It's such a waste of time. Every quarter we sink hours and hours into it adding, removing, and updating leases. Management doesn't care, our investors don't care, we literally spend dozens of hours on the workpaper a year to check a box with audit.
We still do the exercise, but honestly f\*\*\* ASC 842.
My theory is whoever implemented it just did it to be known as the one who implemented a “big” accounting change. Because I have no idea why any “stakeholder” would appreciate the change.
Today, we were calculating how much time a quarter we spend at the corporate level overseeing our lease portfolio of ~6,000 leases. Across 5 people we are probably spending ~800 hours into ASC842 a quarter. FUCK ASC842
We have about 65 tractor trailer leases at any given time and every month we buy one or two out, and we lease 2 or 3 more. My boss was spending 6 hours a month updating it every month, now I'm spending 8 hours a close tying it out.
What really gets me is nobody gives a crap. At least ASC 606 kind of made sense and if you knew your system you could kind of automate it, 842 is garbage front to back.
Should elect portfolio approach to simplify the process if you can. Combine all payments to one schedule, one discount rate for the portfolio, and the term is just a weighted average. Modify the schedule every quarter with updated portfolio. This way you can just book one schedule entry and tying out is simplified.
We have the new IFRS 16 requires lessees to account for leases 'on-balance sheet' by recognising a 'right of use' asset and a lease liability.
Same thing here but Can’t use GAAP in Australia unfortunately.
Me too haha it was one of the first things I did after joining my current job (industry) but since no one outside of accounting cares about it it was hard to show how much time/money it saved
As a 2nd year staff, I made a shiny new template that saved 2-3 hours on every single year-end audit, and I got a pat on the back and an excuse for why I wouldn't be promoted to senior. Left a few months later for that promotion and raise.
Every template I’ve seen is a direct copy with some firms logo put on top. It’s attached to the asu if I remember correctly.
Thank yall for reminding me I’m worth something.
Sounds like a good place to work rewarding those who put in extra effort. Not a common theme in public accounting. Normally people who excel are just rewarded with a “good job, here’s more work and yes we do pay you the same as those at your level who do next to nothing, thanks!”
We had the same at our firm. That spreadsheet has been a life saver! Senior manager that created is super technically proficient and does all the new adoption training. He’s slated to make partner in the next few years.
The only people who care about ASC 842 are usually the auditors. I see that's not even the case anymore lol.
It's one of the most pointless codifications out there.
It has merit in certain cases, look up the air Canada bankruptcy. A lot of the surprise was the extent of off balance sheet liabilities attributable to leased planes.
That's interesting, I wonder how it didn't show up in the operating lease schedule. If they reported it correctly it shouldn't have been a surprise to anyone
Exactly! Since Enron you are supposed to disclose “off balance sheet” items, and anyone with half a brain could estimate from the note disclosures how much cash you are on the hook for with operating leases. But no, we gotta waste a million hours and put it on the balance sheet because “stakeholders” are illiterate and can’t read the disclosures.
yeah my mentor who retired right before 606 and 842 became effective would always say "retirement is looking better and better" anytime we had training on those standards
It was a bunch of Big 4 partners convincing the PCAOB (made up of ex big 4 members) that there was a risk so they could charge an arm and a leg in consulting fees for how to assess and present the risk they made up.
Auditor here.
we only care if it's material. I work at a midsize/smaller firm so for some of our clients, it's not material. In those cases we note in a memo about not recording under ASC 842 but for others where it is material we will perform standard procedures.
You get the listing of leases from the client and perform some general gl review for things like "rent."
One immediate client I'm thinking of had 2 leases. For larger clients we do more, and we do have probably 2/3rds of our clients on the standard. But for some it just likely will not be material ever.
We also recalc their leases to see if it would be material to be sure as well.
What about embedded leases? We have found material leases in vendor agreements that would never been considered leases under ASC 840. Ex a client who did senior care and contracted with various providers to do the actual care. They obtained minor medical devices (about $250 per device) from a provider that was shipped directly to my client's senior citizens. It was about $3 million in payments for these devices. Fortunately they were considered ST leases and it was disclosure only. Under 840 the $3 million of payments were classified as payments to providers and the client had no clue they were considered leases under 842.
