Two professionals having a conversation about ASC 842

ASC 842 Lease Accounting

Are you ready to implement the new leases standard? With new practical expedients, many organizations should re-evaluate their implementation plan. No plan in place? Now is the time to begin.

Baker Tilly has partnered with leading lease accounting and management software provider Visual Lease to provide flexible configuration, efficient data migration, and ASC 842 accounting compliance including percentage rent, lessor/sublease and sale leaseback.

What is the change?

ASU No. 2016-02, Leases (Topic 842), changes the financial reporting obligations of companies that enter into leasing transactions for assets such as real estate, vehicles and equipment. It will significantly affect your organization if you have arrangements that need to be accounted for under the new standard.

  • Financial statements will be affected with lease related assets and liabilities coming on to the balance sheet
  • Agreements beyond traditional leases may need to be accounted for under the new standard
  • Financial arrangements such as debt covenants may be negatively affected
  • Additional financial statement disclosures will be needed
  • Internal training, policies and procedures and new internal controls regarding application of the standard will be needed for finance departments and financial statement users
  • Companies with large numbers of leases to manage may need to implement software solutions, as well as processes and internal controls over those systems

Effective dates

Public companies: Fiscal years beginning after Dec. 15, 2018

All other entities: Fiscal years beginning after Dec. 15, 2019

Companies need to begin the process now to determine how much of an impact the changes will have on their financial statements, debt covenants, processes, documentation and controls.

    What to do now

    Gather and talk to your stakeholders:

    It’s important to gather the people that need to be involved throughout the process and get their input on the effort they think your organization will need to expend.

    Talk to your Baker Tilly advisors:

    Talk with your advisors and begin to understand the process and how your organization can successfully implement accounting and systems changes for long-term success with leases accounting.

    How Baker Tilly can help you

    Baker Tilly has developed a six-step methodology, tailored to your organization’s needs, to help you through the complex process of assessing impact, developing a plan and implementing that plan across your organization.

    Risk assessment: What leases will be impacted?

    Determine your baseline and see if the change in accounting will have an impact on your organization.

    Impact assessment: How will the change impact your financial statements?

    The depth of impact on your organization needs to be determined.

    Gap analysis: What will need to be addressed to comply?

    Understand where processes, systems, controls and reporting need to be updated.

    Roadmap development: What is the right implementation plan for your company?

    Develop a plan to address your gaps determined in the gap analysis and software evaluation.

    Implementation: What should you expect in implementing your solution?

    Implement your chosen path with project and change management support throughout the process.

    Internal controls evaluation: Have you addressed all controls? Are you audit ready?

    Test and evaluate your controls, determine remediation, receive ongoing support and prepare for your implementation year audit.

    Identifying a lease: Implementing the new leases accounting standard
    May 3Article

    Identifying a lease: Implementing the new leases accounting standard