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Considering an ‘‘exit?’’ Navigating the road to ASC 842

04 November, 2021

Do you aspire to go public? Are you considering a traditional IPO, direct listing, a SPAC merger or an acquisition by a public company? To prepare, you’ll need to finalize your ASC 842 leasing (or the “new standard”) assessment.

With the IPO window open and new M&As announced nearly every day, the requirement to adopt ASC 842 may apply to your company sooner than you think. This new standard will be effective for all entities for annual periods beginning after Dec.15, 2021. Your company’s status (EGC, non-EGC, small reporting company, etc.) may affect the timing of the process, but the earlier you assess the new rules, the better prepared you’ll be to navigate the new requirements while managing other competing priorities.

If an exit is on your horizon, here’s what we recommend you consider to help ensure a smooth transition.

  1. Focus on the completeness of your lease population. While it’s easy to identify your real estate and equipment leases, as most entities generally track those types of contracts, most companies struggle to identify all of their leases. It's more difficult to identify leases embedded in service agreements or other types of contracts, which may require you to consult with colleagues outside of the accounting group.
    • By identifying all of your leases, you can gain a better understanding of your lease portfolio. And you may also be able to leverage this process for operational and cost improvements.
  2. Identify the solution that’s best for you. Your strategy will likely depend on the size of your lease population as well as your company’s overall goals.
    • If your business has a small number of leases, a more manual solution or less advanced lease software may be right for you.
    • If you have a lot of leases, a tech solution with more advanced capabilities will make accounting and tracking those leases much easier. Similarly, if your company is acquisitive or anticipating major deals in the near future, having a high-grade system in place ahead of those deals will make for smoother post-deal integration.
  3. Determine the appropriate discount rate. A private company election exists to use a risk-free rate in lieu of determining a company-specific rate. But consider whether this makes sense for your company. Even if you don’t plan to go public right away, you should avoid using the risk-free rate as your discount rate, as this may result in you having to retrospectively update and adjust prior periods if and when you go forward. 
  4. The IFRS equivalent is not aligned with US GAAP. Even if your organization has foreign subsidiaries that may have already adopted the IFRS equivalent of the new standard for statutory reporting purposes, IFRS and US GAAP are not aligned. Accordingly, it’s critical to consider the impact of ASC 842 and where it may differ from IFRS—if already adopted by subsidiaries.
  5. Start your assessment as soon as possible. Whether you need to accelerate your timeline due to deal activity or you’re just following the private company adoption timeline, this process can take longer than you think. Other accounting standard updates may present greater technical challenges, but ASC 842 has a wide-reaching impact. It can affect accounting procedures as well as data, processes and systems. Many public companies have told us that the adoption process was more challenging than expected, and they wished they would have started earlier.

Have questions? We look forward to discussing how we can help you bring together the best of people and technology to deliver successful outcomes as you navigate this journey.

Contact us

Mike Bellin

Partner, Consulting Solutions, US IPO Co-leader, PwC US

Brandon Campbell Jr.

Deals Partner, Leasing Accounting Solutions Leader, PwC US

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