As discussion and concern around implementing the new lease standard increased this year, there was much to be said about the readiness (or lack thereof) of lease accounting software solutions. In fact, this may have been a contributing factor in the FASB’s likely implementation delay for private companies.
The importance of accuracy when implementing the new lease standard is critical, so we absolutely understand the unease—particularly since we know all the risks associated with using spreadsheets. That’s why it was so important to us at LeaseCrunch® to go above and beyond to have a third party evaluate and test the inputs, calculations, and reporting outputs of our software, with our Agreed Upon Procedures report.
Written by Ane Ohm on Tuesday, August 6, 2019
It’s been a couple of weeks since the FASB announced its decision to potentially delay the implementation of the new lease standard. In that time, I’ve spoken with a number of CPA firms and industry experts, as well as spent time considering the path forward. Here are my observations on the potential delay.
As a CPA, you know the importance of maintaining independence while working with your clients. At the same time, your clients rely on you for expertise and assistance, particularly with new accounting standards. With this, I’m hearing a recurring theme around the new lease standard: How can I, as a CPA firm, help my clients implement the new standard while remaining independent?
Each firm has to make their own decision on whether their processes allow them to maintain their independence, but we’ll provide some considerations to keep in mind in this blog.
The objective of the footnote disclosure is to enable users of financial statements to assess the amount and timing of cash flows arising from leases.
Under the previous lease standard, ASC 840, these disclosures were primarily limited to a maturity schedule that showed each of the next five years’ committed payments, with further payments lumped together. Further, there was no discount rate applied, it was just the payments themselves. For many organizations, it meant that lease disclosures were fairly easy to handle with a spreadsheet.
The new lease standard increases the scope and complexity of the financial statement footnote disclosure with additional requirements for both quantitative and qualitative disclosures. Handling these disclosures with a spreadsheet has become far more difficult than before.
When a CPA firm attests to the accuracy of a client’s financial statements, maintaining their
independence is important to assure that they have not been unduly influenced to deliberately
or inadvertently participate in misstating published financial statements.
With the advent of new technologies, there are new factors for CPA firms to consider and the
AICPA has developed hosting services guidelines to assist in this effort.
Implementing the new lease standard is complex, particularly for organizations with many leases. Beyond the complexity and time-consuming nature of implementing the new standard, setting it up manually with spreadsheets is also extremely risky. This blog will examine the advantages of using software instead.
Important note: This is a judgment-based standard, which means there are few hard-and-fast rules and the treatment of your leases will depend on your unique situation. It's important that you always double-check decisions with an accounting professional who knows your circumstances. This blog should not be considered, or take the place of, professional advice or services.
This month, we’re bringing back industry expert John Hepp to discuss related party leases. John is a retired partner from Grant Thornton and a former FASB project manager. He holds a PhD from the University of Wisconsin-Madison and is currently on the faculty at the University of Illinois at Urbana-Champaign.
With John’s help, this blog will examine leases between related parties, specifically the lease term that should be booked.
One of the trickier aspects of the new lease standard is the concept of embedded leases. Like many components of the new standard, identifying an embedded lease takes human judgment—and there are few shortcuts to simplify the process.
This article examines the basics of embedded leases and how to identify them, so you can help your clients with this complex aspect of implementing the new lease standard.
The new lease standard requires you to account for leases differently on your financial statements, which of course includes your general ledger. Learn what’s new in this blog, including a few intricacies and potential surprises to watch out for as you help clients implement the standard.
When the changes in an accounting standard impact assets or liabilities, we are accustomed to the difference flowing through equity. The new lease standard, ASC 842, is different because equity is not typically impacted in the initial journal entries. It might seem strange to not use your trusty “Cumulative Effect of a Change in Accounting Principle” account when implementing a new standard, yet it’s true - and important to know to ensure that your lease assets and liabilities are properly recorded. So how does it work? Read on to learn more.