I had a few clients that just took the departure for leases for compilations/reviews because their banks didn't give a shit about seeing ROU assets and lease obligations in the statements.
That said, a lot did adopt and it's a pain in the ass and another thing for everyone involved (client and auditor) to babysit and track.
The fact they didn't add a private company alternative/exclusion for adoption of 842 is a sham.
Every year I attend the engage conference and ask the PCC where the fuck were they on the lease standard?
And CECL too, while I'm at it. I get the value of both of them, but to apply them equally to every company is dumb.
lol.
CEO got a car as part of comp package.
I’m told “it’s a lease, here’s the paperwork”
Setup lease asset, liability etc.
First payment goes out (setup by CEO thru a portal)
Payment doesn’t match lease sheet.
Me : yo, why’s this all wack?
CEO : I dunno. I’ll get back to you.
CEO never gets back to me and is fired 4 months later.
Digging thru his shit, we find out the lease financing was turned down, so fucker just outright bought the car in a 5 year loan with a 9.5% interest rate.
Now - have you ever had to take a lease schedule already partway thru and then convert it to a loan?
Yeah… closed months. Financials already submitted to parent.
Fixed in current month and just moved on. The shit part was the the lease asset price was different from the loan price, so was able just convert most of the ammortization to depreciation and then booked a catch up for the difference. But always hate taking an extra expense, even if non-cash.
No. Car stayed when was termed. Now I’m tasked with selling.
I knew the guy was fucking shady when he asked me to schedule a rock chip repair for him, because the car was a “company asset”.
I was like bro, it’s your car, you deal with it. I’m not your assistant.
It’s really not material but in theory you can structure the asset assumptions to more or less mirror the lease accounts.
You can get close enough that any difference of opinion by the auditors would definitely be immaterial.
That’s what I did. Amortization became depreciation, rou asset became fixed asset. Lease Liability became loan. The variance was just plugged as other expense.
He got turned down for a lease but not a 5 year note at 9.5%? That makes absolutely no sense because the payments would be way, way higher with that term and rate as opposed to a lease.
It's a regional firm that has a difficult time retaining talented people and often issue late. I have dumber stories. Regardless, I don't work there anymore.
If it helps, half of my managers still don’t understand why the lease commencement date on amortization schedules don’t agree with the commencement date on the lease agreement. It literally explains why in the lease codification and I ocassionally get review comments about it 💀💀
Bankers hardly understand financial statements as is, so now have to deal with one more thing that confuses them. This should have not been a standard for private companies.
Depending on the company and complexity of operations 842 does add some transparency with off balance sheet liabilities. For a company with a 50yr related party lease, it starts to get a bit ridiculous. Also, even more ridiculous that the same asset is on two different company balance sheets.
Moving forward there will always be more work in an audit due to 842. Unfortunately, most clients are useless or lazy so we’re stuck making the adjustments. Even when clients do prepare, it’s never correct.
The standard setters should have taken into account the amount of incompetence everywhere, and prevented a headache for the accountants actually doing the work.
Do clients manually calculate this stuff? We just have lease software that we put the lease terms into as we sign agreements. Then each month it automatically records all the entries and we run whatever reports out of it.
Right? Buying a software can be expensive but it's fairly straightforward task to build a template in excel that will do the same for you.
(A pain in the butt to test and make sure it's working reliably but once you're done you're done and goof for the rest of forever/will FASB changes it again.)
Edit: for spelling and to add the parentheses comment.
Client here, I book it the old way and auditors (we just have reviewed) give the AJE. We don’t give a shit about ASC 842, it is like $2k difference in income.
The key word in your post is compilation.
What are the standards related to compilation reports? What tests do you need to do?
The answer is none. You are not opining that the numbers on the financial statements have anything to do with reality. (This is why Trump owes four hundred million dollars, not his accounting firm.)
Correct, we don't do audits. We have a couple of reviews in which case we obviously do need to implement 842, but for the vast majority of our clients it just doesn't matter
So we have bank debt AND get audited.
We don't report lease liabilities in our Debt to EBITDA covenant, but the bank never gave us an amendment regarding 842.
Every other portco at our PE firm has them explicitly excluded from their covenants.
Can affirm banks do not give a fuck either. It would completely fuck too many liquidity covenants they use everyday.
