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Decisions, decisions: Deciding on your go-forward path for lease accounting

Aug 10, 2021

The majority of business owners and private company executives know that they will have to comply with Accounting Standards Codification (ASC) 842 by January 2022. This new time- and resource-intensive accounting rule is a far-reaching regulatory change that’s likely to affect accounting data, processes and systems.

That’s why we all should know what’s coming around the bend and make preparations. In a post-pandemic world, with many companies still revamping their business, making the right decisions will be key to managing ASC 842, allowing you to focus on your core competencies and business.

Many companies jump right to adopting the standard without considering their approach for how they will maintain compliance with ASC 842 post-adoption. This is an important decision that will influence the path towards adoption. Here are some factors private companies should consider:

  • Spreadsheets may not cut it. If your company has only a handful of leasing contracts, you can choose to continue managing them economically with spreadsheets. However, that choice could be unwieldy if you manage two dozen or more leases - or leases that change frequently - because handling ongoing updates and additions on that many spreadsheets manually can be complex, cumbersome and error-prone.
  • Software systems require resources and time. To manage larger leasing portfolios, you could choose a vendor-supplied software accounting system. This approach does keep accountability within your company, but it can require the assistance of a dedicated implementation team or a third-party partner, as well as a dedicated in-house team that will work on lease updates long term. Plus, it could take months to select and deploy a lease accounting system, as well as devoting hundreds of resource hours to overseeing lease aggregation, data abstraction, quantification and system implementation.
  • System implementations can be costly. Typically, implementing a software accounting system is a higher-cost solution, so, if you do opt for this method, you’ll want to be sure the outcome is worth the price. Your evaluation of this solution should include the project’s scope (lease administration, lease accounting or both), volume (number of leases and frequency of changes), portfolio (types of leases, including real estate and equipment), users (centralized or decentralized community), integration (with other processes and systems), and cost and timeline (cost/benefit, time to implement, etc.).

Taking a hands-off approach with a managed service

To comply with ASC 842 in a cost-effective way, many private companies are turning to an outsourced managed service as an alternative to a system implementation. This offers a number of benefits, including the following:

  • Suits the needs of small and large leasing portfolios.
  • Requires limited ramp-up time to operationalize.
  • Reduces the need to dedicate in-house resources.
  • Eliminates the need to implement a lease software solution.
  • Creates required entries and disclosures in a controlled manner.

How PwC can help

Deciding on your go-forward path for lease accounting can be difficult. There are many considerations, and there’s no one-size-fits-all solution. We look forward to discussing how we can help you bring together the best of people and technology to deliver sustained successful outcomes as you navigate this journey.

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Robyn Conlon

Partner, Advanced Risk and Compliance Analytics Solutions, PwC US

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