We think of the beginning of the year as the busy season. But let’s face the truth: the busy season never really seems to end (get some tips on how to cope with that here). At the end of this year, you’ve got to get ready for the compliance deadlines for FASB ASC 842 and IFRS 16 and prepare for your end-of-year audit. Whether you work for a public or private company, that compliance deadline is creeping closer every day.
With so much to do, you could stress about it or you could start checking things off your to-do list that will make the rest of this year go smoothly, and carry you into the busy season next year. Here are 4 things that you can do today to make the next 6 months as pain-free as possible.
Talk to your auditors about their requirements for lease accounting
There are lots of unknowns when it comes to the new lease accounting standards. Because they’re based on principles, instead of rules, you’ll need to make lots of judgment calls. It’s better to ensure that your auditors are in line with those judgment calls as much as you can before it’s time to compile your quarterly reports.
Here are some of the things we suggest you talk about with your auditors:
- How you will determine the materiality threshold for which leases will go on the balance sheet
- What documentation your auditors will require
- How you will calculate your discount rate
- Whether you plan to elect practical expedients, and the logic behind your decision
Getting their buy-in early can save you valuable time and make the auditing process go more smoothly.
Meet regularly with your cross-functional transition team
This is one of the steps that we advise you to take in our 14-step transition guide. The transition project takes months, and meeting regularly can fall off your to-do list. If it has, pick it back up. We advise that you meet weekly while you are preparing for and going through your transition.
The cross-functional team doesn’t deal with lease accounting on a day-to-day basis, so they may not take these meetings seriously. That can leave you scrambling for the documents you need to comply with the new standards. It’s up to you to get things back on track.
Prepare for unexpected hurdles
If you’re looking at your transition timeline and it doesn’t have any room for unexpected hurdles, you need to make that room. Employee turnover, business changes, last-minute requests, vacations, and other unplanned events can throw everything off.
Add an extra buffer to every item on your timeline to make room for the unexpected. The worst thing that can happen is you’ll get ahead of the curve if nothing comes up.
Have a lease accounting software solution in place
Are you planning to do lease accounting in house? If so, which tools will you use? There are lots of unknowns that you must answer when it comes to identifying solutions. That’s why it’s critical to have one in place sooner rather than later.
Without it, you don’t know what you don’t know.
To learn more about going it without a solution, read the following blog:
What to do when you choose software
If you choose to purchase software, we estimate that the selection process will take 1-2 months, and the implementation process will take at least 4-6 weeks. If you work for a public company, the pressure is on. And if your employer is a private company, then you should start now too. The transition process can take up to 6 months.
Depending on the current state of your lease documents (are they centrally organized or are they in different kinds of documents spread out across multiple servers?), you may run into hiccups in the implementation process. That’s why you should pad in extra time for identifying and fixing errors as well as software training.
An ounce of prevention is worth a pound of cure
If you’re feeling like your to-do list is already full, we can relate. Take a deep breath, add these items to your list, and start knocking them out. You’ve got this!