ASC 842 – Adopting the New Lease Standard
What is the New Lease Standard?
The objective of the new lease standard is to include all lease commitments in financial statements, as opposed to the previous practice of excluding operating leases. This change ensures that the financial statements appropriately reflect a company’s financial status. With the new standard, all leases must appear on the balance sheet as a right-of-use asset and a lease liability.
The new standard will be effective for all companies with a fiscal year beginning after December 15, 2021 (effectively the 2022 fiscal year).
Where could your business feel the impact?
How can you prepare now?
- Take an inventory of ALL leases and assess the complexity of your lease portfolio
- Identify internal stakeholders/task force, including real estate, accounting, etc.
- Initiate dialog with your BMF advisors
- Consider how financial statements, ratios and debt covenants may be impacted
- Assess system & third-party provider readiness
- Implement controls and centralize your lease process and data management
Is there any assistance available?
Your CPA firm can answer questions on the process or lease standard interpretation. Implementing the standard will take some work and collaborating can ease that burden.
Given the complexity involved in adopting the new standard, we strongly advise seeking a software solution. We have partnered with LeaseCrunch, which offers a simple solution for generating journal entries, amortization schedules and quantitative footnote disclosures. Contact your BMF Advisor to learn more about this program.
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