How to Overcome Year-End ASC 842 Lease Accounting Challenges

With the year-end closing approaching, private organizations face unique challenges in meeting the lease accounting standards required under ASC 842. Ensuring compliance requires accurate data, timely reporting, and close collaboration among various departments. A well-structured communication plan with regular cross-departmental meetings can alleviate common challenges, streamline workflows, and prevent last-minute hurdles. Here’s a detailed approach to implementing a year-end communication plan that enhances team collaboration and ensures compliance with ASC 842.

Define Key Compliance Goals and Challenges

Begin with a clear overview of your organization's specific goals related to ASC 842 compliance. This might include ensuring all leases are accurately classified, identifying embedded leases, and making sure amortization schedules and journal entries are prepared. Identify potential year-end challenges, such as data accuracy issues, lease modifications, and inter-departmental data silos.

Establish Cross-Departmental Meetings with Key Stakeholders

Monthly or bi-weekly meetings leading up to year-end provide a platform to coordinate efforts and address any lease-related issues promptly. These meetings should involve representatives from:

• Accounting and Finance: Overseeing the technical aspects of lease accounting, ensuring data accuracy, and verifying journal entries.
• Legal: Reviewing contract modifications, ensuring lease terms are accurately documented, and identifying any embedded leases.
• Operations: Providing updates on leases and lease modifications, including lease expirations, renewals, and amendments.
• IT/Lease Software Admins: Assisting with data migration, system integrations, and ensuring lease data is captured correctly in compliance software.

These regular touchpoints help align all teams, ensure transparency in the process, and prevent issues from being discovered too late.

Utilize an Action Plan and Track Progress

Create an action plan with milestones to achieve compliance goals by year-end. Include tasks such as completing lease classification reviews, finalizing any outstanding journal entries, and performing data reconciliations. Assign each task to a specific team or individual to ensure accountability.

Leverage a shared tracking tool to monitor progress and flag any issues that require immediate attention. This promotes visibility, keeps everyone on the same page, and reduces the likelihood of delays in the closing process.

Conduct a Mid-Year Assessment to Gauge Compliance Readiness

Consider implementing a mid-year assessment to evaluate your organization’s progress toward ASC 842 compliance. This assessment helps pinpoint areas where additional support may be needed, such as addressing data gaps, ensuring lease data is current, or updating software configurations. By addressing these issues mid-year, your team will be in a better position to meet year-end requirements smoothly.

Prepare for Common Year-End Challenges

Anticipate and plan for challenges that commonly arise at year-end. These might include:

• Data Accuracy: Conduct a data audit to verify lease information, confirm lease terms, and review lease classifications.
• Lease Modifications: Ensure any lease modifications or remeasurements are identified, documented, and recorded correctly.
• System Updates: If your organization uses lease accounting software, ensure all software updates or patches are installed well before year-end to avoid technical issues.

Regular discussions in cross-departmental meetings will allow teams to proactively identify and address these issues, minimizing the potential for unexpected hurdles.

Communicate Year-End Deadlines and Responsibilities

As year-end approaches, establish clear timelines and communicate critical deadlines to all involved teams. This includes deadlines for data entry, reconciliations, and final reviews. Ensure that each department understands its specific role and responsibilities in the process and that everyone is aware of the impact their timely contributions have on achieving compliance.

Review and Document Year-End Findings and Solutions

After year-end closing, conduct a wrap-up meeting to review the lease accounting process, document findings, and discuss any challenges encountered. Documenting the solutions will serve as a valuable reference for future compliance periods, allowing your organization to continuously improve its approach.

A structured year-end communication plan, combined with regular cross-departmental meetings, is essential for ensuring ASC 842 compliance in a large private organization. By fostering collaboration and proactive problem-solving, you can address lease accounting challenges more effectively, streamline the compliance process, and reduce the risk of costly last-minute adjustments. With the right strategy in place, your organization will not only meet compliance standards but also enhance overall operational efficiency.

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