ASC 842 has swept into the lives of many accounting professionals much quicker than expected. What first started as a draft process back in 2016 has finally become a reality.
While public companies have had to adopt ASC 842 already, private companies were offered the choice of adopting this standard early.
Read on as we discover the benefits of early adoption of ASC 842.
Early adoption of ASC 842
Many companies have expressed interest in the early adoption of ASC 842. Initially, there was much confusion over the mandatory adoption date of ASC 842, and to make matters worse, ASC 842 has experienced a number of delays. Interestingly, the FASB has also granted certain concessions due to the recent COVID-19 pandemic that has further added to the uncertainty regarding when exactly ASC 842 needs to be adopted by.
The official date that ASC 842 needs to be adopted by is annual reporting periods beginning after December 15, 2021. However companies are allowed to adopt ASC 842 early.
Benefits of early adoption of ASC 842
The changes that ASC 842 brings about are vast. For example, ASC 842 differs significantly from ASC 840, the previous lease standard, in terms of the definition of a lease, how leases are treated (gone are the days of expensing operating leases through the income statement with minimal levels of disclosure), and the correct accounting treatment of leases.
ASC 842’s new rules also create some specific challenges. These include, for example, embedded leases within contracts that now meet the definition of a lease.
All of this means that there are significant benefits to deciding on the early adoption of ASC 842. Some of these benefits include:
Putting processes in place early
For companies that have been early adopters of ASC 842, one outstanding lesson has emerged: in order to comply with ASC 842, there have to be robust processes and internal controls in place, especially when it comes to identifying leases. These processes are most effective when they involve as many non-accounting departments as possible, as those closest to the operational side of the business are going to be the most valuable assets when ensuring that no leases have been missed.
Understanding your lease risk profile
Becoming an ASC 842 early adopter forces an organization to take stock of its operations in terms of its leases and understand where lease-related risk factors lie. This can apply to identifying leases, understanding any hidden liabilities when it comes to leases, and providing company leadership with an overall picture of the business’s lease profile. All of this is part and parcel of complying with ASC 842.
Using the right technology
For many companies that have adopted ASC 842 early, there has been a realization that manually complying with ASC 842 using spreadsheets and files is not practical. Sure, spreadsheets have their place in any accounting department, but with the increasing complexity of additional leases, ongoing regulatory updates, disclosure requirements and relatively onerous lease modification rules, having a technological solution in place – such as Trullion’s automated lease accounting software – is the only way to manage ASC 842 compliance.
Ensuring peace of mind
Leaving ASC 842 compliance to the last minute is likely to cause headaches – and worse. By choosing to be an early adopter of ASC 842, you can overcome any initial challenges early, without the stress of an imposed deadline.
Early adoption of ASC 842
As we’ve seen, the early adoption of ASC 842 has numerous benefits and very few downsides. Any time spent on the early adoption of ASC 842 is likely going to save significantly more time in future, making early adoption a great investment.
For seamless early adoption of ASC 842, get in touch with Trullion. Trullion offers you an AI-enhanced, end-to-end leasing solution that covers you across the board: from automatically scanning leases, to audit-ready journal entries, and all the way through to fully compliant disclosures.