Lease Accounting Discussion Surges at CPAmerica A&A Conference
At the 2022 CPAmerica A&A conference, key discussions focused on CPA firm independence restrictions related to data hosting under AICPA standards, the proper disclosure and accounting of related-party leases per ASC 842, and the ongoing debate over the effectiveness of spreadsheets versus specialized software for lease accounting implementation and compliance.
CPA firm independence, related party leases, and the old debate between spreadsheets vs. software were prominent topics of conversation at the 2022 CPAmerica A&A conference in Charleston, SC. Ane Ohm, CEO, shared insights and key takeaways from the conference.
Lease Accounting and CPA Firm Independence – How to Stay Compliant?
The AICPA has clarified that a CPA firm cannot maintain its independence if it stores data on behalf of clients. This includes hosting a client’s website, storing client general ledger or other financial information, and providing business continuity services.
Technology can help CPA firms ensure accuracy, save time, and streamline processes. However, firms must use technology in compliance with AICPA standards related to independence and data hosting.
CPA firms also need to consider how they assist clients with implementing the new lease standard, especially as independence standards continue to tighten. While firms have the expertise clients need, clients must own the inputs and calculations. Technology should facilitate documentation around how a CPA firm maintains independence while helping clients ensure accurate financial reporting.
Related Party Transactions – How to Disclose?
The ASC 842 standard provides guidance on accounting for related-party leases. Under ASC 842, an entity should use the legally enforceable contract terms to calculate the right-of-use asset and lease liability. Economic incentives are important in determining the reasonably certain lease term, but the relationship between the parties is not a relevant consideration. The FASB has consistently reinforced this guidance. Related party transactions must be disclosed separately.
It can be overwhelming for clients to prepare for the new lease standard. Firms can help clients get ready by sharing resources and roadmaps for implementation.
Spreadsheets vs. Software – Which Is the Best Choice for Your Clients?
Clients who use spreadsheets to track or maintain their leases face many challenges. Spreadsheets are error-prone and difficult to adjust, leading to inaccuracies. They are also time-consuming and difficult to maintain, increasing the security risk of sensitive data. CPA firms fear that auditing a client’s lease accounting spreadsheet will be time-intensive, create dissatisfaction among audit staff, and may adversely affect realization rates.
Providing clients with lease accounting software offers a solution to these problems and allows firms to standardize processes around implementing and auditing lease accounting. This saves time, reduces costs, and improves the bottom line.
Related
Lease Accounting Software: What to Look For
The article advises CPA firms to choose lease accounting software that ensures compliance with complex new lease standards (FASB ASC 842 and IASB IFRS 16), offers features like automated journal entries, customizable amortization schedules, flexible reporting, and scalability to accommodate diverse client needs and industries, while cautioning against the risks of using spreadsheets for lease management.
In the News: FASB Releases 2022 GAAP Taxonomy
The Financial Accounting Standards Board (FASB) released its 2022 GAAP Taxonomy update, introducing new reporting elements such as credit losses excluding accrued interest, reinsurance contracts, pledged assets, debt obligations with recourse, changes in reporting entity, balance sheet offsetting, and financial statement location clarifications, while also deprecating obsolete guidance, refining labels, and modifying references to enhance clarity and usability for accounting and financial reporting.
Why doesn't the cash outlay match the lease expense?
Under ASC 842, the cash outlay no longer matches the lease expense on the P&L because lease payments reduce lease liabilities (debited) and cash (credited), while lease expenses are recognized on a straight-line basis through amortization of the right-of-use (ROU) asset and lease liability adjustments, causing timing differences between cash payments and expense recognition for both operating and finance leases.
Accounting for ASC 842 in Your Cash Flow Statement
The article explains that under ASC 842, leases are recorded on the balance sheet as right-of-use (ROU) assets and lease liabilities without immediate cash flow impact, with operating lease payments classified as operating activities and finance lease principal payments as financing activities on the cash flow statement, while initial recognition of ROU assets and lease liabilities are disclosed as non-cash investing and financing activities, and lease cash incentives from lessors to lessees are also considered in the presentation.
Accounting for Every Lease Type | Webinar
In the webinar "Accounting for Every Lease Type," Jess Vento and Matt Jensen explain the differences in accounting treatments for real estate, vehicle, and equipment leases under ASC 842 and GASB 87, highlighting classification criteria, common challenges, and best practices for compliance.
ProNexus Selects LeaseCrunch® as Lease Accounting Solution to Clients
LeaseCrunch®, a cloud-based lease accounting software designed by former CPA auditors to help implement ASC 842 and IFRS 16 standards, has been selected by ProNexus, a non-attest finance and accounting firm with 12 offices in New York and Michigan, to provide lease accounting solutions including calculation of Right of Use assets and liabilities, amortization tables, journal entries, and disclosures for their clients.