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Private Companies Still Not Ready For ASC 842 Lease Accounting

Private Companies Still Not Ready for ASC 842 Lease Accounting

Nearly 20% (19.8%) of executives from privately held organizations still feel unprepared to comply with the new ASC 842 lease accounting guidance heading into the summer of 2021, according to a Deloitte poll.

The new standard requires private organizations to include most leases on their balance sheets beginning Jan. 1, 2022, for calendar year companies.

The Financial Accounting Standards Board (FASB) delayed the date for private companies to adopt the new standard a few times. The first delay was simply to allow private companies more time to prepare. After COVID-19 forced businesses to adopt remote working situations, FASB delayed it again as companies were dealing with fallout from the pandemic.

Tim Kolber, a managing director and co-lead of accounting standard implementation services in the Audit & Assurance practice of Deloitte, said in a press release, “FASB lease accounting standard adoption is mandatory, so I’m hopeful organizations are closely focusing on it now.”

For most leases, an ROU asset and a lease liability now must be recorded on the balance sheet, a treatment that previously only applied to capital leases, now referred to as finances leases. ASC 842 requires operating leases with terms that last longer than 12 months—which make up the majority of leases for most companies—to be recorded on the balance sheet.

The calculations for creating and amortizing the ROU asset and lease liability are complex and could take up to an hour to do in spreadsheets for each lease. It can be done in seconds with lease accounting software from CoStar. Many companies that adopted less suitable systems are replacing them with CoStar’s proven software that is recommended by more leading accounting firms than any other.  

Private companies need to be aware that in addition to creating an initial amortization schedule, there are many other complicated processes involved with the new standard. And many leasing software applications can’t handle the various new actions that need to be taken, sending accountants right back into spreadsheets. See the important automated functions needed but missing from many lease accounting systems here.

Matt Waters, CPA

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