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Monday, April 27, 2020

Lease Accounting Standards: Reasons for Non-Public Entities to Consider Moving Forward with Implementation


As many have seen recently, the Financial Accounting Standards Board (FASB) plans to propose that the deadline for private and not-for-profit organizations to implement ASC 842 (lease accounting standards) be extended by an additional year as a result of COVID-19. Stakeholders will have a 15-day comment period from the time of issuance to review and provide comments on the proposal. FASB’s staff also issued a question-and-answer document to help stakeholders account for the rapid, unprecedented lease concessions lessors are seeking to provide tenants during the pandemic.

Given the possible delay in the deadline, many companies are beginning to wonder if they should hit pause on their implementation roadmap. While there is a clear appeal in delaying efforts further, there are some undervalued or overlooked reasons to continue forging ahead. We’ve listed some such reasons below.

  • This is still going to be a thing for private and not-for-profit organizations — public companies have already adopted the standard (effective for most January 2019) so this is a matter of when-not-if for non-public entities.
  • Beating the rush will save you money and provide you with the time to implement thoughtfully in the extra time you have. Many will procrastinate and be found rushing to implement at the last possible moment giving precious little time to fully maximize any possible value from the transition and leave holes in processes and procedures.
  • Implementing now gives you more time to acclimate to the new reality — which may include a new software solution to fully comply with the lease rules. Or at a minimum, new internal processes.
  • It is still a significant workload to transition the lease portfolio, including validating the completeness and accuracy of the data. The effort won’t change as you wait, and every company has unknown events pop up that will cause headaches and inconveniences at the wrong time.
  • Finally, you can now tailor your implementation plan to allow for the busy times in your company’s workload cycle. Nobody would recommend trying to transition to a new accounting standard during the year-end audit, or during a transaction. Use the expected additional time to make the transition as smooth as possible.
  • Expecting to go through a transaction? Get this behind you and don’t let it be a stumbling block as you go through the final stages of sell-side diligence. We saw this happen with ASC 606 time and time again and it adds unnecessary stress and uncertainty to the mix when everything is already at fever pitch.
  • You’ve already budgeted for the project to make the transition to happen in 2020, make use of those allocated funds to fully scope and assess the impact the implementation will have on your financial reporting and operational processes throughout the remainder of the year.

For the latest regulatory changes and other information on keeping your organization running through disruption, visit our COVID-19 Resource Center.

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