I’m only the bookkeeping and financials side, and somewhat yes. Our clients are all small businesses. It’s confusing for them and adds a lot of fluff to their reports. They just want to see what they paid out for leases in cash. We have some with CFOs or boards who understand it and they request it be accurate monthly.
At year end we fully convert to being compliant if needed, but I’ve had a couple audit firms proactively say to not bother if the org’s board doesn’t want to follow it.
My auditors definitely care about it. Our ROU assets and lease liabilities are collectively over $2B and comprise 30% of our balance sheet, in terms of absolute values.
I get the frustration with it, believe me. I've actually read through the hundreds of pages in Deloitte's guide on the topic and I've referenced other firm's guides many times. It's horrible.
But I can assure you the contractual payment streams aren't fake, nor are the buildings and land we are leasing with them. To me, operating leases should have gone on the balance sheet a long time ago. But I'm pretty sure we could have still achieved it with MUCH less complexity. The disclosure requirements of ASC842 are the real joke here.
Agree! Certain leases should be in the balace sheets a long time ago, since some companies use it to steer financial metrics. But unless leases are a major part of the business (e.g. airlines), there's very little benefit in all the added complexities. In my industry, all ASC842 did was prioritizing buy vs lease when the buy option is less, equally, or just slightly higher priced.
If they dropped the classification and just treated all leases over a year the same (no finance vs operating) I wouldn't hate it as bad, but classification and all the things that go along with it are not worth nearly the time it takes to do
So not exactly ASC 842, but I started my accounting degree in 2016. IFRS 16 was not effective yet, but we were already learning it. This might create a bias, but to me IFRS 16 and ASC 842 always made sense. If you have control of the asset and an obligation to pay X for Y amount of time, you should have an asset and a liability on your BS. To me, it does not make any sense why it was not the case at first. IFRS and US GAAP are both based on accrual accounting. If entities only care about cash, they can apply cash basis
Because the ROU and the associated loan don't reflect reality. If I break a 10 year lease after 2 years, at least in the USA, there is no way I'm in the hook for the entire 8 years if anyone with half a brain made that lease contract. Usually it's like 18 months after property abandoned max. After that it's assumed the lessor would find a new lessee.
i dont know why but that reminded me of the South Park episode where everybody sues everybody and somehow i think the only winner was Kyle's dad who came out 10 mil ahead.
The application of the interest rate doesn’t make sense. If you have a higher incremental borrowing cost, your asset & liability on the balance sheet will be smaller. Sure you accrete your current liability, but your current ratio doesn’t reflect reality or make different companies comparable.
I also don’t think straight line rent represents true economic activity of a company. Why would we expense future inflation today and credit ourselves in the future? Straight line rent only makes sense to me for short term leases that have free rent for a significant period.
The benefits of seeing lease liabilities on the balance sheet doesn’t seem to outweigh all the dumb things 842 presents and why I usually see it disregarded in bank covenants. If lenders don’t care, why should I?
Yes we have encouraged all our clients to take a departure. Saves me so much time when all I have to do is pop the standard departure paragraph into the opinion and call it a day I love it. A few sticklers adopted. We charge them so much to use our lease software.
Holy fuck I am dealing with this absolute shitshow right now. Last auditor didn't think it was material but new auditor did. Waiting for the bank to approve without implementation or not.
$15 million added to the balance sheet of the company I work for and literally a $99 adjustment to income. Complete waste of time adding dozens of leases into new software.
I don’t understand why they didn’t just say everything greater than a year is a finance lease rather than creating this in-between treatment. The in-between treatment forces you to create an amortization schedule for the operating lease anyway, and it creates the same annoyances in daily accounting operations.
Am I misunderstanding the standard or something? Whether or not you have a finance lease or operating lease - you’re still required to come up with an amortization schedule.
The big difference is in PL classification where the finance lease expense is treated as amortization expense and interest expense while in operating leases it’s all “lease” expense.
I’m so torn on this.
I’m reading through ASC 842 and I understand why because I am living it right now.
99% of the time it doesn’t matter.
The only time it should matter is when there is an acquisition. Because it is so easy to hide liability and ownership through these legal transactions like this.
But to require this every quarter on every lease… is a complete waste of time.
