How Will the New Guidance Improve Lease Accounting?

By | May 13, 2021
Account, Accounting, Audit, Budget, Business

The Accounting Standards Upgrade (ASU) for topic ASC 842, Lease Accounting, has been issued by the FASB after years of consideration, bringing about significant changes in the industry as a whole. With the new standard in effect, public and private companies must ensure they are following the new accounting guidelines.  

Apart from being compliant, companies can reap several benefits from implementing the new principles. In this article, we will take a closer look at how ASU (ASC 842) will help companies improve their accounting infrastructure.  

How Will The New ASC 842 Improve Accounting? 

More Accuracy 

The first benefit companies get to enjoy is that by recording the leased assets as inscribed in the new standard, the end-representations are much more faithful in showing what the lessee and lessor’s rights are.  

Decreased Chances of Fraud 

Because of how thorough the new accounting principles are, the recorded transactions don’t present as many opportunities anymore for fraud or misrepresentation of facts geared towards a specific gain in the balance sheet. If there are any, auditors will be able to identify the same easily.  

Improved Understanding of Statements  

The increased thoroughness also means an improved understanding of the statements by external auditors and investors alike. The disclosure notes further help elaborate on what the statements present, which, in turn, means more trust from investors, partnering companies, and governments.  

Better Transaction Alignment  

By recording transactions as suggested by the new guidelines, lessors can keep a better record of their lease accounting, particularly the sale and leaseback transactions. Revenue recognition also improves, which further strengthens the company’s bottom line.   

Ability to Make Informed Decisions 

This is something that investors and the company itself get to benefit from greatly. The thorough nature of lease accounting means a better understanding of all lessor’s activities in regards to the leased asset. Companies can use this information to make better decisions about the lessors and increase the chances of risk recognition and mitigation. 

Clarification of Lease Practices 

One of the most prevalent benefits of this lease accounting type is that lessors and lessees can analyze each other’s lease accounting and treatment practices and address issues present in the current GAAP. Hence, it gives them ample opportunity to align interests, control, and other aspects of the lease.  

This also allows companies to micromanage the lease if they wish to do so or let it play its course out, thus giving both parties more versatility.  

This is just a sneak peek into the myriad of benefits that companies can enjoy by implementing the new ASU and its guidance.

However, changes can be implemented properly. If you would like to ensure all changes are implemented the right way without having to spend more on training or hiring experts, you can simply use iLeasePro.

There are a few lease accounting software companies out there that you should evaluate, but please include iLeasePro because we will provide the features you need at a price that makes sense.

To schedule a FREE demo todayget in touch today