Time Running Out to Meet New ASC 842 Requirements

2 min read
December 15, 2017
CoStar Real Estate Manager Blog

Time Running Out to Meet New ASC 842 Requirements

After December 15, 2018, public companies must comply with one of the most significant changes to financial reporting in 40 years.

After a decade of discussion, the Financial Accounting Standards Board (FASB) issued one of the most significant changes to financial reporting in accounting history on February 25, 2016. For the first time ever, companies will be required to recognize practically all lease obligations as assets and liabilities on their balance sheets for all financial reporting after December 15, 2018. The compliance deadline for the new standard – known as ASC 842 – now looms just one year from today.

Many companies have expressed concern for meeting the upcoming deadline, as this new lease accounting standard was announced by the FASB soon after challenging new requirements for revenue recognition (ASC 606) were issued. As of Q3 2017, a PwC and CBRE survey estimated that up to 75% of organizations either haven’t started on lease accounting compliance or are still in the assessment phase of the project. Executives are still asking questions about new lease accounting planning, data consolidation, budgeting, disclosure requirements and selecting new technology for compliance.

ASC 842 originally required two years of comparative lease data, which essentially moved the deadline for getting lease data into compliance to December 15, 2016. The FASB recently announced a tentative decision to remove this “look back” period requirement so that only current lease data as of December 2018 would be necessary for compliance. While this decision may provide companies some relief in their compliance efforts, the four major challenges for meeting the new standard must still be addressed.

To be fully compliant, most companies still must (1) set new accounting policy, (2) collect lease data, (3) select a software solution for reporting, and (4) implement new processes to manage lease data going forward. Even without the comparative data requirement, data collection for current leases remains the biggest challenge for most organizations. Implementing new software with integrations to existing systems could also take four to six months or more. CoStar and other industry experts continue to stress the importance of not letting more time lapse before pushing ahead on lease accounting compliance projects.

Other challenges that companies should be wary of include absences of key personnel during holidays and vacations, year-end close efforts, SOX compliance freezes, and “code freezes” when IT departments restrict the implementation of new technology. These are in addition to other unexpected delays and challenges.

Don’t let proposed expedients from the FASB delay efforts to push forward on lease accounting compliance. With just four quarters to go, time is indeed running out.