Compliance Under ASC 842: Special Considerations for Private Companies
For privately held companies, the effective date for FASB's ASC 842 regulation is once again just around the corner - this time without any further delays. With the final days of spreadsheet tracking on the horizon, organizations that have not begun to shop for a software solution are urged to do so now, or they may soon be out of luck.
For privately held companies, staying within compliance is an especially tricky business. The reporting requirements are typically much stricter than public companies, the oversight much more comprehensive and the lease liabilities much higher. Teams are generally smaller than at a public company, making the process even more of a challenge. It is critical to get this process right the first time.
An industry-leading provider, Accruent has partnered with over 200 private companies, public companies, and other organizations to ensure they remain compliant under FASB, IASB and GASB regulations. We identified eight significant learnings from this process to help you on your journey to compliance.
1. It Will Likely Be More Complicated Than You Expect
Many companies are getting a late start to compliance efforts, risking that the required financial reporting changes will be delayed or inaccurate, or underestimating the intensiveness of the project itself. Attaining compliance has the potential to be a challenging process for any company, whether big or small, public or private.
Your compliance success is dependent on minimizing the risks associated with the magnitude of your lease data and its transition. Common compliance project failures are caused by:
- Lack of a detailed and adequately resourced project plan
- Inability to locate and standardize data
- Failed data migration and conversion process
- Inability to effectively integrate with existing systems
Missteps can add up, and many companies find themselves in the midst of the process, wishing they had gotten in touch with a software provider sooner. The best time to start the project was yesterday - the second-best time is now.
2. Your Software Partner Should Lead the Way
Your software provider should have the right expertise to avoid unnecessary pitfalls while helping your organization attain compliance.
With a seemingly endless number of available software tools advertising their ability to capitalize on the FASB ASC 842 regulation, organizations must perform due diligence to know how long vendors have been in your industry and what their expertise teams look like.
This is especially true with the recent disruptions from COVID-19. With so much at stake, it is essential that your software provider is in a strong financial position to support you fully -- from purchase to implementation to ongoing support and innovation.
3. Failed Implementations Are Common
Unsuccessful implementations are a common occurrence for many organizations, which can result in companies restarting their process to find a new solution.
Accruent's Lucernex solution has a 100% success rate with implementations, with over 200 from 2019 to 2020 alone. We understand that many private companies do not have room to fail when it comes to software purchases -- we have a proven track record of getting it right the first time.
It is vital to know upfront, before purchasing a solution, a software vendor's history of implementations, including:
- How many implementations have they completed, both successfully and unsuccessfully?
- How often are they able to stick to their implementation timelines?
- Can they ensure that your solution is live on time?
Knowing the history of a software provider will give you the information necessary to make the right call when selecting a vendor. Going into an implementation process blind is an easy step towards a failed process and, ultimately, dissatisfaction with the solution itself.
4. Ballooning Implementation Costs are Even More Common
The cost of professional services can swell during the software implementation process, typically because the initial price estimate did not include everything companies need or an in-house implementation team lacks the expertise to get the project done within budget.
Lucernex is predictable and reliable, and our pricing is comprehensive -- taking into account years of experience and successful implementations. Our professional services team comprises hundreds of implementation experts, with systems in place to help organizations on the path to compliance.
5. Inaccurate Lease Data is a Big Risk
Lease data is at the heart of any business and central to making the transition to FASB ASC 842. However, lease data is all too often entered into the software incorrectly due to automated processes that cut corners or because the lease abstraction team lacks expertise.
Lease accounting software is only as good as the data that goes into it - insufficient lease data can result in inaccurate reporting of a company's obligations, putting the organization at risk.
Accruent's expert lease abstraction team ensures that your lease data is correct, from asset to equipment leases.
Here is a blog post to help you make sure you know how to identify your embedded leases.
6. Look Closely at Sample Reports
After implementing a software solution, many companies find that their new system does not fully meet reporting needs or accounting standards, forcing them to use multiple systems or return to manual reporting.
The right system should be able to automatically streamline the complex calculations and workflows needed to mitigate risk associated with disclosure reporting. At a minimum, these processes and analyses need to be accurate, though an effective system will have clear, easy to use reports.
Lucernex provides a single, all-in-one solution with the comprehensive lease and financial reporting needed for logging both equipment and real estate leases.
7. Make Sure the Solution Can Do More than Just Accounting
Buyer's remorse is a significant issue when it comes to software purchases and implementations. Organizations realize -- often too late -- that they require additional functionality for their solution down the line. With no clear growth plan in place, you can find yourself stuck almost immediately. This can typically happen when one portion of the business makes the software decision in a silo.
Organizations should know before purchasing a solution what their expansion capabilities are down the line. As companies grow, they frequently find that they need full lease management capabilities instead of just accounting. Does the vendor have a module for this? In many cases, the investment in a software solution has been made without this consideration, leading them to start the process repeatedly in just a year or two.
Organizations need an immediate accounting solution for their leases. However, as they grow, managing leases centrally from an HQ becomes too much without an adequate lease accounting software solution. Accruent prepares companies for this by offering a full, end-to-end lifecycle solution. From the beginning of the implementation process to the end -- and even beyond -- our teams are there with you step-for-step.
8. Ask About Training and Customer Success
Companies often find they cannot get the product training and customer support they need after purchasing a software solution. Even with a successful implementation, organizations will ultimately fail to get what they need out of the software if the vendor is not a partner that works closely with them to make sure they are successful. Before purchasing a solution, organizations should be asking their vendors:
- What do onboarding and ongoing training look like?
- Will I have a dedicated customer success manager?
Too often, organizations find themselves post-implementation, still trying to understand the full breadth of the solution they just purchased. By making sure a vendor has a dedicated onboarding program and options for continuous learning, organizations set themselves up to learn quickly and ensure successful adoption across all users.
After a team is trained on a new solution, issues will invariably come up. Accruent offers a proven certification training curriculum and free superclass trainings.
A customer success manager should be a reliable contact that guarantees your needs get met, and you get the most out of your solution. Having a dedicated customer success team means that the vendor is thinking long term -- they want to turn you into a satisfied customer and keep your business.
The Time for Compliance is Now
After several years of delays, the due date for FASB's ASC 842 compliance is finally close at hand. Organizations that have not started their lease reporting process are at a significant disadvantage. The time to evolve past spreadsheets to a quality, all-in-one lease accounting software solution is now.
Designed to meet the needs of both real estate and equipment leases, Accruent's lease accounting solution Lx Contracts allows you to mitigate risk, improve business processes and make better decisions for your business.
Do not let the ASC 842 deadline surprise you. Contact us today to set up a plan for compliance.