Complying with ASC 842, particularly for the first time, can be difficult for even the most experienced teams.
There are so many changes, so many unknowns. The switch over from ASC 840 has meant that many accounting teams are operating outside of their comfort zones. No more expensing operating leases through the income statement, there are new assets and liabilities on the balance sheet, new calculations are required, disclosure has changed – in fact, the very definition of a lease has been updated!
Here, we’ll look at some practical ways you can enhance your client’s ASC 842 implementation experience.
Take a historical view
Even though the implementation of ASC 842 is new for many accounting teams, auditors, consultants and other professionals, there are many companies who have successfully implemented ASC 842 already.
You might have worked directly with some of these companies, or have colleagues that have done so.
For example, public companies have had to implement ASC 842 already, and non-U.S. companies who use the IFRS framework have also implemented a similar set of requirements – with ASC 842 being very similar to IFRS 16.
So taking the lessons learned by these companies into your new engagement will certainly enhance your client’s experience.
Some common lessons learned include:
Leases are broader than many people think: any contract may contain a lease according to the definition of ASC 842, including contracts that don’t explicitly mention the word “lease.”
Bring in others across the organization to help: building and leveraging relationships in various departments outside of the finance team can help identify and account for leases much quicker than trying to do this alone.
Automate: manually accounting for leases according to ASC 842 is tough. Automation offers a smooth, seamless ride. We’ll talk more about this in a bit.
Know what relief is available: this could be in the form of COVID-related relief, or leases of less than 12 months.
Your client no doubt looks to you for answers to some of the tougher questions around ASC 842 compliance. One of the ways you can ensure that both you and your client have the best experience possible, is to discuss expectations early.
This isn’t an engagement letter, or a general scope. Rather, it’s a conversation – which can be followed up in writing – laying out the requirements, timelines and obligations of each party.
For example, some clients might be expecting you to take care of more complex calculations, or at least to give significant input in this regard. Others might just want to consult from time to time, or ask you to double check their assumptions.
It’s also valuable to give a realistic timeline for ASC 842 implementation. For example, this includes:
- Ensuring all leases have been accounted for
- Checking contracts for embedded leases
- Calculating the discount rate implicit in the lease/the incremental borrowing rate
- Looking at any relief measures on offer
- Taking any lease modifications into consideration
- Ensuring all calculations are correct
- Going over disclosures
Being clear about what fully compliant ASC 842 implementation entails is the first step in ensuring the smoothest experience possible, for all parties concerned.
Make the right recommendations
Depending on the size of the client, and the complexity of its business, you’ll likely make very different recommendations for different clients.
For example, if the client is small, relatively straightforward, with maybe one or two basic leases, then you’re likely to recommend for the client to continue accounting for leases manually – such as with Microsoft Excel.
If there are more leases, you’re likely going to recommend a software solution. In this case, an automated lease accounting software solution is likely to be the best fit.
When looking at automated lease accounting software solutions, we recommend taking the following into consideration:
Data security: with financial information being so critical – and so sought after by criminals – ensure that the solution you recommend is at least SOC 1 and SOC 2 certified, as well as approved by AICPA (the Association of International Certified Professional Accountants.)
Audit trail: if the lease accounting software solution doesn’t provide a clear audit trail that can be used by auditors and other external stakeholders, it’s only doing half the job. Modern lease accounting software solutions provide a clear audit trail, as well as ongoing visibility for key participants.
Support: ensure that support is available, and of a high standard. If the client is stuck, and with a deadline looming, it’s likely you who’s going to have to pick up the pieces.
Reviews: is the company reputable? Are they used by others, including well-known organizations? These are key questions to ensure a smooth experience for you and your client.
Give your client the best experience possible
Implementing ASC 842 doesn’t have to be stressful – for you, or for your client. In fact, in many cases it is an opportunity to update processes, enhance communication internally and externally, and add tremendous value.
One of the most effective ways to achieve these goals, is to implement automated lease accounting software such as that offered by Trullion.
With this solution in place, you can help your client streamline workflows, automate data extraction, and get a live 360° data image of your client’s transactional workflow.
With Trullion, your client will have the benefits of:
- Seamlessly meeting ASC 842 compliance requirements
- Accelerate their ASC 842 adoption timeline
- Producing 100% accurate and consolidated reports in minutes
- Effortlessly tracing audit trails back to the source data
- Accessing simple reports and clear financial schedules
Your clients will be able to save significant amounts of time, reduce stress and friction, save money, increase visibility, reduce errors and be fully compliant with ASC 842 requirements.