As we discussed in a recent blog, the FASB announced that as a result of the COVID-19 outbreak and the associated lockdowns, the FASB Delayed RevRec and Lease Adoption for Private Companies. As we discussed, “If you had been paying attention to the steps other companies had been taking to change their business practices as a result of ASC 606 and ASC 842, you probably saw the challenges they faced trying to adjust their practices to reflect the changes.”
Don’t Procrastinate: Still a Lot of Work
With certain things still unclear at many firms and many facing an uphill battle trying to organize everything under lockdown, all effective dates for “nonpublic entities that have not yet issued their financial statements” have been moved back one year.
Companies Have Already Committed to Delaying
According to a recent LeaseAccelerator survey exploring the government entity portion of the lease update, 25% of respondents noted they had started their GASB 87 implementation but were now delaying it to match the new deadline. Furthermore, 28% of respondents noted that they started their GASB 87 implementation project but were now delayed until work-from-home restrictions have been lifted.
More Time to Overcome the Inevitable Challenges
But just because you were given a lifeline and a bit of extra time to update your processes, it doesn’t mean, you should be shelving the compliance project to be picked up at a later date. An earlier study from LeaseAccelerator found that:
- Approximately 40% of private companies surveyed are behind schedule or have not started their ASC 842 project
- 55% of private companies are finding the lease accounting implementation to be more complex than anticipated.
- More than 40% of respondents was identifying the population of leases and abstracting the data needed for the accounting calculations.
Why You Should Treat the Delay as a Lifeline—Not a Reason to Hold Off
A recent CFO article noted that forward looking companies should be looking for ways to adopt, test, and tailor the new reality.
“Those seeking long-term adoption success can use this time to yield more favorable implementation terms and more seasoned resources, reduce the overall cost of compliance, and button-up the retrospective requirements of ASC 842 and GASB 87. Additionally, private companies and government organizations can take advantage of lessons learned from public companies to best plan for a smooth, efficient, and compliant implementation without having to sacrifice quality due to time constraints.”
An Opportunity to Smooth Out Implementation
As discussed above, ASC 842 adoption is a challenge. That’s why this delay shouldn’t be treated as a reason to cancel plans. The deferment of adoption dates provides an opportunity for organizations to utilize existing resources over a longer time period to smooth out the implementation, achieve compliance with the new standard, and reduce overall costs of both implementation and ongoing compliance.
Here are just a few reasons the delay in the adoption shouldn’t change much:
- Save money. By implementing early, you can avoid elevated costs to implement lease accounting software if needed.
- More time to ensure you’re doing things right. By moving fast, you can more easily document and implement operational and accounting process changes and improvements.
- Focus on improvement. If you move to improve early, you can ensure that lease populations remain complete and accurate until the actual transition date as well as use the additional time to automate processes around GASB 87, which would eliminate a number of manual processes.
Get Ahead—Join the Controllers Council
The lease accounting standard presents challenges for firms of all sizes. Already in place for public firms, you should celebrate the news that you have more time, but also keep up with the initial plans. As the accounting world continues to evolve, it pays to keep up with the evolution of standards as well as of your role. Are you ready for the implementation of new accounting standards as they pertain to cloud computing, accounting for income taxes, and goodwill impairment in 2021? These are just some of the compliance standards we’ll explore in upcoming articles. Stay tuned and follow Controllers Council for all the latest.