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Business Solutions

FASB ASC-842 – YOU HAVE 275

DAYS: ARE YOU READY?

JEAN CHICK The new standards will also require businesses to
Principal re-evaluate whether their existing lease agreements are
Deloitte indeed leases, or if they can be categorized as services.
That said, it’s critical that companies have a complete
understanding of the new standards in order to apply
ASC-842 IS COMING – and time is ticking. Announced in these definitions to their individual contracts. Add to
early 2016, the new FASB and IASB standards for lease that, the FASB guidance demands a long list of data
accounting are expected to have far-reaching impacts on retention and reporting rules. Considering many orga-
the balance sheets and income statements of almost every nizations have more than 1,000 lease agreements to
publicly traded company in the United States. Both lessees assess, compliance can quickly become a daunting and
and lessors will face a significant increase in reporting and resource-intensive task.
management requirements. If companies have not already
embarked on a strategy for compliance and management, Some of the specific stipulations in the new legislation
they are falling behind. It’s time to act now. could require companies to:
• Recognize most leases to the balance sheet
• Collect and reclassify some leases
• Report lease holdings quarterly
• Aggregate data across multiple technology platforms
• Abstract paper lease documents to digital versions
• Recalculate KPIs such as EBITDA, return on assets, and
debt to equity

ARE YOU READY?
By now, most organizations should have at least begun to
define or develop a strategy that will ensure their compli-
ance readiness. This is no small task and the amount of
time and resources it takes should not be underestimated.

The most important pieces of the puzzle are for com-
panies to identify and collect existing lease data and
determine how to aggregate it into a single location for
WHAT’S NEW? simplified compliance management and reporting gov-
The FASB’s new standard (ASC 842) introduces new ernance in the future. Complying with the accounting
lease accounting and reporting that requires companies mandates is simplified once these boxes are checked.
to account for nearly all leases on the balance sheet.
So what does this mean? Public companies will be Businesses should be asking themselves:
recording millions and in some cases billions of lease • What existing lease data do we have and where is it
liabilities on their balance sheet. For many organizations, currently located?
the move to reclassify the majority of operating leases • What data do the new standards require us to report
means it will be the first time lease liabilities have shown on? How do we currently gather this information, and
up on their financials. how will we continue to do so moving forward?

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