You’ve likely heard about the new lease accounting standard issued by the FASB, as it’s causing waves of consternation across companies large and small. We’re talking about ASC 842, or Topic 842, which governs how entities record and account for their lease agreements. The new standard applies to public and private entities, including nonprofits — and it’s effective NOW. If you haven’t yet begun planning for the change, your time is quickly running out. The good news is that there’s a solid path and some great resources to get Sage Intacct customers in compliance.
There are many helpful, thorough resources on the Web to help you understand the intricacies of ASC 842, so we won’t try to replicate those here. Instead, we offer a high-level overview plus action steps you should be taking to ensure compliance.
Whom do you have to thank?
ASC 842 closes a huge accounting loophole that has long benefitted companies such as those in the aerospace industry that often buy assets (planes) only to sell them quickly and then lease them back. Since they were (previously) not required to disclose leased equipment on their financials, the planes sat on the books as assets, artificially inflating the bottom line.
Airlines weren’t the only beneficiaries of the loophole. Large retailers, real estate developers, and others were also able to capitalize by not explicitly accounting for their leases. Most agree that airlines’ activity was a significant driver toward the change. In fact, Sir David Tweedie, previous chairman of the International Accounting Standard Board, once said, “One of my great ambitions, before I die, is to fly in an aircraft that is on an airline’s balance sheet.”
It’s been a long time coming
The standard was introduced several years ago, but the pandemic delayed its rollout. Public companies had to be in compliance with the new standard in 2019. For others, the standard was in place beginning after December 15, 2021. For everyone else, the time has arrived. This means many private companies and nonprofit organizations are working through the lease accounting transition for the 2022 year-end.
How to comply
The simplest and most effective way to ensure compliance with ASC 842 is to implement lease management/lease accounting software. It’s possible for companies to gain compliance without using a dedicated lease accounting application, but it can be time-consuming and risky. Therefore, when we speak to our clients about lease accounting, we recommend lease accounting software if they have more than four or five leases.
LeaseQuery is one of the most well-regarded lease management and lease accounting applications available. It’s been named a Leader in the G2 Lease Accounting category for five consecutive quarters. We’ve worked with LeaseQuery on numerous implementations and can attest to their professionalism and expertise. They have more than 40 CPAs on staff, and clients work directly with a CPA to implement the solution.
Fundamentally, the application provides a central repository to track each of your leases. It then helps you manage those leases throughout their lifecycle by producing the journal entries, amortization schedules, and all required quantitative disclosures required for compliance. With extensive reporting options, critical date reminders, a comprehensive audit trail, and the ability to store lease-related documents, LeaseQuery brings all your lease information into a single, cloud-based subledger helps take the worry out of lease accounting compliance.
The best part is that LeaseQuery integrates with Sage Intacct, creating the required journal entries within your accounting application, saving you time and resources while improving accuracy.
No time to waste
If you have leases, you must take action now to ensure your company’s initial and ongoing compliance with ASC 842. If you have questions about lease accounting software or Sage Intacct, reach us at firstname.lastname@example.org or (847) 205-5015.