How CPAs Can Safeguard Clients From Failing an ASC 842 Audit

Audits can be a source of significant anxiety for CPAs, especially when managing lease portfolios under ASC 842. With increased complexity and scrutiny surrounding lease accounting standards, the fear of failing an audit is real. However, proactive measures, robust tools, and adherence to best practices can go a long way in safeguarding compliance and ensuring your lease portfolio stands up to scrutiny.

Understanding the Audit Landscape

ASC 842 fundamentally changed how companies account for leases, moving many off-balance sheet items onto the balance sheet. This shift increases transparency but also subjects lease portfolios to heightened regulatory examination. CPAs must ensure their clients’ financial statements comply with ASC 842’s requirements to avoid material misstatements and audit failures.

Key Challenges During Audits

• Data Completeness and Accuracy: Missing or inaccurate lease data can lead to non-compliance.
• Complex Calculations: ASC 842 requires precise calculations, such as present value and amortization schedules, which are prone to error without proper tools.
• Audit Trail Maintenance: A clear audit trail is essential but often neglected, making it difficult to justify decisions or assumptions.

Proactive Measures to Avoid Audit Failures

• Centralize Lease Data: Maintain a comprehensive database of all lease agreements. Ensure this database includes critical details such as lease terms, payment schedules, and renewal options.
• Invest in Specialized Software: Lease accounting software tailored for ASC 842 automates calculations, reducing human error and ensuring compliance.
• Regular Reconciliation: Reconcile lease schedules with general ledger accounts regularly to identify discrepancies early.
• Educate Your Team: Provide training on ASC 842 to ensure your team understands the nuances of the standard and can apply them effectively.

Leveraging Technology for Compliance

Technology can be your best ally in preparing for audits. Tools like iLeasePro simplify lease accounting by automating calculations and generating accurate amortization schedules. These solutions also create detailed audit trails, making it easy to demonstrate compliance.

Best Practices for Audit Readiness

• Create a Documentation Culture: Maintain detailed records of all lease-related decisions, including assumptions used for calculations.
• Perform Pre-Audit Reviews: Conduct internal reviews to identify and address potential compliance gaps before the official audit.
• Engage with Auditors Early: Maintain open communication with auditors to clarify expectations and address concerns proactively.
• Stay Updated: Keep abreast of changes to ASC 842 and incorporate updates into your processes.

The Role of Professional Expertise

Partnering with experts who understand ASC 842 can provide a fresh perspective and help identify overlooked areas. Consultants or external auditors can also offer tailored recommendations to strengthen your compliance posture.

While the fear of failing an audit under ASC 842 is valid, it doesn’t have to be paralyzing. By adopting proactive measures, leveraging technology, and adhering to best practices, you can safeguard compliance and confidently face audits. With the right approach, audits become an opportunity to demonstrate your expertise and value to clients, rather than a source of stress. Prepare today to protect your tomorrow.

See how iLeasePro can help CPA firms safeguard clients from failing an ASC 842 audit;