The new lease standard is finally here and effective for all private companies and nonprofits for years beginning after December 15, 2021. After years of discussion and several delays, it’s important for private companies and nonprofits to start preparing for the new lease standard.
That’s why we created a list of tips and best practices to get your organization headed down the right path toward a successful implementation of the new lease standard, also known as Accounting Standards Codification (ASC) 842, Leases.
Tips & Best Practices
1. Create an implementation team
The implementation team should include your accounting department along with others, like facilities staff and office managers, at your organization. Many accounting departments may not be aware of ALL leases at ALL locations, so it’s important that the implementation team includes the right people. This is also a great opportunity for the accounting department to educate others on the new lease standard and why it’s important to send all leases to the accounting department for review and maintenance of records.
Finally, consider including your external CPA in the lease implementation. Your external CPA can provide valuable insight and best practices. It will also expedite the year-end work if your external CPA has a good handle on the lease schedule.
2. Create a central location and tracking system for all leases
Organization is key with this new standard. Create a folder or drive where your organization maintains copies of all lease agreements including original agreements and amendments. Tracking down leases and amendments can be very time consuming so it’s important to get started on this as soon as possible. When maintaining documents, it can be helpful to create a tracking mechanism by indexing leases in a logical system for quick review and access.
3. Review lease documents to determine applicability to the new leasing standard and to identify key lease terms
ASC 842 changes the guidance on what qualifies for a lease. Under ASC 842, an arrangement is a lease only when the arrangement conveys the right to control the use of an identified asset to a customer, and the customer obtains substantially all its economic benefits.
It’s important to review agreements and ensure that agreements identified as a lease actually qualify as a lease under ASC 842. Additionally, when reviewing the lease documents, it’s helpful to maintain a spreadsheet that summarizes all leases with key terms.
4. Consider purchasing lease accounting software
In addition to changing the journal entries required for operating leases, the new lease standard also requires significant footnote disclosures. If your organization has several leases, you may save time and reduce errors by investing in lease software.
Many lease software packages generate required journal entries and disclosures with a click of a button. This will save your accounting team countless hours, reduce errors and make the auditing of the lease standard easier for your external CPA.
If you’re not sure where to start, consult with your external CPA for software recommendations as there are many on the market. We explored several solutions in Lease Accounting Software Options.
5. Consult with your external CPA
Your external CPA can assist with all stages of implementation. To save time and frustration on the backend, consult with your CPA early and get them involved in the implementation.
Contact us here or call 800.899.4623 with questions.