By LeaseCrunch® on March 22, 2022 at 12:37 PM
How are you helping your clients implement the new lease accounting standard, and what are they doing now to prepare for it? Besides the jaw dropping scenery and view, this was one of the recurring themes we heard throughout our conversations at the CPAmerica Leading Partner/Large Firm Group Meeting in Park City.
With the implementation date for the new lease accounting standard approaching, we spoke with many firms about how to help clients smooth the transition from the old to new. Here are some of the key takeaways we took home from the event:
Even clients with small lease portfolios need help with lease accounting
For clients with one or just a handful of leases, implementing the new lease accounting standard with a spreadsheet may sound like an option. In reality, the burden of those spreadsheets will fall on your and your firm. Companies need to make a number of policy elections, which will impact calculations. With materiality, even clients with a single lease will require full implementation.
Spreadsheets are prone to error, security and access issues. As the auditor, you need to verify that your clients’ numbers are accurate and that their controls have no material weaknesses. When there are multiple individuals who have access to the same spreadsheet, it is common to see version issues and miscalculations. If there are accuracy concerns or issues, it is going to create more work for you during the audit.
Another issue with spreadsheets is that ongoing maintenance is difficult to do. In fact, a public company told us that it had to increase its audit fees by 25% due to the extra work that had to be done with their lease accounting spreadsheets. If you have to raise your fees, you could see an adverse effect on your realization rates.
Leasecrunch is purpose built for CPA firms to serve clients with one lease or thousands of leases with features and capabilities that automate the deliverables required by auditors saving time and money.
What does the proposed discount rate update by the FASB mean for my clients ?
The discount rate update proposed by the FASB on September 15, 2021 came up in several discussions. The proposed update to ASC 842 would allow private companies and nonprofit organizations to use different discount rates for leases. This would be a significant change and would save companies money and make it easier to comply with the new lease accounting standard. To learn more on what it means for you and your clients, read our blog about the proposed update here.
Clients are still not prepared to implement the new lease accounting standard
It can be daunting, but it doesn’t have to be. Our roadmap to successful implementation is a good place to start in helping your clients prepare for the new lease accounting standard.
On the roadmap there are a few key areas to focus on
- Bank loan covenants. For many companies, debt ratio calculations will be affected by the new lease standard. Clients should have already started talking to their banks, but if they have not, make sure they do immediately in order to avoid covenant violations.
- Lease identification. Previously, organizations did not always identify and disclose all leases, especially leased assets embedded into service contracts, which is now a requirement. To simplify the identification of embedded leases, offer your clients this free tool.
- Length of existing leases. Under ASC 840, maturity schedules are supposed to reflect the reasonably assured term, including either lease termination or lease renewal clauses. Instead, they often only reflect the original lease term. If clients review and adjust lease terms now, they can adopt the new lease standard using practical expedients that will simplify implementation.
Again, it was great to reconnect with many of you in Park City! We hope to see you again soon. In the meantime, please contact us today with any questions about how we can help your clients with lease accounting, or sign up for a demo here.