What Public Companies Can Teach Us About Lease Accounting
In 2016, the FASB issued the lease accounting standard (ASU 2016-02, Leases (ASC 842)). The impact of this standard is significant as almost every company will see their balance sheet change as a result of the standard. However, it is debatable as to whether this standard is more significant than the revenue recognition standard.
Lease Accounting Standard Goes into Effect for Private Companies January 1, 2022.
After several delays (the most recent due to the pandemic), the new lease standard goes into effect for private companies on January 1, 2022 (it’s already in place for public companies – more on that later). And while it feels like there’s plenty of time to implement the standard, companies that use the time effectively will be well prepared when the time comes – and it’s worth noting that many companies are finding they have many more leases than expected, based on the new definition of a lease.
A good first step is gathering copies of all leases, assessing for embedded leases, creating a transition plan, and adopting a lease accounting software package to help manage leases. In practice, we see a lot of changes to leases being made as a result of COVID-19, and these changes will need to be accounted for when adopting the lease standard.
Public companies have already adopted the lease accounting standard, and Lease Query has issued a number of reports analyzing the impact of the standard from both a dollar standpoint and an effort standpoint. Below are some key insights from their reports:
- Analyzing over 400 companies’ balance sheets pre-and-post-transition found the average lease liability pre-transition was $4.4 million and post-transition was $68.9 million.
- In a survey of over 200 accountants:
- Over 50% of participants noted the standard resulted in reasonable to significant additional effort.
- Over 50% of the participants used lease accounting software in adopting the standard.
- Only 18% of the participants reported that their auditors helped guide them through the lease accounting transition.
- 58% of participants uncovered embedded leases.
No matter where you are in your adoption of the lease standard, we’re here to help. If you’re just getting started or have questions about the standard – contact us so we can learn more about your leasing situation at your company.
Are you starting to explore lease accounting software packages? Contact Barnes Dennig to talk through the solutions on the market as we’ve researched and tested numerous solutions before ultimately picking our LeaseCrunch solution. We can provide a free demo, free test environment, and ultimately a solution that is compliant with the standard and efficiently priced for your budget.