Businesses that maintain a high number of leases should consider lease accounting guidance. Complying with lease standards means understanding the requirements for documentation, lease terms, incremental borrowing rates, and more. Many steps are involved in ensuring that lease accounting standards are met. With the assistance of lease technologies like ASC 842, companies can more successfully include all aspects of lease accounting standards without error.
With so many steps involved, private companies must implement lease management processes that make it possible to identify and keep up with leases efficiently. Without a standardized approach to tracking lease information, it is likely that errors will take place. For private companies to decrease the likelihood of error, a centralized process is needed to carry out lease tracking and reporting.
With improved lease accounting standards, the environment remains controlled, and future contracts can be better handled within the compliance regulation that pertains to lease accounting conditions. Better organization in these areas also improves the efficiency of reporting, which can save time dedicated to creating and processing contracts in the future. Review the information below for more details on why private companies should consider ASC 842 guidance.
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Simplifies The Lease Identification Process
With all contracts and agreements controlled in a central place, the reporting process is simplified for all leases under review and management. Using a centralized tracking system decreases the effort required for process tracking. Private companies know where to locate lease information and what to do with it using solutions and guidance systems that reduce the effort to carry out these processes.
Better Organization For Tracking And Reporting
Additionally, the involvement of this formal process allows for a better organizational flow within the controlled environment. For example, contract arrangements can be sent to the proper person, department, or system for further review as to where they are within the lease accounting standards. Reporting efficiency is therefore improved with ASC 842 guidance in place to manage leases.
ASC 842 Guidance Prevents Calculation Errors
ASC 842 guidance allows private companies to avoid the hurdles associated with calculating an IBR. This way, private companies can utilize risk-free rates rather than the total rate under ASC 843. Not only will you save money and time, but you will reduce the amount of effort that goes into calculating an IBR in the first place.
Helps Prevent Compliance Issues
Given that leases are assets of ASC 842, impairment testing is a significant possibility. With leases subject to testing, using ASC 842 guidance becomes necessary. It can address any issues between your company’s current standing with lease accounting and indicate where it needs to improve to comply with new standards.
Address Challenges Before They Come
Private companies seeking to safeguard their tracking and reporting processes should seek ASC 842 guidance to ensure that they comply with new lease accounting standards. From lease ROU to the general uncertainty of lease adjustments, the use of this guidance can help to address challenges before they occur.
