The ASC 842 lease accounting standard (and IFRS 16 for international companies) requires organizations to bring leases onto their balance sheets. Public companies adopted the new standards in 2019. Now, after two previous deferrals, private companies and nonprofits are on the hook to comply by their 2021 fiscal year-end.
In other words, this is where the rubber meets the road to compliance.
Every successful journey starts with careful planning—especially when the itinerary is ambitious and time is limited. How long will it take to get there? That depends on the size and complexity of your lease portfolio. But between now and the deadline, you’ll need to complete several key milestones, including:
- Impact Assessment: Every lease portfolio is unique. So it’s important to understand how your systems are structured and where the information is.
- Accounting Policy: Consider how accounting policy decisions could streamline your implementation or create administrative obstacles to operationalize.
- Software Selection: Now that it’s imperative to maintain accurate data for all leases, companies with more than about 50 leased assets—and there may be multiple assets per lease—need a software solution to ensure ongoing, sustainable compliance.
- Data Collection and Abstraction: Gathering leases and extracting applicable data takes longer than any other activity. This includes not only finding the final and current lease contracts with amendments, but also any contracts with embedded leases.
- System Implementation: In many ways, implementing the technology platform for lease accounting is like any other financial system implementation. Companies typically encounter challenges with technical configuration details, business processes and ERP systems.
- Day 2 Process Design: it’s easy to focus only on the implementation, leaving the sustainability part to the end. But in reality, the effective date is actually the beginning of the work and not the end. A safe arrival is possible only with careful design of processes, roles and controls, supported by automation.
Lease Accounting Resources
To help you get started, we put together a toolkit of practical resources—from practical tips and success stories to an assessment survey and timeline calculator. Visit our Resource Hub now to access these and other tools:
- 2021 Lease Accounting Guide. Learn everything you need to know about the standards and how to reach compliance before the upcoming deadlines in this comprehensive guide.
- Tip Sheet: Avoiding Potential Roadblocks. See the important milestones you’ll need to reach and how RGP can accelerate your journey.
- Lease Accounting Solutions Brief: Planning and implementing a successful journey to lease accounting compliance requires a wide range of cross-functional expertise. Our Lease Accounting Center of Excellence offers an end-to-end solution, including on-site, managed and outsourced lease accounting services.
We’ve already completed 350+ lease accounting engagements and work with all the leading technology partners to help you plan for and adopt the new standards. But time is running out. Resources will become more constrained as we get closer to the deadline—and fees will likely increase.