Every day that passes marks less time for private companies to get ready for ASC 842, the new lease accounting standard. Private companies will have to comply with this standard in fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.
ASC 842 is intended to "increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions." Because ASC 842 applies to most leases and subleases, with limited exceptions (e.g., leases of intangible property; leases of minerals and biological assets, including timber; leases of inventory; and leases of assets under construction), private companies will be required to disclose all contracts, or portions of contracts, granting "control" of the leased asset for a specific period of time.
The scope of the changes is clear from these major changes required by ASC 842:
The disclosure requirements under ASC 842 are complicated. They require digging deep into contracts and leases, which means businesses need to start preparing now. To achieve the transparency ASC 842 is aiming for, a company must, at a minimum:
Performing the many analyses needed for compliance with ASC 842 is both time-consuming and complicated. Companies need to be sure they have the guidance, tools and technology they need to help ease the process initially and in the future. Getting qualified professional advice is essential.
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