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The Upside: Leasing And Financing Equipment And The Impact Of The New ASC 842 Standards

The Upside: Leasing and financing equipment and the impact of the new ASC 842 standards

Helpful lessons learned for lease accounting

For long-standing reasons, the majority of U.S. businesses finance their equipment acquisitions utilizing leases, and the reasons why they do remains intact under ASC 842.

Not only are several of the lease accounting changes relatively neutral, but there may also be a silver lining with many positive impacts. While it will require new processes and reporting, the benefits of leasing equipment do not change under the new accounting rules. Companies will still be able to maintain cash flow, preserve capital, obtain flexible financial solutions, and avoid obsolescence. Choosing the best, most appropriate lease accounting software will make a difference in the administration of the new standards. 

Business processes needed to accommodate ASC 842 have the potential to provide unexpected advantages. Better information and controls could help enable more informed tracking and asset management, avoid redundancies and allow for negotiation of better lease terms across the corporation.

Know what the top accounting firms recommend for lease accounting software and ask questions of your accounting peers in different organizations. Renewal rates are a good indicator of software quality and customer satisfaction, such as CoStar’s 99 percent renewal rate for its lease accounting software.

Know the new rules. The project team, as well as the greater organization, must understand the new standard, including implementation deadlines, challenges and risks, and how processes within the organization will change to address them. Training and informational sessions should be scheduled to prepare the team on how the new rules will impact the business.

•    Accounting – the new standards have extensive accounting implications, an SME should be designated and trained;

•    Operations/IT – obtain and implement the best most appropriate software;

•    Tax – Consider changes to deferred tax liabilities and assets;

•    Treasury – prepare to provide incremental borrowing rates and evaluate debt covenants;

•   Lease Administration – evaluate abstracts and consider adding new data points;

•    Human Resources – appropriately training every stakeholder within the corporation. Lease and lease financing, with its wide range of inherent advantages, will continue to be a beneficial option for equipment acquisitions. How a company modifies existing leases or enters into new leases or contracts, will benefit from an understanding of all the implications of the new standard. Cloud-based systems (SaaS solutions) offered by CoStar can be more cost-effective long term with features like unlimited user models, no software upgrade fees, and pay-per data pricing.

Matt Waters, CPA

Lease Accounting Subject Matter Expert with over 15 years of Management Experience in Accounting and Finance