Private Companies and FASB Compliance: The Time is Now
If you have not heard, the new lease accounting rules are in full force and effect for public companies, and now all private companies are on the clock for their own similar adoption. Financial Accounting Standards Board (FASB) ASC 842 is real and requires a high level of respect and care; learn from your public counterparts and get your lease assets and liabilities on your balance sheet.
The new standards were introduced to provide transparency for the amount, timing and uncertainty of cash flows from leases. For private companies, the deadline to report on the FASB new standard is fiscal year 2020.
What Does That Mean for You?
For lessees, the recognition of lease-related assets and liabilities could have significant financial reporting and business implications. While some companies purchase or may turn to purchasing their equipment, others will need to make sure that they include their real estate leases and factor in equipment leases. The new standards require organizations that lease assets to recognize assets and liabilities of both operating and finance leases with lease terms greater than 12 months on the balance sheet.
With all new accounting standards, compliance is becoming more difficult and is demanding a higher level of internal effort to pull together.
What Actions Do You Need to Take?
- Start by collecting all your real estate and equipment leases. You may need to do research to determine if your equipment is purchased or leased.
- Develop a strategy to get your business compliant.
- Create a new process and start evaluating options and solutions.
- Build a timeline that includes collecting data, the inevitable need for a new solution and its eventual implementation.
Questions to Ask When Evaluating Lease Administration and Accounting Vendors:
- How long have you been supporting leased assets—real estate and equipment?
- How many FASB and IASB implementations do you have in progress? How many implementations have you completed?
- Has your solution been validated by CPAs and financial reporting experts?
- Do you have a documented implementation process?
- What implementation support do you provide?
- What post implementation support do you provide, and do you ensure client success?
- Does your solution integrate with ERP systems?
The number of leased assets, both real estate and equipment, as well as a number of other factors will determine how involved getting to compliance will be. Take advantage of the learnings from your public counterparts, identify a business champion and project team, and most importantly, if you have not started the process already, start now. 2020 will be here before you know it—do not underestimate the effort and journey!