Hailed as one of the biggest changes to accounting in decades (or at least since ASC 606), The Lease Accounting Standard, also known as ASC 842 was a marked change in the way that leases are reported.

According to a recent report from LeaseQuery and Encoursa, the move to embrace new lease accounting standards has presented more work—but it has also provided clarity to decision makers. In this, we recently discussed the delay in adoption for nonpublic companies, but noted that due to the additional work required that it may not be ideal to wait.

This was echoed by the LeaseQuery report, which noted that out of those who have completed their first post-transition audit, over 50% report reasonable to significant additional effort was needed. Here are some of the key takeaways from their study:

Spreadsheets Leave You with Blind Spots

With significant changes in the way that leases are accounted for, it’s surprising how many companies are relying on manual processes and spreadsheets to do the job. According to the study, though nearly half of organizations are relying on lease accounting software, Excel represented a close second—38 percent of respondents admitted to using spreadsheets.

While this may be a cheap option, it might not be the best if you have a fair number of leases to manage. With a lack of accuracy, ef­ficiency, and audit trail, Excel will likely lead to a challenging and time consuming post-compliance audit. Pair this with the fact that you will need to work with auditors on the nuances of your spreadsheets, and the already-laborious process could be even more painful.

Work with Auditors Early

Keeping an open line of communication with auditors can go a long way in helping your organization avoid long term risk. Auditors want to see you succeed, but unfortunately, nearly half of respondents said their auditor had no involvement in their lease accounting transition process leading up to the ­rst post-transition audit.

“Opening up a line of communication with auditors before the audit, or even before the transition, will leave less room for surprises and fewer questions later. It will create peace of mind knowing they agree with judgment calls and interpretation of the standards in advance.”

Year Two Looks Much Better

Despite the effort that goes into implementing the new standards, companies who have made the move started to see efficiencies and other benefits after the transition. According to the study, 70% were able to complete their lease accounting transition and post-transition audit without adding any new staff, and many discovered new efficiencies after the first audit.

Better yet, once the standard was implemented, many respondents were also able to use the data to improve their internal controls.

Read the entire report here to learn more about the results of the study, as well as the four most important steps to ease into the post-transition audit.

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Additional Resources

Using the Lease Accounting Deadline Extension to Your Advantage

Compliance under Wayfair: Many Companies Still Face Challenges

Future-Proofing the Tax System

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