Blog

Most public companies underestimated the challenges they would face when implementing the new lease accounting standards. Private companies can benefit from learning the pitfalls to avoid.

With the implementation of the new lease accounting standards, many companies are evaluating the need for a dedicated lease accounting subledger. Subledgers, formally known as subsidiary ledgers, contain detailed transactions from certain accounts.

So far, the focus of most companies adopting the new standards has been on achieving compliance by Day 1. This includes gathering all of the necessary lease data and uploading it into a system of record so that each lease can be reported as a right-of-use asset and liability on the balance sheet. However, at this stage in the process, with the deadline only a couple of months away for many companies, it’s critical to consider how your company will maintain compliance past the deadline.

There were an overwhelming number of articles covering the new standards published in 2018. We reviewed hundreds of articles published in journals, blog posts, and big audit firm guides to hand pick the 10 best articles of the year. These guides can offer some last minute guidance for public company filers and help private companies get started on their implementations the right way.

Remember Enron and WorldCom? After they crashed, the SEC investigated off-balance sheet transactions and discovered a loophole: operating leases. Today, under the current ASC 840 standard, leases are classified as capital leases or operating leases. Capital leases are reported on the balance sheet. Operating leases are disclosed in the footnotes of your financial statements as “off-balance sheet” operating expenses and excluded from important financial ratios.

The initial deadlines for the new lease accounting standards are now less than 90 days away and widespread panic is beginning to set in. Most companies are behind schedule either because they underestimated the level of complexity associated with adoption or because of the ripple effects of delays in related projects such as revenue recognition.

There are now over 12,000 pages of documentation about the new ASC 842 and IFRS 16 lease accounting standards. In fact, there is so much documentation available that the choice of deciding which ones to read can be overwhelming. To narrow down what’s worth reading, we asked our technical accounting experts at LeaseAccelerator which documents they find most useful on various aspects of the standard.

What items will external auditors be focused on after the implementation deadline for lease accounting? There has been little guidance published by the big four firms yet. However, one topic that is raised by auditors at almost every lease accounting conference is the importance of completeness. Specifically, how do you know that you have identified a complete population of all the leases across your enterprise?

The practical expedient that allows companies to choose whether or not to separate lease and non-lease components is receiving mixed reviews. While electing the expedient would reduce the burden of implementing the new standard, there are also some drawbacks to consider.

This guide explains the five major steps you need to understand at the beginning of your project. Following these steps will reduce your likelihood of having to repeat steps later. Plus, it will help you on your way to a successful and efficient implementation project for Day 1 of the new standards and beyond.