If you’re at least moderately familiar with the world of accounting, you have probably heard of the term ASC 842 lease accounting. The accounting standards codification (ASC) topic 842 is the replacement codification that replaces the old and somewhat outdated ASC840. Whether they like it or not, both public and private companies were forced to transition to this accounting standard. If you don’t already know, here is a short list of how this new codification impacts your organisation.
How ASC 842 lease accounting differs from ASC840
For a while, the old accounting standard ASC840 had a few major flaws that prevented organisation from keeping books that would be more relevant to the modern day and age. With regards to operating leases, there was one major issue – they were not in the balance sheets which posed a major issue for accountants, shareholders and every party that was concerned with the financial status of the company.
That is the main difference between the old standard and the new one – ASC842.
How to handle and prepare for the transition to the US GAAP ASC842?
Both public and private companies have transitioned to this system. Newly established companies have to do everything according to this new set of rules as well.
For most organisations who did their fair share of preparation, the transition went smoothly. However, other organisations faced obstacles, such as expensive accountant re-training, delays, mishaps and other issues related to numbers and accounting. The ASC 842 finance lease accounting standard is much more detailed and requires a lot more information with regards to the lessee, the lease itself, its terms, and other details.
This is why it has become apparent that no business will be able to transition and fully function with the new accounting standard in place, without dedicated software. It will help make the transition smoother and help reduce costs by making the tasks of managers, accountants and liability experts much easier. Professional software can generate reports, store large amounts of data and is ready to comply with the basic accounting principles. It’s really a no-brainer for every company that is involved.
How will this new standard/accounting principle impact your organisation?
In terms of impacts to your organisation, we have already mentioned that with ASC842 leases have to go on to the balance sheet. Furthermore, where you previously only had to have very trivial amount of data about transactions and the lease contracts.
The requirements have expanded and thus, requires either more human resources to keep track of things or powerful accounting software that allows you to track incentive, allowance, interest rates and lease performance related indexes as well.
As you can probably already tell, the new accounting standard is much more demanding. After implementing the standard, workloads on your accountants increase which means that they will need to work longer or they will be less productive in the same amount of time. But, if you empower them with the right tools, you can save money and continue with high-grade accounting with pinpoint accuracy!
