ASC 842 Disclosure Requirements

Financial Footnote Disclosures

In many fields, people often overlook footnotes. They provide extra details that aren't usually key to the main content, but still hold value. However, in the world of financial accounting, and particularly with the ASC 842 standard, this isn't the case. The ASC 842, a standard set by the FASB, has seen many updates over the years, making its disclosure requirements more complex. Understanding the small yet crucial points in these footnotes is vital, as they've evolved and carry significant importance.

At iLeasePro, we specialize in how footnotes relate to leasing in your business. We're perfectly positioned to help you grasp their importance, adhere to regulations, and identify financial opportunities.

Footnote Disclosure Changes Under ASC 842

ASC 842 started applying to public companies in fiscal years after December 15, 2018, including the periods within those years. For all other groups, it began for fiscal years after December 15, 2019, and the periods within years starting after December 15, 2020, the effective dates of the ASC 842.

With ASC 842, how companies handle lease accounting changed a lot. Before, under ASC 840, how leases were shown in financial reports was different. Now, ASC 842 requires that all leases, whether they are for a short time or a long time, must be shown clearly on the balance sheet. This is a big change from the old way, where only certain leases (called finance or capital leases) had to be listed on the balance sheet. Other types, known as operating leases, were just mentioned in the notes. ASC 842 makes companies list the value of what they have the right to use (like leased property) and what they owe for leases right up front, making everything more transparent.

Under the new ASC 842 rules, companies must share detailed information about their leases in their financial reports. This includes explaining any payments that can change over time, showing the average discount rate they use, and the time period these reports cover. Sharing the average discount rate helps people understand how lease debts affect the company's finances. Including information about variable payments sheds light on future money the company will spend on leases.

For leases that last only a short time, 12 months or less, and don't need to be shown on the balance sheet, companies still have to report how much they spend on these leases. This way, everyone gets a full view of the company's lease dealings. These rules are meant to give a complete picture of what the company owes and owns from leases, making it easier for investors and company financial teams to judge the company's financial health.

The push for these detailed lease reports under ASC 842 is all about making financial information more transparent. By doing so, it makes sure everyone knows about the company's assets and debts from leases, helping stakeholders make better decisions. Moving to ASC 842 from the old ASC 840 rules marks a big shift in how companies record their leases, aiming to make financial reports clearer and easier to compare.

Why It’s Important to Get Your Footnotes Right

Leases are complex agreements that vary widely. Companies with many leases know how tricky they can be to manage. Keeping a good record of lease data is crucial because mistakes in the lease information can lead to significant financial risks that are otherwise avoidable with a clear and accurate record-keeping process.

Errors in recording lease details not only waste accountants' time but can also harm a company's reputation and its smooth operation. If financial records are not kept clear, crucial financial details can be overlooked or lost, leading to serious mistakes in financial reports. The longer these mistakes go unnoticed, the more damage they can cause.

How to Simplify the Footnote Disclosure Process

Dealing with mistakes in lease information can feel overwhelming, but the solution is straightforward: the right software, like iLeasePro. This software should be detailed, strong, and able to handle information from within the company and from outside partners involved in leases.

What does this software do? Beyond just keeping accurate records, it helps prepare journal entries and financial disclosures that are thorough enough to pass detailed audits. It's also designed to meet various accounting standards like ASC 842, IFRS 16, and GASB 87.

Such tools not only improve the accuracy of your financial statements but also enhance the quality of your reports. This leads to better insights into your company's financial health and operations. The result? More efficiency, cost savings, quicker identification of opportunities, and improved profits.