By LeaseCrunch® on July 7, 2022 at 8:27 AM
CPA firm independence, related party leases and the old debate between spreadsheets vs. software… there’s no doubt that lease accounting was the prominent topic of conversation at the 2022 CPAmerica A&A conference two weeks ago in Charleston, SC. Hear from our CEO, Ane Ohm, with her insights into what she’s seeing in the market and her key takeaways from the conference.
Lease Accounting and CPA firm independence – how to stay compliant?
The AICPA has made it clear that a CPA firm cannot maintain its independence if it stores data on behalf of clients. This includes hosting a client’s website, storing client general ledger or other financial information for a client, and providing business continuity services to a client.
Technology can help CPA firms ensure accuracy, save time, streamline processes, and more. At the same time, firms need to ensure they use technology in compliance with AICPA standards related to independence and hosting data.
CPA firms also need to consider how they assist clients with implementing the new lease standard, especially as independence standards themselves continue to tighten. It’s a quandary, because the firm has the expertise their clients need, yet the client must own the inputs and calculations. Again, technology should facilitate a CPA firm’s documentation around how it maintains independence while helping clients ensure accurate financial reporting.
Related party transactions – how to disclose?
The ASC 842 standard provides guidance about how to account for related-party leases. Under ASC 842, an entity should use the legally enforceable contract terms to calculate the right-of-use asset and lease liability. Economic incentives are important in determining the reasonably certain lease term, but a relationship between the parties is not a relevant consideration. While this feels unusual, the FASB has consistently reinforced this guidance. As before, related party transactions must be disclosed separately.
It can be overwhelming for clients to prepare for the new lease standard. If you’d like to get a jump start on helping yours get ready, feel free to share this roadmap with them.
Spreadsheets vs. software – which is the best choice for your clients?
Clients who use spreadsheets to track or maintain their leases face many challenges. Spreadsheets are error-prone and difficult to adjust, which can lead to inaccuracies. They are also time consuming and difficult to maintain, which increases the security risk of sensitive data. There are real fears among CPA firms that auditing a client’s lease accounting spreadsheet will be time-intensive, create dissatisfaction among audit staff, and may adversely affect realization rates for those clients.
By providing your clients with lease accounting software, you not only provide them with a solution for a significant problem, but also allow yourself to standardize your processes around implementing and auditing their lease accounting. This will save you time, reduce costs, and improve your bottom line.
If you’d like to learn more about how LeaseCrunch helps simplify the new lease standard for you and your clients, request a demo today.