The new ASC 842 and IFRS 16 lease accounting standards are 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.
Lease accounting lessons learned, best practices
The deadline for public company compliance has passed, and today private companies can benefit from lessons learned and best practices. See how lease management software from CoStar lease accounting software helped these companies in a variety of industries achieve compliance, including a Fortune 100 social media company, a Fortune 25 bank, a Fortune 500 flooring manufacturer, a Fortune 500 healthcare provider, a large staffing firm and a major retailer. Every organization faces unique challenges, but this 12- step guide offers a proven framework that every company can use when tackling a lease accounting compliance initiative.