance.
Now you have a PR problem. People start looking elsewhere - contract renewals take a dive and new customer growth slows.
It might not happen overnight, but this change will certainly happen. You’ll see it reflected in your annual profit and loss statement. It won’t be pretty.
While this isn’t fun to think about, it is a real possibility.
And on the chance it doesn’t happen, why live the day-to-day stress of risking it?
Sure, you can wait until the last minute to think about FASB 842 implementation. Or you can start now and avoid the complications and headaches that come with the possibility of non-compliance.
Conclusion: Procrastination Isn’t Worth the Price Tag
As a lease administration company whose product is 100% compliant with the FASB 842 standard, we’ve run the gamut implementing the new standard for a year with public companies.
We’ve seen a thing or two.
Companies that have come to us to start their implementation processes early have avoided the need for hiring extra people, paying fines, and losing customers. They’re sitting pretty.
We’ve also experienced the panic-stricken rush of the companies that wait even a few months too long and end up parting ways with a lot of their hard-earned profits. It’s not fun.
Our advice: Don’t procrastinate. Your bottom line will thank you.