New accounting standards under the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) require organizations to record leases on their balance sheets. in 2019, and now it’s time for private companies to follow before the newly revised December 15, 2021 deadline.
Here are 10 lessons from which private companies will benefit.
Public companies suggest that the earlier a company starts implementation, the smoother and less costly the process is. For private companies working toward the extended deadline, it’s not too early to start.
The FASB’s leasing standards require private companies to record on their balance sheets leases embedded into other contracts. As a private business owner, this means asking yourself how many assets your business leases including those not explicitly defined. Companies underestimate their number of leases – from coffee makers to building space. Documenting leased items takes time.
Contracts for car leases might be straightforward while land, equipment, and office leases can be complex. Companies need to have the right information, which involves reviewing the terms of each and every lease.
The new lease accounting standards add more requirements for your accounting team. This may mean budgeting for additional accounting staff members who can gather lease data and interact with other departments and branch offices.
Private companies need to make sure their legal, purchasing, IT, property management, and other departments are engaged with accounting during the transition process. This outreach can help form a more comprehensive understanding of the company’s leases.
The conversion to the new lease accounting standards requires change for all departments and divisions involved. It’s important for your accounting team to provide regular updates on any new processes and requirements to ensure other departments are in the loop.
Ask these questions ahead of implementation efforts:
The biggest surprise most companies deal with is the number of leases they have. For example, one lease for several hundreds of units may in fact be several hundred leases because each piece of equipment needs to be tracked separately. Verbal agreement leases may also be required to be recorded in accordance with the new standard.
The approach your organization adopts during your implementation process might have a significant impact on your balance sheet, so keep your auditors in the loop as much as possible. While auditors can’t make management decisions, you can share information on how your company will handle lease accounting going forward and the technology solution you choose. You can also allow your auditors to sit in on presentations or ask questions regarding lease accounting.
Adapting your company to the new lease accounting standards means considering all options that streamlines the process. In addition to a framework for compliance, many companies are seeking tools to perform critical analysis and automate processes to meet the compliance standards. Utilizing a CPA Firm can enable your company to manage their lease accounting processes efficiently while achieving compliance with the new standards.
Outsourcing allows you to ease into the implementation process by:
Contact your trusted advisors at 415 Group about the Accounting Standards Update today.
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