5 Lease Accounting Transition Challenges That Aren’t Going Away

by | Oct 16, 2019

We recently surveyed 200 accountants in the lease accounting transition process, and while respondents came from different industries and sizes of companies, one takeaway is clear: lease accounting transition proved more challenging than they anticipated.

The FASB reports five key challenges of the lease accounting transition, and the reality is—they are not going anywhere. Organizations should face them now to avoid a rushed and stressful process.

1. Availability of resources

Lease accounting transition requires a multi-disciplinary team and collaboration across many departments of an organization, from finance and accounting to operations and IT. It also requires focus and prioritization from those professionals who have other responsibilities. Organizations who put off transition until they feel they can tap into those resources are unlikely to find the flexibility of time in the future.

2. Time required to educate staff

There are more than 400 pages of guidance in ASC 842. In addition to understanding the complexity of the new rules, and how it impacts your organization, transition will also require new training and approaches for how to consider and document leases. Training takes time and the results are better when there is a thoughtful approach over multiple months, rather than emergency sessions up against a deadline.

3. Opportunity to learn from implementation issues described in large public company filings and SEC comment letters

Private companies and nonprofits have the advantage of leveraging the experience of early and public adopters to inform their own transition process. Public companies have reported issues from difficulty inventorying leases to selecting software that wasn’t fully compliant and ready. While the right lease accounting software is not an issue for our public company clients, what we most consistently hear is “I wish I had more time.” Private companies should heed their lessons.

Lease Accounting Guide

4. Application of difficult transition guidance

Anytime there is a major standard change, FASB works to provide transition and implementation guidance to answer common issues and questions and provide a roadmap to companies. No matter how many resources are available, the reality is that the new rules are a significant change that, by necessity, can overhaul entire systems and processes within organizations. Even with a roadmap, there are numerous hurdles to watch for, and rushing means mistakes are more likely.

5. Challenges in the development of IT system solutions, IT expertise, and effective business solutions and internal controls

In the past, leases were decentralized across organizations and the protocols for documentation, review, and approval could vary by department. The new lease accounting rules are a useful prompt to improve and centralize these processes to aid in efficiency and better decision making. For most companies who are managing more than 5-10 leases, this means exploring the right software solution to make your leasing strategy and ASC 842 compliance more seamless and secure. The most common mistakes we see are attempting to “go it alone” via spreadsheets or custom solutions that require a ton of investment, or not involving your accounting department in the selection of software where technical accuracy and compliance are of the utmost importance.

Private companies and nonprofit organizations have an opportunity for a smoother lease accounting transition process. We recommend they continue to move forward to face these challenges with the benefit of additional time and lessons learned.

We’ve covered more challenges in our blog, Lease Accounting: What Are the New Challenges.

Ready to get started with your transition? Here are 12 steps to take now.

ASC 842 Lease Accounting Quiz