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Why Private Companies Should Implement the New Lease Standard Today

Published on by Bryan Gayhart in Advisory, Assurance, Consulting

Why Private Companies Should Implement the New Lease Standard Today

Even though the Financial Accounting Standards Board (FASB) approved delays in the effective dates for non-public entities, private companies should take advantage of this relief to learn and understand the intricacies of the new lease accounting standard, and begin implementation as soon as possible.

Here are five potential reasons why companies should be preparing to implement the new lease standards now, and why it’s important that your organization doesn’t get complacent in the face of the FASB ruling at the end of 2019.

Underestimating the Time and Effort Needed

While it may seem like there is plenty of time to meet the deadline for implementation today, we all know how long it can take big multi-faceted organizations is institute change. Private companies need to begin assessing and laying the groundwork for implementation today so that that all of the details are in place when the deadline for compliance arrives. Start by building out a list if resources you need and scheduling time regularly to review the necessary steps to complete implementation ahead of schedule.

Failure to Fully Implement ASC 840

The predecessor to the current lease standard, ASC 840, may not have been fully implemented in your organization. This might mean that you do not have a fully accurate picture of your lease portfolio. Without ASC 840 compliance, companies cannot use the rational measures provided by FASB to make the transition to the new standard more straightforward. It is highly recommended that you review your compliance with ASC 840, especially contract review and reasonably assured lease terms to properly index all leases and embedded assets.

Implications to Other Business Interests

One aspect of adoption of the new lease standard that many organizations do not take into account is the possible impact on other business interests such as financial institutions. Lending firms may view operating leases captured on financial statements as additional liabilities, which may result in a change to the organization’s credit agreements or debt ratios, ultimately affecting loan covenants. Business leaders implementing the new standard can avoid unpleasant surprises post-implementation by communicating with their financial institutions as early as possible if they anticipate such an impact.

Financial Advantages

Going through the implementation process may uncover financial advantages that your company can take advantage of. You may discover opportunities to renegotiate lease terms or consolidate. This process also presents an excellent opportunity to add more processes and oversight around leases, which will ultimately reduce risk and add efficiency for the organization. Going through the implementation process doesn’t necessarily have to be a regulatory burden. Try to look for ways to analyze your lease portfolio and identify areas to streamline your lease expenses.

Possible Downstream Events

Let’s face it, you don’t have a crystal ball, and neither do we! As much as we wish we could predict future events, the best way to prepare for the unknown is to take advantage of every opportunity to mitigate the risks that we know are coming. Your company could face any number of unplanned business events, like mergers and acquisitions, staff reduction or unexpected new projects. Use the fact that you know about implementation and when it’s due to help your company prepare for the unknown.

Sound Like a Lot? We can Help!

Barnes Dennig has invested in a platform to help you navigate the complexities of implementing the new lease standard. Our team can grant you access to our software, or we can manage your leases from start to finish. Our goal is to help you stay on top of the complex and ever-changing accounting environment and empower you to lead your business without worrying about compliance and unnecessary risks.

Schedule a demo to see how Barnes Dennig can help you implement the new lease accounting standard with our dedicated software solution, or call us at (513) 241-8313.


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