The implementation of ASC 842, the lease accounting standard issued by the Financial Accounting Standards Board (FASB), has posed significant challenges for businesses of all sizes. Compliance requires accurate tracking of lease data, financial reporting, and regulatory adherence processes that can be time-consuming and error-prone when managed manually.
Fortunately, automation can simplify ASC 842 compliance, reduce human error, and ensure consistency in reporting. This article outlines a 30-day roadmap to automating ASC 842 compliance, helping your organization transition smoothly while maintaining accuracy and efficiency.
Why Automate ASC 842 Compliance?
Contents
Before diving into the automation process, it is essential to understand why automation is critical for ASC 842 compliance.
1. Eliminates Manual Errors
Manual lease accounting processes are prone to errors, such as miscalculations, incorrect lease classifications, and missed deadlines. Automation ensures data integrity by reducing human intervention.
2. Saves Time and Resources
ASC 842 compliance involves tracking lease modifications, calculating right-of-use (ROU) assets, and generating complex journal entries. Automated solutions significantly reduce the time spent on these tasks.
3. Improves Audit Readiness
A well-automated ASC 842 solution maintains an auditable trail of lease data, making it easier to respond to auditor inquiries and ensure financial transparency.
4. Enhances Regulatory Compliance
Automated lease accounting software continuously updates with the latest regulatory changes, ensuring ongoing compliance without the need for extensive manual adjustments.
30-Day Roadmap to ASC 842 Automation
Week 1: Assess and Organize Lease Data
1. Identify All Leases
Start by gathering all lease agreements across different departments, including real estate, equipment, and vehicles. Many organizations underestimate the number of leases they hold, leading to incomplete compliance.
2. Centralize Lease Data
Organize lease information in a structured format, including key details such as:
- Lease start and end dates
- Payment schedules
- Renewal and termination options
- Discount rates
- Lease classification (operating vs. finance leases)
3. Evaluate Current Lease Management Process
Assess your existing lease accounting process to identify inefficiencies and manual bottlenecks. Understanding these gaps will help in selecting the right automation tool.
Week 2: Choose and Implement the Right ASC 842 Software
1. Define Key Software Requirements
Before selecting an ASC 842 automation tool, consider the following essential features:
- Automated Lease Classification: The software should automatically determine whether a lease is operating or finance.
- ROU Asset and Lease Liability Calculation: Ensure the software accurately calculates lease liabilities and ROU assets based on present value factors.
- Integration with ERP Systems: Seamless integration with your existing accounting software (e.g., SAP, Oracle, QuickBooks) is crucial.
- Audit Trail and Reporting Capabilities: The system should provide audit-ready reports and maintain a transparent data trail.
2. Evaluate Software Options
Some of the leading ASC 842 compliance software options include:
- LeaseQuery
- CoStar Real Estate Manager
- Visual Lease
- Trullion
- EZLease
Compare features, pricing, and user reviews to select the software that best aligns with your organization’s needs.
3. Implement the Software
Once you’ve chosen a solution, work closely with the software provider to ensure a smooth implementation. Upload your lease data into the system and configure settings based on your organization’s accounting policies.
Week 3: Automate Lease Accounting Processes
1. Set Up Lease Recognition and Reporting Automation
Most ASC 842 software solutions offer built-in templates for automated journal entries, lease amortization schedules, and expense recognition. Ensure your software:
- Automatically generates amortization schedules for ROU assets and lease liabilities
- Posts journal entries directly into your accounting system
- Calculates lease modifications (e.g., lease extensions, terminations, or remeasurements)
2. Enable Compliance Alerts and Notifications
Set up alerts for critical lease events, such as renewal deadlines, termination options, and modification triggers. These notifications help prevent missed deadlines and non-compliance risks.
3. Conduct System Testing and Data Validation
Before finalizing automation, perform a test run of the system with sample lease data. Validate calculations against manual records to ensure accuracy.
Week 4: Train Teams and Finalize Compliance Strategy
1. Train Key Stakeholders
Ensure that finance, accounting, and legal teams are well-versed in using the new software. Training should cover:
- Uploading and managing lease data
- Generating reports
- Handling lease modifications and remeasurements
- Preparing for audits
2. Develop an Ongoing Compliance Plan
Automation doesn’t mean a one-time setup compliance is an ongoing process. Establish policies for:
- Regular lease audits
- System updates and regulatory changes
- Future software enhancements
3. Conduct a Final Compliance Check
Before closing the 30-day transition period, conduct a full compliance review with auditors or internal finance teams. Verify that all leases are accurately recorded and classified.
Post-Implementation: Maintaining Compliance Long-Term
After successfully automating ASC 842 compliance, ensure continued success with these best practices:
1. Monitor Regulatory Updates
ASC 842 requirements may evolve over time. Stay informed about FASB updates and ensure your software remains compliant.
2. Perform Regular Lease Audits
Conduct internal audits every quarter to validate lease data accuracy and catch any discrepancies.
3. Optimize System Integrations
If your organization expands or undergoes structural changes, re-evaluate software integrations to ensure seamless operations.
Conclusion
Automating ASC 842 compliance within 30 days is achievable with a structured approach. By organizing lease data, selecting the right software, automating calculations, and training teams, businesses can reduce compliance risks and enhance efficiency.
Investing in ASC 842 automation not only ensures compliance but also streamlines lease accounting, minimizes errors, and provides real-time financial insights. If your organization is still managing lease compliance manually, now is the time to transition to a smarter, automated approach.
Would you like assistance in choosing the best ASC 842 software for your business? Reach out today to explore tailored solutions for your lease accounting needs!