Prepare for ASC 842 Implementation…Again

It’s been a busy first half of 2022 for many businesses and their accounting teams. Between spring financial statement deadlines, first quarter filings, and tax preparations, many companies are likely feeling a sense of relief that the bulk of their heavy accounting lift is done for the year. But guess what? The fun has just begun for nonpublic companies, who are required to adopt ASC 842 for fiscal years beginning after December 15, 2021 (calendar year 2022 for businesses with calendar year-ends).

The implementation requires reviewing all new and existing leases, amendments, and running them through a new classification model. And while companies are doing that, this is the perfect opportunity to scour their vendor relationships for previously unknown lease arrangements that may be hiding in service contracts.

Here are a few key tips for starting the ASC 842 implementation process:

1. Centralize all lease agreements and amendments

This may seem overly simplistic, but many companies do not have an organized, centralized lease file where all lease agreements and amendments are kept. We recommend centralizing your lease documents from across the company, including Operations, Facilities, and Legal, and consolidating them in one accessible location. This will make it easier to review and analyze your lease portfolio, and it will prevent a scavenger hunt in the future when you need to reference a specific agreement.

2. Consider implementing leasing software

We recommend considering the use of leasing software for companies with a lease portfolio of 20 leases or greater. While the upfront cost may seem unnecessary, the benefits of a leasing software include:

• Automatic calculation of new and amended lease balances
• Automated financial statement footnote disclosures
• Journal entry creation
• AI-powered lease term scanning to identify key terms within a lease agreement

3. Talk with your department heads

Talk with your operations leaders to understand the types of vendor service contracts you have in place. There may be embedded leases within those contracts that qualify under the ASC 842 definition of a lease. This is an important step that is often overlooked.

4. Consult a technical accounting expert

Engaging an experienced technical accounting professional can provide efficiency and free your internal teams to focus on daily operations. A specialist will have deep knowledge of the ASC 842 guidance and can help you avoid common pitfalls during the implementation process.