Leasing is a widespread practice for businesses of all sizes, giving a cost-effective option to obtain assets needed for their operations. However, with ASC 842, new lease accounting requirements have come into force, raising the level of detail and transparency necessary in financial reporting.
This has made gathering lease data more crucial than ever before. However, collecting this data can be tricky, especially for businesses managing numerous leases across different locations with varying terms and conditions.
To help navigate the complexities of ASC 842, we have compiled five tips for smooth lease data collection. These tips will help businesses streamline their lease data collection process, ensuring that all the necessary information is collected accurately and efficiently while minimizing the risk of errors or omissions.
So, let’s dive in and explore the five tips for smooth lease data collection in preparation for ASC 842.
ASC 842:
What is ASC 842? It is a new accounting standard established by the Financial Accounting Standards Board (FASB) in 2016. The standard compels corporations to record all leases on their balance sheets, regardless of whether they are categorized as operational or financing leases.
Before ASC 842, firms were only required to register financing leases on their balance sheets, while active leases were reported off-balance-sheet.
If you need further clarification on what is ASC 842, then remember that implementing ASC 842 has substantial ramifications for enterprises, including changes to financial reporting, lease data collecting and administration, and compliance obligations.
Moreover, under ASC 842, all leases are recognized as assets and liabilities and are represented on the balance sheet using a right-of-use (ROU) asset and lease liability.
This new accounting standard intends to give more openness and accuracy in lease accounting and to make it easier for investors and analysts to compare firms’ financial statements.
So companies must ensure they have accurate and complete leasing data and create systems and procedures to handle this data correctly.
Five Tips for efficient lease data gathering
Now that you realize the need for precise lease data, let’s explore how to acquire it smoothly. Here are five tips to help you collect lease data smoothly in preparation for ASC 842.
1. Develop a leasing inventory
The first stage in leasing data gathering is to build a complete lease inventory. This inventory should include any leases that your organization has, both current and future. It should contain essential information such as lease start and end dates, payment conditions, and renewal possibilities.
To maintain accuracy, it’s vital to have a centralized repository for leasing data that can be quickly accessed and updated as needed.
Engaging all necessary parties in the process is crucial when building your leasing inventory. This may encompass accounting, finance, legal, and real estate departments.
Having a cross-functional team participating in the lease inventory process may guarantee that all leases are accounted for and that data is correct and comprehensive.
2. Collect and check lease data
Once you have built your lease inventory, the following step is to gather and validate lease data. This entails examining lease agreements and extracting critical data elements such as lease terms, payment schedules, and renewal choices.
Verifying that all lease data is accurate and complete is crucial since errors or omissions can result in financial misstatements and non-compliance with ASC 842.
To validate lease data, it’s a good idea to utilize lease accounting software to automatically extract and standardize lease data. This can assist in assuring accuracy and consistency in lease data gathering.
3. Monitor changes to lease data
Lease data is not static; therefore, it’s necessary to have a system for monitoring changes to lease data over time. This includes modifications to lease terms, payment schedules, and renewal possibilities.
Having a plan for tracking changes may assist in ensuring that lease data is correct and up-to-date, which is crucial for compliance with ASC 842.
To monitor changes to lease data, it’s a good idea to have a lease management system that can track lease modifications and deliver notifications when changes are made. This can assist in ensuring that lease data is correct and complete and can help prevent financial misstatements and non-compliance with ASC 842.
4. Establish protocols for data entry and administration
Effective lease data gathering involves defined protocols for data entry and administration. This comprises processes for inputting new lease data, evaluating and approving lease data, and modifying lease data over time.
Having defined processes may assist in guaranteeing that leasing data is accurate and complete and can help prevent errors or omissions.
To build methods for data input and administration, it’s a good idea to construct a lease accounting policy that describes the procedures for collecting, confirming, and maintaining lease data.
This policy should be presented to all relevant stakeholders and constantly reviewed and amended as needed.
5. Conduct frequent checks of lease data
Finally, it’s necessary to conduct frequent audits of lease data to verify correctness and completeness. This includes internal and external audits, which may assist in uncovering mistakes or omissions in lease data and assure compliance with ASC 842.
Internal audits are crucial to verify that leasing data is correct and full. These audits might be conducted by the company’s internal audit team or by a third-party auditor. The company’s independent auditors often undertake external audits as part of the yearly audit process.
Conclusion
Obtaining accurate and full lease data is crucial for compliance with ASC 842. To guarantee smooth lease data collection, it’s vital to design a complete lease inventory, collect and verify lease data, monitor changes to lease data, and implement processes for data input and maintenance.
By following the abovementioned guidelines, firms may guarantee they are entirely compliant with ASC 842 and avoid financial misstatements and fines. While gathering and maintaining lease data may seem intimidating, it can be a simple and simplified process with the correct tools and techniques in place.
We hope you learned something from this article. If you have anything to add, let us know in the comments below.
