Facilitating ASC 842 Adoption for a Newly Acquired PE-Backed Company
The Situation
The Company was acquired by a private equity fund in 2021 and decided to adopt the new lease guidance from the acquisition date onward. It had more than 3 office space leases, several vehicle leases, and various month-to-month copier and server leases. The Company engaged Accordion to support its F&A Team in determining the appropriate accounting for the leases under the new lease guidance (ASC 842), including effects on purchase price accounting, as well as the best lease accounting practices and controls after implementation.
Services
Technical Accounting Advisory
Audit Readiness and Financial Statement Preparation
Controller Support and Process Optimization
The Execution
- Reviewed and summarized terms and conditions for the leases to support the preparation of journal entries.
- Identified embedded leases.
- Prepared an accounting memo (that was provided to and accepted by the auditors) considering the following aspects of adopting ASC 842.
- Obtained business requirements and selected a cost-effective lease accounting software.
- Calculated amortization schedules and journal entries for required ASC 842 transition as of the acquisition date (updated with activity for the year and year-end journal entries).
- Drafted the required disclosure footnote for inclusion in the year-end financial statements.
- Ensured proper accounting for unfavorable lease terms existing at the acquisition date under ASC 842.
- Reviewed the ROU real estate assets for impairment.
- Provided training to the client’s staff.
The Results
With Accordion’s assistance, the Company’s F&A Team achieved their key objective of successfully implementing the new lease accounting guidance starting from the acquisition date — using appropriate practical expedients and ensuring the completeness of the lease population. The client implemented best practices for accounting and controls over new and modified leases as recommended by Accordion. The ASC 842 implementation memo was accepted by the auditors, including the financial statement disclosures.