Stay Informed
iLeasePro Newsletter

Expert Knowledge to Your Inbox - SignUp Now!

Mitigating Tax Risks with ASC 842: A CFO’s Training Guide

John Meedzan

Fostering Continuous Improvement

Fostering Continuous Improvement

The ASC 842 lease accounting standard, introduced by the Financial Accounting Standards Board (FASB), brought forth a paradigm shift in the way companies recognize and report lease obligations. While its primary aim was to enhance transparency in financial reporting, its complexity and nuances have paved the way for potential misunderstandings and misapplications. As the Chief Financial Officer (CFO) of an organization, it’s crucial to understand the profound impact of these inadvertent errors, especially concerning unintentional tax exposures, and the pivotal role of training and education in mitigating these risks.

The Risks of Misunderstanding or Misapplying ASC 842:

  1. Balance Sheet Distortions: One of the fundamental changes ASC 842 introduced was the requirement for lessees to recognize most leases on their balance sheets. Misunderstandings, such as incorrect classification of leases or miscalculation of lease liabilities, can lead to significant distortions in reported assets and liabilities.

  2. Income Statement Implications: Mistakes in recognizing lease expenses, be it through incorrect amortization schedules or failure to capture variable lease payments appropriately, can skew the company’s reported profits or losses.

  3. Deferred Tax Complications: Any disparity between financial reporting under ASC 842 and tax reporting can result in the creation of deferred tax assets or liabilities. Incorrect application of the standard can, therefore, lead to unintended deferred tax consequences.

  4. Regulatory Scrutiny and Penalties: Inaccuracies in financial reporting, stemming from misunderstandings of ASC 842, can attract regulatory scrutiny, potential restatements, and even penalties.

  5. Stakeholder Mistrust: Inaccurate financial statements, even if unintentional, can erode stakeholder trust and damage the company’s reputation.

The Power of Training and Education:

  1. Building a Solid Foundation: Comprehensive training ensures that the finance and accounting teams have a deep-rooted understanding of the ASC 842 standard. This foundation is vital to ensure correct application in diverse and often complex leasing scenarios.

  2. Regular Updates: The landscape of lease accounting, influenced by regulatory updates, market practices, and evolving business scenarios, is continuously changing. Regular training sessions can keep the team updated, ensuring compliance and accuracy in financial reporting.

  3. Case Studies and Simulations: Using real-life case studies and simulations during training can help teams understand the practical challenges and nuances of ASC 842, preparing them for real-world scenarios.

  4. Cross-functional Training: While the finance and accounting teams are at the forefront, other departments, like procurement or operations, also play roles in leasing activities. Cross-functional training can ensure a holistic organizational approach to lease accounting.

  5. External Workshops and Certifications: Encouraging team members to attend external workshops, webinars, or even pursue certifications in lease accounting can bring in external expertise and broader perspectives.

The complexities of ASC 842 are undeniable, but so are its implications for a company’s financial health and tax exposure. As a CFO, championing robust training and education initiatives isn’t just a proactive measure—it’s a strategic imperative. Ensuring that the team is well-equipped to understand and apply the standard correctly can safeguard the organization from unintended tax exposures, regulatory pitfalls, and the myriad challenges that misunderstandings can usher in.



Related: iLeasePro Free Trial, iLeaseXpress, iLeaseXpress Unlimited, ASC 842 Financial Reporting, ASC 842 Balance Sheet Reporting, ASC 842 Income Statement Reporting, ASC 842 Cash Flow Reporting, ASC 842 Statement of Shareholder Equity, ASC 842 Disclosure Notes, ASC 842 Management Discussion, ASC 842 Comprehensive Income, ASC 842 Glossary of Terms, ASC 842 Journal Entries, ASC 842 Software, When Is the ASC 842 Compliance Date, FASB Lease Accounting Software, Understanding the New FASB ASC 842 Lease Accounting Standard, How Does a Lease Balance Sheet Change After the New Standard?, Tracking Lease Details After ASC 842, Deferred Rent Explained Under the ASC 842, Guide to Lease Classification, Overview of Relevant Borrowing Rate, ASC 842 Footnote Disclosure, Lease Accounting, What Does Lease Accounting Software Do?, Key Features of A Lease Accounting Software, How to Never Miss Important Lease Dates, Scaling Your Lease Accounting Software to Your Business Needs, How to Select the Right Lease Solution, How to Set Up Lease Accounting Software, What is the Best Lease Accounting Software?, Overview of the Types of Leases, Equipment Lease Software, How the Right Lease Management Software Makes Equipment Leases Easier, Lease Tracking Software, How The Right Software Can Help You Manage Lease Data, Five Benefits of a SaaS Lease Management Solution, A Centralized Lease Portfolio Making Asset Management Easier, Lease Analysis 101, Lease Analysis: The Financial Metrics, Lease Abstraction, The Importance of Lease Abstraction for Lessees, The Lease Data an Abstract Should Include, What Software Do I Need for Lease Abstracting?, Navigating The ASC 842 Accounting Audit, Ultimate Lease Accounting Audit Checklist, Essential Guide To Engaging Auditors, Leveraging AI for Enhanced Year-End Audits Transitioning to the ASC 842 Standard Lease Document Management ASC 842 Short-Term Leases Practical Expedients Lease Modifications & Remeasurements Lease Variable Payments Embedded Leases Monitoring Critical Lease Dates Transportation - Navigate the ASC 842 The Impact of the ASC 842 on Regulatory Policies in Lease Management & Lease Accounting Integrating Lease Accounting into Your Month-End Closing Process The Modified Retrospective Approach in ASC 842 Determining the Incremental Borrowing Rate