ASC 842 Lease Accounting Compliance

Insights to help you navigate the ASC 842 reporting requirements and reduce your compliance risk

What is ASC 842 lease accounting?

Accounting Standards Codification 842, Leases (ASC 842), which took effect for private companies for fiscal years beginning after Dec. 15, 2021, affects all companies with leases across all industries, and in particular lessees. Private companies with a calendar year-end will start reporting under ASC 842 for the year beginning Jan. 1, 2022, although disclosures may be required in their 2021 financial statements.

The standard requires a significant shift in treatment of leases from an accounting and reporting perspective. It demands technical knowledge and experience in several areas, such as lease abstraction and lease completeness procedures—including embedded-lease analysis—and in many cases will require new software for effective implementation and ongoing compliance.

Some of the actions required to comply with the new ASC 842 lease accounting standard include:

  • Record long-term leases (operating and finance) on the balance sheet
  • Consider the 2021 reporting requirements such as,
    • Disclosing status of impact assessment
    • Disclosing assessed impact
  • Assess existing leases and service contracts
  • Update processes, internal controls, and systems based on new financial reporting requirements
  • Assess the potential impact on debt covenants

The burden the standard imposes on organizations with limited accounting resources is significant and challenging. In addition to performing regular abstraction of new leases, modifications or amendments of existing leases, and incremental borrowing rate calculations, an organization must incorporate lease accounting into its financial reporting and disclosures.

Given the complexities of new lease accounting requirements under ASC 842, most companies with more than a handful of leases will also want to leverage lease accounting technology. Managing the initial and ongoing complexity of lease accounting in Excel can increase the risk of errors and overall compliance.

RSM has established a center of excellence to ensure we're providing the best knowledge, insights, technology and tools to help our clients address lease accounting holistically. We have a robust offering that combines people with technical know-how and technology to help any organization succeed.

People

RMS has a dedicated team of 250+ lease administration and accounting resources currently managing varying-size portfolios totaling 62,000+ leases, across 300+ clients. These resources include:

  • Certified public accountants
  • Solutions consultants
  • Experienced abstraction team, with deep knowledge of ASC 842 & IFRS 16

Tools and technology

RSM is a preferred implementation partner for lease accounting software providers including LeaseQuery, Visual Lease, Tango and NetLease. We also leverage tools to help with the process of lease accounting, including:

  • Alteryx and advanced automation tools
  • Day 2 lease management optimization processes
  • Quality control and abstraction technology

Case studies

RSM’s paths to compliance

RSM has assisted organizations with lease portfolios of various sizes with initial adoption and implementation of ASC 842. Additionally, many clients leverage RSM’s lease accounting services to support theirongoing lease accounting and reporting requirements.

Depending on the current and future circumstances surrounding your organization and your lease portfolio, the path to compliance may vary. So, which path is right for you? Explore below to see what option fits your organization best.

To learn more about our proven process and capabilities to simplify adoption, as well as provide ongoing accounting and year-end support for ASC 842, contact us today.

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Helpful guidance to navigate ASC 842 the implementation and compliance.