Lease accounting transition – ASC 840 to ASC 842

By - August 27, 2018

As companies prepare to close out the 2018 fiscal year, lease accounting should begin to creep into the forefront of management’s considerations. The process of transitioning from ASC 840 to ASC 842 is delicate and complicated. There are several factors to consider during the planning phase, before the transition even begins. A well thought out plan to get from ASC 840 to ASC 842 can result in a reduction of time, effort and capital spent. The plan must be precise around several factors including: data quality, system assessments, and technical accounting.

The first item that needs to be addressed relates to the current-state data. Before the new guidance can be projected to the lease population, or the system requirements can be determined, the data needs to be organized and accurate. How can one expect to implement new technical guidance without knowing the population of leases is complete and accurate? Organizing and analyzing the current lease population needs to be top of mind as we transition into FY 2019.

The new lease guidance is quite complex and complicated. Analyzing and understanding the new guidance will take considerable time and effort. Once the guidance has been digested, companies need to assess their current lease population and determine what leases are affected. This might not be as straightforward as it sounds, because the new guidance has the potential to create new leases for financial reporting purposes. A thorough, robust look at the new guidance is necessary.

Another important factor in the transition will be the systems used for lease administration and accounting. Many legacy systems are not equipped for ASC 842 accounting and will require upgrading or completely new implementations. The amount of work required to account for, and simply manage a lease population under ASC 842 will greatly increase compared to ASC 840. Any company with more than a handful of leases will likely see a positive return on investment after implementing an ASC 842-ready system.

To learn more about how RSM can assist you with your transition to ASC 842 please contact RSM’s management consulting professionals and technical accounting consultants at 800.274.3978 or email us.



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