ASC 842 Guide

This guide is designed to help you understand the intricacies and impacts of the IFRS 16 and ASC 842 lease accounting standards. With the tools and insights you'll find here, you can accelerate your project, avoid the pitfalls and become compliant successfully.

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Understanding the standards

IFRS 16 and ASC 842 have dramatically changed the way that leases are recorded on a company’s balance sheet. For some, this could mean up to 66x more journal entries and will equate to trillions of dollars being added to companies’ balance sheets globally. The first step towards compliance is understanding the standard.

The unseen complexities

When first starting an IFRS 16 and ASC 842 project it's important to unpack the standard and investigate how your business is going to be impacted. Like an iceberg, there is often much more lurking below the surface.

From our research we have found that for large, multinational companies in particular, a shift to the new leasing standard (IFRS 16 / ASC 842) will cause unforeseen impact. Some of the industries that we've found to have complex lease accounting include logistics, retail, telecoms, CPG, oil and gas, manufacturing, technology and financial services.

We've created a 'Leaseberg Index' which illuminates the accounting complexity in each of these sectors. 

Read more.

Are you facing a Leaseberg?

Find the information you need. Click on the button that represents your greatest issue.

Lease Volume
Lease Complexity
Multi Gaap Reporting
Disparate Systems

Select the descriptor that best indicates the complexity of your lease portfolio across these four dimensions.
Then see our recommended next steps for your situation.

Lease Volume

Lease Complexity

Multi Gaap Reporting

Disparate Systems

Hidden components

We're finding the difficult part about the
leasing standards is the hidden complexity.

We’ve pulled together some things to help
you consider the unforeseen challenges.

Prepare for your project Webinar

A Complex Portfolio

It sounds like you have a complex lease
portfolio and business environment.

Based on this, we’ve identified some assets
that may be helpful.

How to select a solution Complexities in depth

Increased workloads ahead

High lease volumes and multi-component
leases can increase accounting workloads

Read how we are helping a $60bn global
technology leader comply with ASC 842 and
IFRS 16.

Prepare for your project Case Study

Need to centralize

You want to know how you make the most of
your existing systems while efficiently
centralizing lease accounting processes with
the right controls and data.

Based on this, we’ve identified some assets
that may be helpful.

Leasing FAQs Speak to an expert

Unintended consequences of the new standards

The new lease accounting standards will make financial statements more transparent and comparable by requiring organizations to report operating lease liabilities on the balance sheet. But will the lease accounting standards have other consequences?

We believe the standards may change CFO behavior in the following ways: 

1. Drive more scrutiny around lease vs. buy decisions.

2. Result in more aggressive lease management and negotiations

3. Facilitate more informed, data-driven leasing insights to empower finance.

 

Read the full blog post for more details.

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It’s no secret that the IFRS 16 / ASC 842 regulation brings with it complexities. Becoming compliant requires the unification of leasing, subleasing, lessee and lessor data from various sources, silos and business entities. Not only that but records and data may currently be reported in different formats and in different currencies.

- Alan Berkley, Senior Finance Specialist

'Three things to consider when choosing a technology vendor'

 

"It sounds very simple to put your operating leases on the balance sheet, but it's actually very complex. In order to do that the standard requires a number of very complex calculations and a number of judgments within those calculations to actually get the numbers on the financial statements. That's a huge challenge for finance functions."

 

-Lucy Newman, Partner, Deloitte

 

Do these challenges sound familiar?

  • One of the most difficult aspects of the new lease accounting standards is identifying and understanding the lease types in your portfolio. Look out for these complex lease types.
  • While the two standards look very similar, in almost any real-world scenario, the correct application of IFRS 16 and ASC 842 accounting will lead to different balance sheet numbers. This creates complexity for organizations that must report under both GAAPs. 
  • The decision of which transition method to adopt when implementing IFRS 16 is an important one, predominantly for lessees. This decision will impact the total amount of liabilities presented on a company’s balance sheet which in turn could impact their borrowing capabilities, earnings-per-share and other KPIs.

Download the Brochure - The Accounting Challenges of IFRS 16 / ASC 842

Lease accounting complexities brochure

Download this brochure for a more in-depth look at some of the specific accounting challenges that might affect your company as a result of IFRS 16 and ASC 842.

Get a clear and concise understanding of complex lease types to look out for, the importance of selecting the right transition methods, the challenges posed by multi-GAAP reporting and the subtle differences in the standards.

