ASC 842: Implementing The New Lease Accounting Standard

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ASC 842: Implementing The New Lease Accounting Standard

In 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases. This new lease accounting standard (ASC 842) significantly impacts how private and public businesses across all industry sectors manage, account for, and report substantially all leases, including equipment and real estate. Because of the meaningful accounting changes involved, businesses must begin preparing now to comply with the new standards.

Will your organization be affected? Read more to find out how a trusted partner like Opportune can offer integrated expertise in the range of areas impacted by the adoption of the new lease accounting standard and post-compliance optimization.

Why Does The New Lease Accounting Standard Matter?

ASC 842 requires organizations who lease assets— referred to as “lessees”—to recognize, on their balance sheet, the assets, and liabilities for the rights and obligations created by those leases with terms greater than one year. Auditors will focus on a company’s documentation, presentation, and disclosure of leases. Specifically, ASC 842 impacts:

  • New processes
  • Training
  • Upgraded technology
  • More detailed reporting requirements
  • Technical accounting assessments

When Is The New Lease Accounting Standard Effective?

For public entities, the new lease accounting standard went into effect for the annual period beginning after December 15, 2018, and the calendar year 2019.

The FASB determined that privately held companies are required to adopt the new lease accounting standard for annual financial reporting periods beginning after December 15, 2021. For calendar year-end companies, this means:

  • Annual periods beginning January 1, 2022
  • Interim periods beginning January 1, 2023

Defining A Lease

How Can I Prepare For Implementation Of The New Lease Accounting Standard?

What Does Opportune Offer?

  • Opportune offers technical assistance and lease discovery by leveraging its ASC 842 experience and lessons learned such as the importance of a documented approach to adoption, proving the completeness of the lease population, and locating unidentified leases.
  • Opportune’s Complex Financial Reporting practice includes members with extensive public accounting experience serving a multitude of public and private companies in addition to explicit experience reviewing the implementation of and ongoing compliance with ASC 842.
  • Valuable services we routinely help clients with include:
    • Identifying and cataloging lease populations by considering existing leases under ASC 840.
    • Conducting roundtable sessions with key employees and stakeholders to educate them on how to identify new leases and performing data mining procedures to identify recurring payments that could represent leases.
    • Sampling and documenting contracts from the lease population in an ASC 842 checklist to determine lease classification, ultimately identifying leases requiring capitalization or disclosure.
    • Preparing a memo that documents the ASC 842 implementation methodology and summarizes technical accounting conclusions.
    • Providing proprietary lease software (Assent) to track contracts, preparing the necessary disclosures, and balancing sheet entries.

Interested? Let’s Talk.

The new lease accounting standard can be complex. Let us help you make sense of ASC 842. Leave us your information and we will reach out to see how we can best partner with you.

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