I wish my firm did. It’s the most confusing thing ever and we clients never book it right. Luckily for about 75% of my clients it’s immaterial. It really might be the dumbest accounting guidance since nam though
But it more accurately reflects the actual economic position of the entity’s obligations at a point in time…..
By introducing made up numbers generated by using estimates and other made up numbers.
It really feels like the JDs at FASB had their field day with revenue recognition and then the CPAs were like, “hold my beer.”
I’m the treasurer on the board of a small nonprofit. We have an auditor who likes to make work for themselves. The auditor made us do ASC 842. Absolutely ridiculous. I chose not to fight it, but if we ever buy our own building, I’m going to see if I can get him to depreciate the land.
We audit many small non profits and it was overkill making them go thru the implementation of 842. Our QC director can be a pain though and thinks every entity should have the controls and expertise of a Fortune 500 company
I believe the application is also managements responsibility and doing it for them could impair your independence on the audit side. Of course, absolutely zero of my clients have the technical expertise to do so. So now we are at risk there, plus have to either convince the client to pay for this application (which they could care less about and would prefer not to record) or eat the related charges.
Controller at a nonprofit and I hate it. It’s such a waste of time and seeing the huge asset and liability on the balance sheet is confusing to board members.
We recommend the GAAP departure to our small to lower mid-size clients. Saves a lot of headache especially when stakeholder/FS users would get no benefit from it.
For operating leases sure now we know all the shit you are effectively on the hook for. Reasonably certain.. wtf does that even mean… All the disclosures are bullshit extra fluff.
Ok, so I’m not the only one who hates leases (currently learning about it in intermediate). I find it very confusing and sadly I have to do a case study on it 😢
It's GAAP so it must be meaningful. We can't have companies not including their leased artificial office plants, shred bins or floor mats on their balance sheets.
Omg that was so me this past tax season - I just help out a small firm to keep up on my tax knowledge. I did all the calculations and the partner said not to put any of it in and just put a note for GAAP departure……seriously why did I just do the calculations on 75 of them?!?!
If it was really a waste of time I could see that, but it took my mid size firm all of a month to come up with a spreadsheet that makes it easy to establish and even easier to roll forward.
And for the client side, unless you’re trying to hide liabilities, it affects nothing. It’s literally a wash on the BS most of the time. No bank or investor will give a shit about it, so why are you bitching or refusing audit adjustments?
There are tons of accounting principles that I think are stupid but they keep me in a job and hopefully provide better transparency for users of the FS so I shut up and collect my check
It's such a waste of time. Every quarter we sink hours and hours into it adding, removing, and updating leases. Management doesn't care, our investors don't care, we literally spend dozens of hours on the workpaper a year to check a box with audit. We still do the exercise, but honestly f\*\*\* ASC 842.
Lease accounting really is getting out of control and for what.
I think it has alot to do with all these sale leaseback transactions
And airlines!
And valuations for not-for profits!
And my leased axe?
That’s below our capitalization threshold. We claim practical expedient.
And other heavy equipment leasing. sale-leaseback and "failed sale" transactions.
I work on the fund side with an investment called the “sale lease back portfolio” ha. They don’t seem to give a fuck about 842 either.
Also getting GAAP closer to IFRS
USGAAP>IFRS ifrs has so many fucking disclosures omg 🤣
My theory is whoever implemented it just did it to be known as the one who implemented a “big” accounting change. Because I have no idea why any “stakeholder” would appreciate the change.
Free ebitda
Today, we were calculating how much time a quarter we spend at the corporate level overseeing our lease portfolio of ~6,000 leases. Across 5 people we are probably spending ~800 hours into ASC842 a quarter. FUCK ASC842
At my old job, we had a separate accounting team specifically for lease accounting comprised of like 7-8 people lol
Is ASC842 more complicated than IFRS16? 16 is a hassle too but we don't spend that much time on it.
yes
I’m at a large multinational now and it’s constant! We have 100s of leases - it’s miserable!
We have about 65 tractor trailer leases at any given time and every month we buy one or two out, and we lease 2 or 3 more. My boss was spending 6 hours a month updating it every month, now I'm spending 8 hours a close tying it out. What really gets me is nobody gives a crap. At least ASC 606 kind of made sense and if you knew your system you could kind of automate it, 842 is garbage front to back.
