Retail tenants in the restaurant industry face unique challenges and opportunities with the new ASC 842 lease accounting compliance standards. While the intended purpose of the new ASC 842 lease accounting standard is to provide greater transparency regarding leasing arrangements by moving leases onto the balance sheet, it can also foster better business decision-making capabilities for restaurants. Preparing for compliance can also mean better managing your restaurant business.
While the new standards change how leases are accounted for in every industry, the restaurant industry may be especially significant. Moving all leases onto the balance sheet can change how financial statements are reported. What happens when the terms of a lease change? What if the facts and considerations believed to be sound in the original lease change? Do these modifications mean you have a new, separate lease?
As privately-owned restaurant companies prepare for the compliance deadline year-end 2019, there are some issues the right lease accounting software can help address and opportunities to improve overall lease management. Here are some actions to consider restaurant operators focus compliance with the new accounting standard:
- Conduct an inventory of all current leases. Owners of multi-unit restaurants may have hundreds of leases which will require time and resources to review and evaluate.
- Assure inclusion of separate components of agreements and subleases. Leases for restaurants may include equipment, property, software, and vehicles.
- Collect the required data for lease calculations. This could include lease terms, lease payments, economic life of the asset, and appropriate discount rates.
- Determine accounting policies. Adoption of carefully considered, practical policies can save time and manpower.
- Evaluate the impact on financial statements. Increased assets and liabilities on the balance sheet could impact agreements with lenders. A restaurant company may have 25 restaurant locations each with its own lease. How will this new leasing standard affect their loan covenants?
- Implementation of processes and procedures for lease management. Each lease will have to be closely analyzed for key information and the use of reliable lease accounting software will assist with these areas.
What can lease accounting software provide? It cannot make decisions for you, but it can provide the platform to test various leasing scenarios without every disturbing your live data. Powerful information customized to your exact specification can prevent mistakes and support better business decisions. Owners of restaurants should consider the use of a fully supported software system like CoStar to assist with implementation. CoStar offers the lease accounting software-as-a-service (SaaS) for Enterprise Lease Accounting proven to be the safest, most straightforward, fastest, and the most accessible path to compliance with the new standards.