FASB compliance is challenging to navigate.
Some companies are still struggling to ensure compliance and manage a comprehensive lease administration and accounting solution that is easy to use between departments. Therefore, extra time to ease implementation challenges and ensuring your internal champions are ready to utilize the system are critical to your organization’s success.
Accruent recently presented a webinar on behalf of the National Retail Tenants Association (NRTA) covering the recent and continuing adoption of the new accounting rules known as ASC 842, IFRS 16 and GASB 87. The webinar highlighted the processes needed to get to adoption and discussed common pain points and challenges related to post-implementation.
Participation from webinar attendees yielded some valuable insights into the current state of the industry and what challenges companies are facing with getting compliant.
State of the Industry
According to ASC 842, public companies must be compliant on Jan 1 of this year, while private companies must be compliant by 2021 due to the recent delay by the Financial Accounting Standards Board. Many public companies who attended our webinar were experiencing compliance challenges. Over 40% of our attendees were not yet. This highlights the difficulties that companies are having in achieving compliance, and the extra time and process changes that may be deemed necessary to get it done.
Many of the public companies attending the webinar, whose deadline has already passed are now re-evaluating the vendor they initially chose or are struggling with their adoption deadlines. This should raise some red flags for companies that are waiting to get compliant. Many companies are hitting unexpected roadblocks and need extra time to meet their goals.
In our webinar polls, we asked our audience what the most significant challenges that their organization faced while trying to get compliant. Over 78% of responders said that new processes needed to be created around their leases and compliance.
The other 32% of responders said that coordinating with the rest of the firm outside of accounting was their most considerable challenge.
These challenges highlight the common theme that compliance is not a “one and done” thing. It is often an iterative process that can add weeks and months to implementations and force companies to change internal processes and reports to remain compliant.
Companies delaying their implementation should take note that their timelines need to account for unexpected roadblocks and delays.
What Are Some Pitfalls and Best Practices?
Based on the feedback from attendees, there are some major pitfalls to be mindful of when working toward compliance. Some of the biggest pitfalls include:
- Lack of a written adoption plan with detailed actual lease scenarios and expected outcomes.
- Lack of post-implementation outcomes written in the adoption plan.
- Not bringing in the firm’s auditor early enough in the process.
- Missing service contracts and third-party logistics agreements.
- Agreements and “Secondary Use” issues or impacts.
We were also able to identify some best practices, including:
- Start early, and do not underestimate the potential scope of your project.
- Assemble an inclusive team of stakeholders, inviting everyone you think may be relevant and then whittling down to the most essential people.
- Establish an annual auditing program.
- Embrace “Active Management,” staying on top of the data and changes.
- Maintain training on a constant basis for whichever tool you have adopted.
Getting to Compliance
According to PwC, 30% of private companies have yet to begin ASC 842 adoption. If this describes you, then you are in luck. With the recent extension, you still have time to bring your organization up to speed and into compliance. Getting to compliance will not only help you avoid fines, but also have broader benefits for your business, including:
- Improve cost analysis and containment.
- Expand and create new KPIs that will indicate necessary action.
- Improve tracking of assets and the allocation of them.
- Provide better understanding to act on profitable and unprofitable leases using the inherent lease valuation approach of the standard.
- The opportunity to consolidate all leases in the firm, at a minimum informally or hopefully formally in a Lease Center of Excellence.