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Analysis

Lease accounting (ASC 842) for private companies

Lessons learned from public company implementations

Public companies have been working to comply with the new standard on lease accounting since the beginning of 2019. Analysis of their preparation successes and challenges provides critical ASC 842 lessons for private companies approaching a 2020 deadline. Explore the five lessons learned we’ve observed.

Public knowledge, private lessons

For public companies, January 2019 marked a turning point. It was then that Accounting Standards Codification (ASC) Topic 842, the Financial Accounting Standards Board’s (FASB’s) new standard on accounting for leases, took effect for public companies with calendar year-ends. It could bring some $3 trillion of lease liabilities onto publicly traded company balance sheets.

ASC 842 changes the way companies across all industries account for their leases and provides investors with a clearer picture of what companies owe through their lease obligations, including those for equipment and real estate. And in 2020, the rule goes into effect for most private companies as well.

This gives private companies an opportunity to learn from their counterparts in the public realm. What did earlier adopters do to prepare? And what stumbling blocks did they encounter along the way? Here are five ASC 842 lessons for private companies to help prepare for the first major FASB lease accounting changes in nearly 40 years.

Five lessons learned

Smoothing out the road ahead

ASC 842 dramatically increases the number of leases that companies may need to record on their balance sheets. The standard will likely have far-reaching implications, affecting areas such as accounting, real estate, legal, procurement, and technology. But companies needn’t start from scratch. ASC 842 lessons for private companies can be learned from their counterparts in the public arena, pointing out potential pitfalls and turning compliance into an ongoing advantage.

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