Steps companies can take to prepare for lease accounting changes
Steps companies can take to prepare for lease accounting changes
Insight

Steps companies can take to prepare for lease accounting changes

Timely implementation of the new standard will be key to a quality audit.

By Elizabeth Lynch

Leases for retail space, for office equipment, delivery trucks and more. Just identifying all the leases is a chore all by itself.

While some organizations have begun to implement the new lease accounting standard (ASC 842), many may not be where they need to be to comply by the effective date. For some, the time needed to implement the standard will exceed their expectations.

The new guidelines from the Financial Accounting Standards Board require companies to account for all leases with a term of 12 months or more onto their balance sheets. The standard will move an estimated $2 trillion of operating leases onto corporate America's balance sheets.

For some, the time needed to implement the lease accounting standard will exceed their expectations
- Scott Muir

For public companies, the changes go into effect for periods beginning after December 15, 2018, and a year later for private companies. While that once may have seemed a long way off, it is now fast approaching and given these efforts and other complexities of the new standard, the implementation deadline will be here before you know it.

Under the standard, an entity must first ensure all of its leases are identified. It is not unusual for a large corporation to have hundreds, if not thousands, of leases and the retail, energy and transportation industries tend to have more leases than others. Then, each lease must be reviewed, analyzed and recorded. Companies should not underestimate the time and effort these steps will require.

The new lease accounting standard will have implications beyond accounting and throughout an organization, including tax, reporting, operations and technology.

Companies that haven’t begun can learn from those that have, and the most important lesson is to start early and expect the unexpected. KPMG offers more information about lease accounting on its Financial Reporting View web site.

KPMG Partner Scott Muir is available to answer questions about the changes and steps companies can take now. These include:

  • Complete a thorough impact assessment
  • Compile a complete inventory of the Company’s leases
  • Perform contract reviews by asset classes and analyze areas where embedded lease arrangements may exist
  • Review lease reporting and policies, disclosure gaps, and tax policies
  • Understand practical expedients that are available both during and after transition
  • Identify process and key control impacts

Plan for your implementation:

  • Analyze system options by considering both future and current process and reporting needs
  • Develop a solution blueprint
  • Map future state processes, including system outputs to meet end-user needs
  • Document system and integration requirements
  • Document a detailed plan to transition

Please contact Elizabeth Lynch to speak with Muir or another KPMG partner about lease accounting.

 

Some of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

 

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Scott Muir

Scott Muir

Partner, Dept. of Professional Practice, KPMG US