Lessons learned during an ASC 842 Leasing Implementation
What are the hot topics related to implementation of the new leasing standards?
While most companies have already implemented IFRS 16 or ASC 842, there are still some non-public entities yet to implement. I have just recently completed an implementation for a company in the aerospace industry, and thought I would pass along a couple of lessons learned & topics to watch out for that you won’t necessarily find reading the standard itself….
Identifying all leases - This is not always obvious, there may be embedded leases in agreements that management has not flagged as a lease. A good way to find these is to scrub the ENTIRE GL (not just lease expense) for keywords.
Non-cash consideration - Do some leases look more like a "barter" transaction (ie receiving the use of an area in exchange for a service)? This adds complexity to measuring the ROU asset & lease liability - you will need to spend time to fair value these two transactions separately.
Integration with other standards - Following on point #2 above, some leases may be tangential to a revenue activity and calculations will need to integrate between the two standards. This adds to complexity, time to implement, and ongoing efforts to maintain your workpapers.
Additional disclosures - Both ASC 842 and IFRS 16 include additional disclosure requirements, such as nature of leases, information about ROU assets/liabilities, and cash outflow timing/maturities. Make sure you have disclosure tables built into your workbook to be able to easily update disclosures as new leases are added.
Lease database - The above lessons show the value in creating a lease database early. Even when you only have a handful of leases, having the correct workbooks, formulas, and disclosure tables in place will tremendously ease the burden as your company continues to grow!
Do you have anything to add as part of your leasing implementation work? Please let me know below!