How to Prepare for the New Leasing Standard ASC 842 Compliance July 20, 2022After much anticipation, the Financial Accounting Standard Board (FASB) leasing standard (ASC 842) went into effect for privately held and non-profit organizations for fiscal years beginning after December 15, 2021. This standard transforms the balance sheet of every organization as both leased assets and liabilities will be presented. The standard was enacted to provide additional insights into an organization’s contingent liabilities to the users of financial statements.The standard also clarifies the definition of operating and financing leases and requires additional disclosures.In efforts to lessen the impact of ASC 842 on your organization’s financial close process, there are steps you can take now.Consider discussing with your bank representative, or other statement users, if a departure from generally accepted accounting principles (GAAP departure) relating to ASC 842 is acceptable. A GAAP departure includes an explanation in the report and disclosures that explain what principle is not being followed and the effect on the financial statements. A GAAP departure is not uncommon and, in some cases, might be preferred.Begin to gather your documents related to all your leases. Also, consider service agreements that have a physical asset associated with the agreement. This step may require additional conversations within your organization. In some instances, you may be “leasing” a piece of equipment that is associated with a service agreement. Your accountant can help you determine if additional analysis is needed to determine if ASC 842 applies to these agreements.Connect with your accountant about the calculations required to conform with the standard. Be prepared to discuss implementation dates, discount rates, related party leases, policy elections, and the formatting of comparative statements. There are practical expedients associated with the standard to ease the transition to ASC 842. In preparing the calculations associated with ASC 842, you may want to consider the use of a leasing software. KatzAbosch has software we will be using that our clients can access as well.Our team is ready to assist you in determining how ASC 842 will affect your financial statements. If you have any questions or need assistance, please contact us!About KatzAbosch: Founded in 1969, KatzAbosch is one of the largest CPA and business consulting services in the Mid-Atlantic region. As an accounting firm, our mission is to provide the highest quality accounting, tax, financial and management consulting services to our regional clients. We understand the needs and challenges of our clients and we have made it our obligation to create, grow and protect asset value. KatzAbosch is consistently named a Best Accounting Firm to Work For in Accounting Today and has been named a Top 200 Accounting Firms in the Nation by Inside Public Accounting. Our firm is also ranked among the Top 15 Largest Accounting Firms in the Baltimore Area by the Baltimore Business Journal and a Top Workplace four times by The Baltimore Sun.