Toward the end of 2020, we published a Lease Accounting Holiday Wish List for organizations that still need to adopt ASC 842, IFRS 16, and GASB 87. This is the first in a series of articles to provide detail for each of those wish list items.
1: Start Early!
The adoption dates for publicly traded companies implementing ASC 842 and IFRS 16 have long passed. Privately held companies and government entities have been given a reprieve, with transition dates pushed to December 15, 2021 and June 30, 2022, respectively. The global COVID-19 pandemic was responsible for the most recent delay, but the implementation dates had previously been pushed back because of the challenges faced by publicly traded companies.
One major challenge was that the implementation guidance was still evolving. As someone pointed out, “GAAP stands for Generally Accepted Accounting Principles, but nothing has been generally accepted yet.” Organizations had to work with their internal and external audit teams to develop processes from scratch to account for everything from borrow rates to capitalization thresholds and deciding a lease’s likely term.
The second major challenge was simply finding all of the lease documents. The straight-line accounting required by FAS 13 could be addressed at lease commencement, and in many cases, not revisited until a renewal option was exercised. The lease terms were far more important from an operational standpoint, making sure the rent was paid and that renewal notices were mailed. Once those terms were captured, the lease document could be filed away. With leases moving to the balance sheet, they are now subjected to a much stricter audit standard, and missing leases could trigger additional audit expenses or in dire scenarios, a restatement.
The reasons to begin early are not simply to avoid issues. The publicly traded companies that have successfully adopted the new standards now have better visibility to their entire leased portfolio and can make more informed decisions on both the lease- and corporate-level.
We at Jackson Cross wish you an early start, and we are available to help execute this critical project.