Private companies are likely to get another year to figure out ASC 842 lease accounting compliance.
The Financial Accounting Standards Board (FASB) voted unanimously to propose delaying the effective date of some of its major accounting standards, including ASC 842 Lease Accounting, for privately held companies, nonprofits and small reporting companies. Technically, FASB has to issue a formal proposal for public comment before finalizing the new effective dates, but it’s anticipated the change will go through.
This means privately-held and nonprofit organizations will have until January 2021 to adopt the new lease accounting rules. The original dates for ASC 842 lease accounting compliance were annual financial reporting periods starting after Dec. 15 (or after Jan. 1, 2020 for calendar periods), and interim periods after Dec. 15, 2020.
Lease accounting expert advises: Keep pushing forward
“My biggest fear is that if there is a delay, companies will just put off working on this for another year and kind of be in same position,” Matt Waters, director of lease accounting at CoStar told Bloomberg News.
According to Waters, more time won’t reduce the workload that the rules require. Across the board, organizations are usually stunned to realize how many leases they have and the expertise needed for a successful implementation. Data collection for current leases has proven to be the biggest challenge for many organizations.
Here are helpful tips for private companies on getting the right data and team in place for successful lease accounting compliance.
Deadline for public company lease accounting compliance
The new leasing standard took effect for public companies in January 2019, but several public companies are struggling with implementation and Day 2 functionality. In fact, industry experts estimate the failure rate among new lease accounting compliance projects to be as high as 25%, based on preliminary feedback from public companies and early adopters.
The significant time investments and sunk costs of troubled adoption plans are irreversible. Get Lessons Learned from enterprise lease accounting compliance implementations.
Many companies must now pivot and move forward on a better path toward ASC 842 and IFRS 16 adoption. When looking for subject matter experts, consider consulting firms and lease accounting software vendors as resources. As you review software solutions, ask the vendor specific questions about the qualifications of their lease accounting staff and availability of in-house or online training. Best-in-class software providers will offer in-house CPAs and experienced lease accounting experts.