Guide to Preparing for Implementation of the Lease Standard

By Keiter CPAs

Guide to Preparing for Implementation of the Lease Standard

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02 Accounting Standards Codification Topic 842, Leases (“ASC 842”). Over the subsequent almost six years, there have been countless seminars, webinars, articles, white papers, etc. on the standard and how it should be implemented. Now that the effective date for private companies and non-profit organizations is just over the horizon, we have prepared a step-by step guide to help you with following a focused path to implementation.

New lease standard: 4 Steps to prepare for implementation

  1. Identify the organization’s lease population
    • Gain an understanding of the core concepts of the new standard
    • Identify all existing lease arrangements the organization has entered into as of the effective date of ASC 842
    • Document the lease arrangements in a schedule and identify the key terms of the lease, such as:
      • Lease name/description
      • Lease commencement and lease termination date
      • Payment amounts
      • Lease type (e.g., equipment, real estate, vehicle, etc).
  1. Develop policies and procedures for key inputs and estimates
    • Develop accounting policies and procedures for initial adoption, such as
        • Lease term
        • Selection of interest rate
        • Application of available practical expedients
    • If the organization has financial covenants related to debt outstanding, gain an understanding of how the standard may impact financial ratios/covenants. This may require discussion with the organization’s banking relationship manager.
  1. Identify the tool the organization will use to implement the standard
    • Determine if the organization will perform the calculations internally
    • Purchase a software to implement the standard
    • Engage a third party to assist with implementation
  1. Implement the standard
    • Once steps 1-3 are complete, the organization will then calculate the initial adjustment as of the effective date of the standard
    • Document and retain the accounting policies and procedures developed in Step 2 above

Additional lease standard recommendations

In addition to the steps above, we recommend getting an early start to implementing the standard. Please reach out to your Keiter Opportunity Advisor or Contact us to learn how Keiter can assist your business with implementation of the lease standard.

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About the Author

Keiter CPAs

Keiter CPAs

Keiter CPAs is a certified public accounting firm serving the audittax, accounting and consulting needs of businesses and their owners located in Richmond and across Virginia. We focus on serving emerging growth businesses and companies in the financial servicesconstructionreal estatemanufacturingretail & distribution industries and nonprofits. We also provide business valuations and forensic accounting servicesfamily office services, and inbound international services.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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