Lease data is the heart of FASB ASC 842 compliance.
The thing is, it’s proven tougher to get than most companies expected.
When it was first released, no one knew what to expect when it came to timeline or process for making FASB 842 happen.
But as time has shown, there are a lot of unexpected complications.
In fact, the new rule will require you to abstract as many as 55 data elements from leases in order to determine the lease status and meet compliance requirements. It’s a tall order that requires careful understanding of the updated accounting standard.
To help shed light on the topic, we’re revealing 3 hidden facts about FASB 842 implementation you might not know… but that are too important to ignore if you want to successfully execute the new accounting standards.
1 - Current Lease Data Isn’t Good Enough
One of the biggest misconceptions of FASB 842 is that the data you’ve already collected in Excel spreadsheets and current systems will work just fine.
We’re here to tell you it won’t.
After a year of helping our clients execute FASB 842 compliance - and 20 years in the industry - the harsh truth is that the data elements you’ve collected might not meet the new definitions.
Let’s face it... with the new standard comes new abstraction requirements.
And what we’ve learned is that the additional lease data the FASB 842 rule requires isn’t commonly abstracted today.
Read: You’re going to have to dig deep and change processes.
For example, information such as fair market value and whether options are likely to be renewed is probably not sitting in your lease admin system or spreadsheet today.
And your equipment lease data, well... it’s most likely in a file cabinet.
As you set out to solve for FASB 842, your project plan should include taking a fresh look at data you’ve already collected. But you should also look at data you’re missing.
2 - Equipment Leases Must Be Evaluated
Perhaps one of the most shocking parts of the FASB 842 accounting standards changes is the need to include accounting for equipment leases.
This accounting for equipment leases has never been required before.
So this likely means you don’t have lease data outside of the agreement. And in many cases, you might not even know where the leases are. Since equipment leases are typically handled at a local level by local operations - not the real estate team - it will be tough to find this info.
Even if equipment represents a small percentage of your overall liabilities, they’re still likely to be the biggest time suck in the entire process.
Because of this gap in equipment lease data, most companies who’ve been proactive about FASB 842 implementation have built the equipment lease process from scratch.
The takeaway is to make sure to abstract the correct equipment lease data.
The warning is don’t get caught misunderstanding the time involved with this step.
3 - Spreadsheets Aren’t Going to Cut It
It’s the number one thing we hear when talking about FASB ASC 842 compliance: “My current lease data is in a spreadsheet.”
This is hugely problematic.
As noted, the new rule will require you to abstract as many as 55 data elements from leases in order to determine the lease status and meet compliance requirements.
55 data elements multiplied by all of your real estate and equipment leases? You do the math… spreadsheets are just not going to work.
It’s not just the data elements that make spreadsheets ineffective.
It’s lease revisions, classifications, the audit trail, general ledger integration, “what if” modeling and a host of other issues.
In fact we’ve identified 11 very specific reasons why spreadsheets won't work for FASB ASC 842. And just know that once you do abstract the data, you’re going to need a system to manage it.
Conclusion: Wrong Data, Big Problems
Only 21% of companies are prepared to comply with the new FASB ASC 842 lease accounting standard.
While it’s not time to panic, the stat is concerning.
So what’s the hold up?
As discussed, lease data has been hard to wrangle. There are new abstraction requirements. And having a current lease management system doesn’t guarantee an easy transition.
Because the wrong data can lead to big problems, we created The FASB ASC 842 Lease Abstraction Data Checklist and Worksheet.
It’s a comprehensive checklist of the 55 data elements you’ll need to collect in order to correctly classify and report on each lease.
Download the checklist today.