The ASC 842 lease accounting standard is one of the biggest changes in regulation in more than 40 years, and compliance requires significant time and resources. The risk of non-compliance is significant, as it will result in the restatement of financials, which is not only a costly event, but opens the door to other negative consequences and further scrutiny through the audit process.

Costs associated with restatement of financials

It’s expensive to restate financials. Significant expenses include the costs associated with:

• Filing the necessary forms (including but not limited to SEC forms 8K and 10Q)
• Re-issuing an audit report
• Attorneys to identify and address potential legal issues
• Consultants to identify and mitigate damage done by the issues

In addition to the hard costs associated with restatements, the failure to meet the compliance deadline also shakes the faith on the investor community. While not a moral scandal, it does show lack of foresight and planning. A proactive internal and external communications plan should be mobilized to salvage the brand reputation and reassure investors, which may also increase the hard costs associated with third-party consultants.