ASC 842 Solution Implementation Framework for CPA Firms

Implementing lease accounting software for your clients to comply with ASC 842 is a complex, multi-step process that requires careful planning, coordination, and execution. As a CPA firm, understanding what to expect and how you can provide value during the implementation process can help you guide your clients more effectively and ensure compliance with the new lease accounting standard. Below, we outline key phases of this process and provide insights into the challenges and strategies involved.

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1. Understanding ASC 842 Requirements

The first and most critical step is for your clients to fully understand the requirements of ASC 842. This standard represents a significant shift from previous practices, requiring adjustments in areas such as:

• The definition of a lease
• Lease payments
• Initial direct costs
• Lease term determination
• Discount rate selection
• Allocation of consideration to lease and non-lease components

Lease accounting software alone cannot address these conceptual challenges. Clients must have a comprehensive understanding of what data needs to be input into the system. For many organizations, particularly smaller ones, external training or consulting support will be necessary. ASC 842 is highly detailed, and most businesses will find it impractical to navigate without professional guidance.

Pro Tip: Encourage your clients to invest in ASC 842-specific training for key stakeholders, or recommend partnering with a qualified consultant to build foundational knowledge.

How?

1. Identify key stakeholders responsible for lease accounting within the client organization.
2. Research and recommend ASC 842 training programs or webinars tailored to their industry. This is our preferred training session from Dan Gode for KPMG.

3. Partner with a qualified consultant to provide hands-on guidance and ensure compliance with complex scenarios.
4. Set up a timeline for training sessions, ensuring all stakeholders are equipped with the necessary knowledge before software implementation begins.

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2. Data Collection: Gathering the Required Information

The second step involves collecting and organizing all the data required to implement ASC 842. This is often one of the most time-consuming and resource-intensive phases. Key tasks include:

• Identifying all lease agreements
• Carefully reviewing contracts to extract critical data points, such as:
  • Lease payments
  • Timing of payments
  • Fixed and variable lease components
  • Discount rates
• Coordinating with multiple departments, including Corporate, Finance, Treasury, Tax, Procurement, Human Resources, and IT

The duration and complexity of this process depend on factors such as the number of leases, their complexity, and the format of the data. If leases are stored in PDF format or other unstructured formats, data extraction may require significant manual effort.

Pro Tip: Advise clients to create a cross-functional team to streamline data collection and improve accuracy. In cases of high complexity, recommend engaging implementation consultants who specialize in lease accounting.

How?:

1. Form a cross-functional team with representatives from Finance, IT, Procurement, and other relevant departments.
2. Develop a data collection template to standardize the information needed from leases.
3. Identify tools or software to assist in extracting data from contracts stored in PDFs or other formats.
4. Establish a timeline for data collection with regular progress check-ins to ensure on-track completion.
5. If necessary, engage lease accounting consultants to support data extraction and validation efforts.

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3. Selecting the Right Software Vendor

Choosing the right lease accounting software is a pivotal decision. Options range from basic tools for small organizations with straightforward leases to robust platforms designed for large enterprises with complex lease portfolios. Consider the following:

• Cloud-based vs. Locally Hosted Solutions: Cloud-based solutions are often more flexible and require minimal involvement from IT teams. Locally hosted solutions may require significant IT support and infrastructure.
• Customization and User-Friendliness: Ensure the software can be tailored to the client’s needs and is intuitive for end-users.
• Alignment with ASC 842: Solutions developed specifically for ASC 842 tend to be more efficient to implement than older systems retrofitted to meet the new standard.

Pro Tip: Provide clients with a shortlist of vetted vendors, highlighting pros and cons for each. Offer to assist in evaluating software demos to ensure alignment with their needs and budget.

How?

1. Identify the client's specific requirements, such as the number of leases and desired integration with existing systems.
2. Research and create a shortlist of software vendors, noting their features, scalability, and costs.
3. Schedule software demos and guide clients in evaluating ease of use, functionality, and alignment with ASC 842 requirements.
4. Provide a comparison matrix to help clients make an informed decision based on their priorities and budget.

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4. Inputting Data into the Software

Once the software is selected and implemented, the next step is to input the collected data. Well-designed software should simplify this process, requiring minimal user training if the earlier steps were completed thoroughly. Key considerations include:

• Ensuring data accuracy
• Setting up controls for data verification
• Testing the system with sample data to identify potential errors

Pro Tip: Recommend a phased approach to data input, starting with a pilot implementation. This allows clients to refine their process before scaling up.

How?

1. Select a subset of leases to input during the pilot phase.
2. Train employees on how to input data into the system and conduct quality checks.
3. Run validation reports to ensure the accuracy of input data.
4. Review pilot results and address any errors or inefficiencies before proceeding with full-scale implementation.

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5. Integrating Software with Financial Reporting Systems

For seamless compliance, the lease accounting software must integrate with your client’s general ledger and financial reporting systems. This step typically involves:

• Configuring data exports from the lease accounting software
• Mapping data to general ledger accounts
• Ensuring compliance with footnote disclosure requirements

Pro Tip: Collaborate with your client’s IT team or software vendor to ensure smooth integration. Testing the flow of data between systems is critical to avoid reporting errors.

How?

1. Define the data flow requirements between the lease accounting software and financial reporting systems.
2. Work with IT teams to configure data exports and ensure compatibility.
3. Test data transfers with sample entries to identify potential issues.
4. Set up automated reconciliation processes to verify the accuracy of transferred data.

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6. Establishing Ongoing Processes for Lease Changes

Compliance with ASC 842 is not a one-time task. Businesses must implement controls to account for:

• New leases
• Lease reassessments
• Terminations
• Modifications

These changes must be captured accurately and in a timely manner to maintain compliance and ensure accurate financial reporting.

Pro Tip: Help your clients establish workflows and approval processes to manage lease changes efficiently. Regular training and periodic audits can also ensure that controls remain effective over time.

How?

1. Develop a workflow for managing new leases, modifications, and terminations, including approval steps.
2. Train employees on the importance of maintaining updated lease data and using the workflow correctly.
3. Schedule regular audits to verify the accuracy of lease data and adherence to processes.
4. Continuously refine workflows and training materials based on audit findings and feedback.

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Implementing lease accounting software for ASC 842 compliance is a multi-step journey that requires careful planning and execution. CPA firms play a vital role in guiding clients through this process, from understanding the standard to selecting software, gathering data, and establishing robust ongoing processes.

By setting clear expectations and providing expert support at each stage, you can help your clients achieve compliance while minimizing disruptions to their operations. With the right approach, this challenging transition can become an opportunity to add value and strengthen your client relationships.

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