What Do I Do Next Now That the New Lease Standard Is Here?
The accounting topic of 2022 is and will continue to be, the adoption of the new leasing standard. Accounting Standards Update (ASU) 2016‐02, Leases, is required to be implemented by private companies for years beginning after December 15, 2021 (that is, the 2022 calendar year). With the implementation of this standard, all companies will be required to capitalize their leases, and it is estimated that $2 trillion in liabilities will be added to balance sheets when the standard becomes effective!
Much of the discussion that has taken place so far, even coming from Dannible & McKee, has been on the technical aspects of the change and the difference in the accounting methodology that is soon to be adopted, compared to what has been the case in the past. Dannible & McKee will continue to address these aspects of the new standard directly, both with our clients, as well as publicly through online web presentations and seminars to be held this year.
What has escaped discussion for many, however, is how to analyze your current lease situation and make an informed decision as to how to organize and examine your company’s lease portfolio to determine the proper opening entries for 2022, culminating in properly presented financial statements as of, and for the year ending December 31, 2022. The answer is to start planning now! Here is a brief list of options that may help you work things out best:
- Do it yourself – Many software solutions are now beginning to appear which can easily be found online through searching keywords such as “lease accounting software” or “ASC 842 software.” Working through the offerings will reveal that many even offer free trials or demo options that will give you a chance to take a test drive and see what you are up against. Such a program, combined with some work in Excel and your understanding of your existing lease portfolio, along with a review of the guidance provided in the new lease standard, will give you a great head start. Be sure to check out the next crucial point!
- Work with Dannible & McKee on an implementation strategy – Many of our existing clients (and non-clients) have sought us out to advise them on just such a strategy. We can collaborate with you to address the needs that are specific to your business. Requirements differ depending upon whether you are a lessee or a lessor, when related parties are involved, and in instances where leases are embedded in other larger contracts, among other complexities.
Even if you prefer to follow the “do-it-yourself approach,” you may get to the point where you feel you would be more comfortable if you could have a “sense check” or someone to bounce your final proposal to for a second look to reveal any key points possibly missed for proper implementation.
If any of these areas represent a concern to you, we recommend that you give us a call so that one of our partners can meet to answer your questions and concerns.
Yes, the accounting topic for 2022 is Leases, and the objective is compliance. You don’t have to go it alone this year, and no time is better than right now to get a head start on implementing your plan so that once the year-end of 2022 arrives, you can concentrate on this year’s holiday party (assuming we are through with COVID-19 variants by then)! Good luck!
Contributing author: Brian W. Johnson, CPA, CFE, is an audit partner at Dannible & McKee, LLP. Brian has over 36 combined years of experience providing audit and accounting services to both private and publicly-held domestic and foreign companies. He has extensive experience providing fraud and forensic examinations, as well as SOC audits, internal audit outsourcing and internal controls evaluation and consulting. For more information on this topic, contact Brian at email@example.com or (315) 472-9127.