Are You In Compliance With ASC 842?

Do you remember hearing something about a new lease accounting standard (ASC 842) passing and then didn’t think much more about it because it wasn’t effective until early 2019? Well, it’s time to start thinking about it again because 2019 is right around the corner!

ASC 842 is effective beginning January 1, 2019*. The goal of ASC 842 is to create more visibility and transparency into the leasing obligations for lenders and investors.  

So, how does this affect you? Let’s start with the basics.

What is ASC 842?

ASC 842 was issued by the Financial Accounting Standards Board (FASB) February 2016 as the new accounting standard replacing ASC 840, which is nearly 40 years old. It’s out with the old and in with the new, which means a lot of new changes and regulations for you and your business. The most significant of these is that most leases, including most operating leases, are now required to be capitalized on the balance sheet. This includes any lease agreement that offers someone else control over property or equipment for a certain period of time. Under the old standards of ASC 840, operating leases only had to be in the footnotes of financial statements. This new guideline impacts businesses across all industries that have lease agreements and contracts containing leases to support their operations.

How do I comply?

To be in compliance with ASC 842, public and private entities must include their lease assets and liabilities on their balance sheets. This means you may need new accounting software to be able to meet the new standard’s requirements.

Accounting departments and professionals everywhere are working non-stop to adapt to the new standards for revenue recognition for contracts and lease accounting. These complex standards require modern accounting information systems to be in compliance. Software is the answer.

NetSuite & Lease Accounting

Having a robust ERP system like NetSuite to manage your lease accounting will make complying with the ASC 842 a lot easier. The overarching goal here is to recognize an asset on your balance sheet and provide some form of automated amount on the lease expense. NetSuite’s Fixed Assets module offers a solution for ASC 842 compliance.

NetSuite Fixed Assets Module

Complete integration with NetSuite Fixed Asset Management enables you to easily create fixed assets from purchase orders while ensuring that all asset depreciations and disposals are posted to NetSuite’s core accounting system.

With this module lessees can:

  • Manage the complete asset lifecycle.
  • Completely integrate asset management with accounting.
  • Easily report on all fixed assets.
  • Eliminate manual effort and multiple spreadsheets.

More specifically, the Lease Accounting portion of the Fixed Assets Module allows you perform the following:

  • Create a lease proposal record – The Lease Proposal record lets you propose a new lease, define the terms of the lease, add lease payments and create the lease amortization schedule.
  • Manage lease payments – You can add your lease payments in two ways– through the Lease Amortization Schedule subtab on the Lease Proposal record and through CSV import.
  • Generate a lease amortization schedule – The Lease Amortization Schedule is the schedule of the net present value and interest for the lease.
  • Create lease journal entries – When the lease amortization schedules for the lease proposal have been generated and completed, you will be able to create a lease journal entry, recognize your Right-Of-Use Asset and Lease Liability.
  • Recognize interest on lease payments – The Record Lease Interest page allow users to recognize the interest amount per period.

Adhering to the new lease accounting standard will be a challenge for companies, but InnoVergent is here to help. By working with us to implement NetSuite and the Fixed Assets module, getting your company in compliance with ASC 842 will be a piece of cake. Make your compliance a priority as the deadline draws near and contact us for help!

For more information about NetSuite’s Fixed Asset module, click here.

*Businesses will begin transitioning to ASC 842 for accounting periods starting on or after January 1st, 2019. The first wave will consist largely of public companies, with private companies and other entities adopting in 2020.

2018-12-05T15:44:04+00:00

About the Author:

Is your business leaning on Excel spreadsheets for budget and forecasting?