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Putting theory into practice

Planning is where the bulk of the work is for most companies. Making sure you are aware and prepared for the complexity of your project is essential to ensuring a smooth project. In this section we help you translate the standard into action.

Preparing for your lease accounting project

Top things to consider:

  1. Lease volumes: Make sure to consider all leased asset types as well as those where you are the lessor.
  2. System architecture: Identify all the systems which hold leases as well as other system feeds that may be required.
  3. Lease types: Understand your various lease structures (embedded, subleases, intercompany) and where leases may include non-lease items that need to be separated.
  4. Accounting policy decisions: Think about applied exemption options, transition policies, modification methods, etc. Read full post.

After looking at hundreds of lease accounting standard RFPs, we've put together a list of the most frequently required product capabilities.

Look like your organization's list? Discover Aptitude's lease accounting software.

3 Steps To Compliance

We break down the process of becoming compliant into 3 steps. Capture data, manage your lease details and finally produce compliant accounting. Watch the video below to see how we can assist you with each of these steps.

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There is time enough - but none to spare.

- Deloitte, New leasing standard and what CFOs and Finance Directors should know now

3 things to consider when choosing an IFRS 16 / ASC 842 technology vendor 

1.  Accountancy problem? Accountancy solution: Becoming compliant requires the unification of lease, sublease, lessee and lessor data from various sources, silos and business entities. Addressing these sorts of complexities requires an accounting specialist.

2.  Plan for the future: Try to think beyond the problem you need to fix right now. Where will your business be in the next 8 years? Will you expand into new countries? New products? New business models?

3.  Don't delay: Many companies delay kicking off the selection process until they have all their lease data centralized and standardized. Select a vendor in parallel to doing your data capture. Vendors may even be able to help you with the data collection and standardization process. The clock is ticking!

Download the Aptitude Lease Accounting Engine (ALAE) product fact sheet to learn how it addresses compliance challenges, fits with existing systems and delivers business benefits. 

Get answers to the most frequently asked leasing questions like:

See the answers...

Webinar Recording: Mitigating Lease Accounting Risks

Alan Berkley, lease accounting expert, goes through the most common lease accounting implementation challenges we've faced, and shares our top tips on how to mitigate them.

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Implementing successfully

Every project is different and has its own peculiar challenges. To implement a lease accounting project successfully it's imperative that the solution you choose can handle your specific needs and can support you along the way. 

Implementing regulatory change

Over the last several years Aptitude Software has worked with global companies to implement software solutions to drive new standards governing revenue recognition (IFRS 15 / ASC 606), leasing (IFRS 16 / ASC 842), financial instruments (IFRS 9), and insurance contracts (IFRS 17.)

And we’ve learned a thing or two along the way, including the importance of 'speaking the language of finance'. 

Bringing project accelerators, best practices, deep accounting expertise and years of experience, they help organizations achieve their goals. From compliance to complete finance transformation, our teams have delivered it all.

Read our case study to see how we are helping a global technology leader achieve leasing compliance. 

Case Study

Get a time and cost estimation

What's the bottom line? With all the moving parts associated with an IFRS 16 or ASC 842 project it can be difficult to get an idea of the costs and timelines.

Based on hundreds of prospect interactions and our project delivery experience, we've boiled down the core influencing factors into 10 questions. From your answers we will be able to give you an estimate for how much a solution might cost and how long it will likely take to implement.

After answering the questions we will give you a call within 24 hours (usually sooner) to walk you through our estimation of your project timelines and costs. We are more than happy to discuss how each aspect of your project might affect the outcome.

Rest assured your data will not be shared, and will only be used for the purposes of this estimation.

Lease Accounting Project Estimator

Please answer the 10 questions below. After submitting your answers check your inbox for an email. We will arrange a time to get in touch with you about your project time and cost estimate.

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See The Solution

Aptitude's Lease Accounting Engine

Take a tour of our latest finance application, the Aptitude Lease Accounting Engine. The product centralizes lessee and lessor accounting in one place and provides both IFRS 16 and ASC 842 compliance with all the finance controls required.

Our weekly demo takes place on Wednesdays at 4pm GMT

In the demo

Learn how Aptitude can support:

  • The complex calculations required by ASC 842 and IFRS 16
  • Consistent and auditable application of accounting policies and judgements
  • Accounting for all varieties of variable payments
  • Exploiting multiple transition options
  • Addressing embedded lease classifications tests
  • Modelling scenarios such as embedded options, new leasing decisions and modification decisions

We invite you to send any questions or topics you'd like addressed to info@aptitudesoftware.com.

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