July 29, 2019

Lease Accounting: What You Need to Know Now

By Manuel Azuara

Lease accounting continues to be a hot topic. At its July 17, 2019 meeting, FASB members voted unanimously to propose moving back the effective date for lease accounting (ASC 842) for privately held companies, nonprofits, and small reporting companies. This delay would also apply to the deadlines to adopt ASC 326 (Current Expected Credit Losses) and ASC 815 (Derivatives and Hedging). As a result, those organizations would have an extra year — until January 2021 — to adopt the new lease accounting rules. There are no proposed changes to the current effective date for public entities.

I have been keeping a close watch on the developments around the new lease accounting standard, and find it refreshing to see FASB addressing the mounting anguish of companies facing accounting implementation overload. It’s no surprise that many private companies face resource constraints and increased costs when preparing to adopt the new lease standard. In our experience, many of our clients are feeling overwhelmed, realizing that they have waited too long and that their internal resources are being stretched. In many cases, they are being challenged to develop a thorough understanding of the new standard, inventory all their leases and identify software or external solutions to account for the new standard.

Although it’s very possible this delay will be approved, our advice to private organizations: don’t put off implementing the lease standard until 2020 or you’ll face the same time crunch and implementation challenges this time next year. Instead, I recommend you use this extra time to go through the process systematically without the added pressure of a fast-approaching deadline.

Here are 6 steps you should follow to prepare for the new lease standard:

  1. Understand the accounting and financial reporting requirements.
  2. Form a cross-functional implementation team to evaluate the lease standard.
  3. Identify/inventory all lease agreements. Start by asking yourself, “What is the universe of assets we use that we don’t own?” You may find non-traditional lease assets are now covered by the new standard.
  4. Assess the impact to the company’s financial statements, other reporting requirements and loan covenants.
  5. Communicate with management and advisors to make them aware of the impact on future financial reports.
  6. Identify improvements needed in financial reporting and internal control processes and systems to capture, account for and evaluate lease agreements.

Looking for Lease Accounting expertise? Need someone to do your dirty work? We’ve got you covered.

Bridgepoint’s team of experts can help you navigate these changes — from strategy to project management and through implementation. In addition to the legwork, we can help you get prepared for board and investor questions, help you leverage internal resources to save money and gain internal expertise, and reduce your risks by proactively addressing the new lease accounting standards. Get started now to save yourself time, money and stress! Explore our Lease Accounting services here.

Additional Lease Accounting Resources You May Find Helpful:

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About Manuel Azuara

As Principal at Bridgepoint Consulting, Manuel helps to lead the firm’s Financial Consulting practice. His background includes more than 20 years of experience in business process re-engineering and corporate governance across a range of public and private sector clients. Manuel has revenue recognition expertise and has helped multiple companies in times of crisis, including mergers and acquisitions, fraud investigations, exit strategies and cash optimization. Prior to Bridgepoint, he was CFO of Public Strategies, Inc. Manuel received his bachelor’s degree in accounting from the University of Texas at Austin and is a Certified Public Accountant* in Texas.

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