What The Lease Accounting Change Means For Your Business
Accountancy changes occur all the time, sometimes for the best, and other times for the worst. If you’re a business owner or accountant you’ll probably shiver when you hear the phrase “accounting update”. Accounting updates change the way certain finance and accounting items are accounted for which can sometimes mean more money paid in tax.
Other Times though, it can go the other way and you can benefit from the change. ASC-842 is a new lease accounting standard that you’ll have to use when accounting for leases. Most businesses in the USA use leasing in some kind of variant. Here, we look at the ASC-842 update and what it means for your business financially.
ASC-842: What Is It
You might have heard of ASC-842 already, especially if your business is lease reliant. If not, ASC-842 is the new lease accounting standard laid down by the FASB (financial accounting standards board). The standard governs how businesses/companies record the financial element of their lease agreements.
The change covers both public and private entities and the main change vs the old standard is that all leases must be brought forward to the balance sheet. The lease was created to try and bring transparency to lease liabilities where historically, a lot of them could have been declared as off-balance sheet activity and as a result, skew a person’s opinion of the company in question.
How Should You React To Accounting Standard Updates
When there are updates to accounting standards, it is important to review the changes and assess their impact on your financial statements and reporting. This may involve updating accounting policies and procedures, adjusting financial data, and retraining staff on the new standards.
It is also important to communicate the changes to any stakeholders, such as investors or regulators. Additionally, it is important to stay informed of upcoming accounting standard updates and to plan accordingly so that you can be prepared to implement them in a timely manner.
How Can You Make Sure You’re Asc-842 Compliant
This is an easy one. You use lease accounting software or speak to your accountant to make sure they’re either using the right software or that they’re manually using the modern standard.
It’s so easy to miss a standard update and to continue accounting as you always have been. It can be dangerous to do this though so you need to keep tabs where possible. Check-in with your accountant and have a simple conversation. It’s likely that they know exactly what they’re doing and are following ASC 842.
However, if they’re following 840 then you know they’re following an accounting guideline that’s been superseded. If your business isn’t operating in the USA you’ll need to check in on local guidelines to be sure you’re up to date RE lease accounting, but if you only trade in the USA, it’s always going to be ASC-842 unless something new comes out again.
Remember, although it means that essentially your lease dealings are on the balance sheet and others can see them, the same applies to your competitors.
If this sounds confusing to you, Accounting and Financial Services Outsourcing can make your financial management easier.
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