Implementing New ASC 842 Lease Accounting Guidance
A Company with more than 10 office space leases, a few subleases, and various month-to-month copier and server leases engaged Accordion to help their F&A Team determine the appropriate accounting for the leases under the new lease guidance (ASC 842). The Accordion team was also asked to implement best practices and policy for “Day 2” lease accounting management, as well as the appropriate and cost-efficient software to support compliance & automation going forward.
Technical Accounting Advisory
Audit Readiness and Financial Statement Preparation
Controller Support and Process Optimization
- Reviewed and summarized terms and conditions for the leases to support the preparation of journal entries.
- Identified embedded leases — with a questionnaire and methodology to review recurring vendor payments.
- Prepared an accounting memo (that was provided to and accepted by the auditors) considering the following aspects of adopting ASC 842 including (but not limited to):
- Identification of embedded leases.
- Consideration of practical expedients.
- Determination of appropriate discount rate.
- Consideration of lease and non-lease components.
- Consideration of any unusual features noted in the leases.
- Calculated amortization schedules and journal entries for the required ASC 842 transition as of 1/1/23.
- Considered activity during 2022 and drafted year-end journal entries and the required disclosure footnote for inclusion in the year-end financial statements.
- Reviewed the existing functionality for leases in the Company’s current ERP and provided a comparison to other 3rd party software options for ongoing compliance and automation of required deliverables.
- Reviewed the ROU real estate assets for impairment.
- Facilitated the computation of journal entries for ongoing post-transition accounting and provided sufficient training.
With Accordion’s assistance, the Company’s F&A Team achieved their key objective of successfully implementing the new lease accounting guidance starting from 1/1/2023, using appropriate practical expedients and ensuring the completeness of the lease population. The Company implemented best practices and controls for ongoing accounting as recommended by Accordion. The ASC 842 implementation memo was accepted by the auditors, including the financial statement disclosures. The entire lease accounting process was automated, thereby ensuring a faster preparation of calculations and journal entries as well as an absence of errors that frequently occur in Excel — all with a cost-effective solution.