Blog Series: FASB Accounting Standards: ASC 842 Lease Standards | Post 2:
Blog Series|FASB Accounting Standards : ASC 842 Lease Standards |Post 2:
In my last blog post regarding FASB Accounting Standards ASC 842 Lease Standards, I mentioned the looming deadlines for implementation of the standard. How has your company progressed? Have you been able to capture most of your currently classified capital and operating lease details? Probably not. In listening to various panel discussions and reviewing survey results, it seems most companies are in the understanding ASC 842 phase, in conjunction with starting their lease document gathering phase. Unfortunately, I haven’t seen any announcement from FASB regarding delaying the implementation. If counting on a delay was part of your strategy, sorry but that doesn’t seem to be a viable approach!
Let’s take a few steps back. The population of contracts you should be reviewing is all contracts, not just lease contracts. Luckily for us, the FASB has included a handy decision tree in their February 2016 Accounting Standards Update.
Figure 1. Identifying a Lease: Does the Contract contain a lease?
Adapted from: Foundation, F. A. (2016). An Amendment of the FASB Accounting Standards Codification. Leases (Topic 842) Norwalk CT, Financial Accounting Foundation. No. 426: p. 44
The above flowchart will help you determine which contracts require lease treatment under ASC 842, but this is just the beginning of the analysis. Once you have narrowed the population, the next step will be to classify your leases. An important part of this process, and all parts of your implementation, is to capture your analysis findings and decision data points. I’ve been surprised at the varied and non-technical approaches some companies are taking. I heard from an executive at a Fortune 100 company that they were using a spreadsheet to catalogue their leases and capture their data points, while other companies are using sophisticated bolt-ons to their ERP’s. Are the tools included in your ASC 842 implementation plan adequate for the task at hand?