Healthcare Lease Accounting Deadline Fast Approaching

Feb 23, 2021 |
mins Read

Healthcare lease accounting deadlines were moved in the wake of the global pandemic but the new deadline is fast approaching. Healthcare CFOs and industry financial professionals need to plan today for a deadline that might as well be tomorrow from a management standpoint.

Remember back to school days when everyone cheered after the teacher gave the class an extension on an assignment? Well, the healthcare industry certainly cheered when the Government Accounting Standards Board (GASB) of the Financial Accounting Foundation gave an 18-month extension for lease accounting due to COVID-19-related delays. The new deadline is now June 2021 for healthcare and other organizations to comply with GASB 87, ASC 842 and IFRS 16 provisions.

And while that extension will certainly help healthcare organizations buy time to get their lease accounting in order, from a management perspective, that deadline is right around the corner. And organizations that either haven’t completed—or worse, haven’t started—their GASB 87, ASC 842, and IFRS 16 compliance efforts need to ramp up their efforts.

With implementations taking six to nine months on average and costing up to $1 million, healthcare CFOs need to act. Now. But there’s good news. If you start early, some of the costs can be defrayed. Here are three key tips we suggest based on our work with numerous healthcare CFOs as well as others at leading healthcare organizations.

1. Understand the Landscape

A formal assessment process should be the starting point for all healthcare organizations. This process should include formal lease discovery activities, policy and practical expedient analysis and decision, as well as evaluation of the current state processes and controls to understand what modifications will be necessary to ensure compliance with the new standards over time.

Based on the information gathered during assessment, most organizations are choosing to deploy a software platform to handle the accounting requirements. Due to the labor-intensive work of ongoing maintenance of leases in a manual database, software can automate many of the administrative activities.

2. Divide Tasks into Workstreams

Meeting GASB 87, ASC 842 and IFRS 16 requirements means more than just implementing a new lease accounting software system. Sustained compliance with the new standards involves a comprehensive finance transformation effort, requiring changes to existing procurement, treasury, finance and accounting processes.

Key activities to be addressed during the project lifecycle include:

  • Assessment and policy elections
  • Process transformation
  • Data collection and abstraction
  • Technology implementation
  • Project and change management

Allocating the appropriate resources, applying proper project management, and selecting an experienced implementation partner can lead to successful adoption and sustained compliance.

The biggest challenge healthcare organizations face in implementing these workstreams, by far, is collecting all the data required to perform accurate accounting under the new standards—especially embedded leases. Additionally, adequately evaluating all of the policy and practical expedients for the adoption prior to starting data collection can significantly impact the quantity and scope of data that may be required.

3. Think Beyond the Deadline

It’s not enough to simply meet the deadline. Key activities that can help include working with an experienced implementation partner who can provide a clear and concise roadmap to compliance. Comprehensive project management and a dedicated project manager can ensure that key workstreams are aligned, dependencies are identified and key milestones are achieved to keep each phase of the project on track, including:

  • Assessment
  • Process transformation
  • Data collection
  • System implementation

Proper program governance and allocation of resources is the key driver to success as you prepare for the adoption of the new accounting standards. Most program overruns are due to competing priorities within organizations, which pull resources from the leasing initiative. Executive sponsorship of this key initiative by the CFO can set the tone for the organization by emphasizing the importance of getting this done—and getting it done right. CFOs who engage and remain engaged during the lifecycle of the project can ensure that resources remain dedicated to completion and can assist in eliminating any roadblocks the implementation team may encounter.

Reaching the new deadline won’t be the end for healthcare organizations, either. It’s a starting point. Sustained compliance with the standards over time poses the greatest risk to your organization. New leases, lease modifications and lease terminations will need to be managed in a timely manner to ensure the proper presentation of assets and liabilities on the financial statements. Falling short of sustainability could result in audit failures and, potentially, a complete reimplementation of the standards.

Finally, as in the example above, once the glee over the teacher’s homework extension fades, reality sets in: You’ve got to start that homework assignment at some point soon. For healthcare organizations, the June 2021 GASB 87, ASC 842, and IFRS 16 deadline may sound far off, but it’s closer than you think if you want to be thorough. Better to focus now than to scramble later.

Have questions about healthcare lease accounting and other related areas? Let’s talk.

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