Just as public companies put the finishing touches on reporting changes for revenue recognition, another wholesale change in accounting requirements is looming in the near future. This time, the revisions will affect valuation of leased assets.
The new leasing guidelines — ASC 842 and IFRS 16, also known as FASB Topic 842 — go into effect for publicly traded companies on January 1, 2019, and will expand to privately held companies in 2020. That might seem like a long way off, but it’s wise to get started as soon as possible.
Planning and implementing your lease reporting practices as soon as possible is a great way to build efficiencies. We asked Aston Carter Account Manager Aaron Francis how companies can benefit from an early start on Topic 842.
He recommended the following:
“Every company is subject to this change in accounting treatment of leased assets, and after having gone through revenue recognition, we already know the basic scope,” says Francis.
“Everybody at your company has to be on board with a defined plan in order for you to implement the actual work of redefining leased asset valuation. Then everybody's got to get up to speed on how the new system works going forward.”
Similar to Topic 606 guidelines for revenue recognition, Topic 842 implementation offers an opportunity for a flexible, tiered approach to accountancy staffing based on your specific needs.
Francis says, “I may run across a company that needs to bring in people at a consultant level — people with the technical expertise, the background and the skillset to assess overall impact, build a plan or oversee adjustments. Another company may just need ‘boots on the ground’ resources to work through the data and enact the strategic plan.”
The scope of the strategic plan will vary from company to company, but one key aspect of Topic 842 is a retroactive truing of historical financial statements to the new standard.
Francis notes, “Not only do companies have to implement these changes for the 2019 fiscal year, they're also typically required to present comparative statements for two previous years. So Topic 842 presents essentially a tripling effect of the work required by Topic 606. As with Topic 606, the staffing solutions available in your company’s approach to Topic 842 represent opportunities to build cost efficiencies. Before you decide to rely on an auditing firm for all resources, take a step back and evaluate the nature of your specific needs.”
The Topic 842 changes to leased asset valuation are a part of a larger ecosystem of accounting needs currently exerting a pull on available human resources. Ongoing efforts to institute Topic 606 revenue recognition for privately held companies are, like Topic 842 for public companies, due by January 1, 2019. This, combined with low unemployment, has the potential to deplete the available bench of accounting contractors throughout 2018.
As Francis says, “The accountants with the right skillset to help out with lease accounting changes are, by and large, the same consultants or contractors that private companies would use for revenue recognition as well. It's a really tight talent pool at this stage with unemployment being so low.”
How do you ensure that you’re drawing the highest quality resources at the best possible price? Francis answers, “Just be a first mover.”
All companies are required to undergo Topic 842 changes but you may want to institute additional operational changes concurrent with the Topic 842 process.
Francis has experience with a current client that’s decided to upgrade their software package as they evaluate their Topic 842 plans.
He says, “In instances where companies have a large volume of leased assets that each need to be reviewed for Topic 842, adding in a new software system at the same time could create a long-term efficiency that wouldn’t otherwise exist if the accounting change hadn’t been required.”
Regardless of your company’s current accounting needs, Topic 842 is on the horizon and approaching fast. Being proactive with the options you have now, while you have the luxury of time, can have a big impact on how well you weather its eventual impact.
Want to learn more? Contact Aston Carter now.