Market Readiness Three Years after the Publication of ASC 842
Over three years have passed since the initial publication of the new lease accounting standard (ASC 842) in February 2016. Some have called the new standard the biggest accounting change ever as some $3 trillion worth of assets transfer onto corporate balance sheets in the coming years. It is not often that new line items are added to the balance sheet. As a result, the new right-of-use assets and liabilities will be heavily scrutinized by shareholders, debt holders, external auditors, and independent board members following adoption. In the US, public companies began adopting the new standard at the start of 2019. All remaining public companies will transition to ASC 842 throughout the duration of the year. A similar wave of adoption will occur next year as the implementation deadlines for private companies commence starting in January 2020. This report covers the readiness of private companies with over $1 billion in revenue.
The Report Covers
- Collecting the Data
- Applying the Technical Accounting
- Establishing New Processes
- Implementing New Systems
- Coordinating with Business Units
- Plan time for testing – there are 100 billion possible combinations
- Develop a training plan for the different roles involved in lease accounting
- Start recruiting lease accounting talent now
Approximately 40% of private companies surveyed are behind schedule or have not started their ASC 842 project – a concerning metric as the first implementation deadlines are quickly approaching. However, 12% indicated that they had already completed the project.
Overall, 55% of private companies are finding the lease accounting implementation to be more complex than anticipated. The top implementation challenge cited by more than 40% of respondents was identifying the population of leases and abstracting the data needed for the accounting calculations. Other top challenges cited included modifying existing business processes, project managing the enterprise-wide work effort, and applying new accounting policies.
To learn more about the findings download the full private companies and lease accounting progress report 2019.