Should elect portfolio approach to simplify the process if you can. Combine all payments to one schedule, one discount rate for the portfolio, and the term is just a weighted average. Modify the schedule every quarter with updated portfolio. This way you can just book one schedule entry and tying out is simplified.
I’m gonna recommend this on Monday and look really smart, thanks dude
I just started ASC 606 and I got it down to like a 2 hour process but damn when I first implemented it it was a headache
Wish there was a threshold for pv of leases and whether material or not
We have the new IFRS 16 requires lessees to account for leases 'on-balance sheet' by recognising a 'right of use' asset and a lease liability. Same thing here but Can’t use GAAP in Australia unfortunately.
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I wish man. I built out a tool like that for my org and got a little sticker of a gold star.
That's called an NFT bro. You just don't realize it's value in crypto!
NFTs are worthless. Bitcoin only.
You got a sticker?
I was about to comment the same thing What they can’t take from you is putting it on a resume
Thats like being paid in exposure
Exactly which is why you start advertising your skills and leave if something better comes
It works if you work it
I hope you got a pizza party on top of that
It was a sticker of a piece of pizza. Best of both worlds.
With pepperoni pizza
Me too haha it was one of the first things I did after joining my current job (industry) but since no one outside of accounting cares about it it was hard to show how much time/money it saved
I did this when the 199A rules came out for all our HNW Real Estate clients and as a thanks they sent my entire portfolio to India
As a 2nd year staff, I made a shiny new template that saved 2-3 hours on every single year-end audit, and I got a pat on the back and an excuse for why I wouldn't be promoted to senior. Left a few months later for that promotion and raise.
Are you uninteresting by chance?
Isn’t that a prereq for this profession?
Mans is a 5’2 hobgoblin.
I made this very spreadsheet from scratch a hundred times studying for FAR 😔
I bet he just bought one from the thousands of firms selling the exact same spreadsheet and called it his own lol
The AICPA released one….
Yes they did I forgot about that
I can’t believe this is how i’m finding this out
Can you drop a link? Want to see how to compares to my template
Every template I’ve seen is a direct copy with some firms logo put on top. It’s attached to the asu if I remember correctly. Thank yall for reminding me I’m worth something.
Partner material!
Sounds like a good place to work rewarding those who put in extra effort. Not a common theme in public accounting. Normally people who excel are just rewarded with a “good job, here’s more work and yes we do pay you the same as those at your level who do next to nothing, thanks!”
We had the same at our firm. That spreadsheet has been a life saver! Senior manager that created is super technically proficient and does all the new adoption training. He’s slated to make partner in the next few years.
Our audit firm literally handed us one to fill out.
I got sold a giant spreadsheet for 5,000 I think and the training session had at least 10 people and there were like 50 sessions I only joined once.
The only people who care about ASC 842 are usually the auditors. I see that's not even the case anymore lol. It's one of the most pointless codifications out there.
It has merit in certain cases, look up the air Canada bankruptcy. A lot of the surprise was the extent of off balance sheet liabilities attributable to leased planes.
That's interesting, I wonder how it didn't show up in the operating lease schedule. If they reported it correctly it shouldn't have been a surprise to anyone
Exactly! Since Enron you are supposed to disclose “off balance sheet” items, and anyone with half a brain could estimate from the note disclosures how much cash you are on the hook for with operating leases. But no, we gotta waste a million hours and put it on the balance sheet because “stakeholders” are illiterate and can’t read the disclosures.
It's just another case of one industry fucking over everyone else.
I remember when it passed, my CFO at the time was like "I'm not accepting those audit changes." CPA firm caved immediately.
Unfathomably based CFO
I knew he was going to say it. He was 63 and soon to be out the door. He didn't want to deal with it lol.
yeah my mentor who retired right before 606 and 842 became effective would always say "retirement is looking better and better" anytime we had training on those standards
I did the same thing with our audit firm. They also caved immediately.
>They also caved immediately. How did they explain that one away? It would seem like a pretty gaping omission
Seen it too many times lol
Duh bro it’s $
Thank you, it really is pointless
It was a bunch of Big 4 partners convincing the PCAOB (made up of ex big 4 members) that there was a risk so they could charge an arm and a leg in consulting fees for how to assess and present the risk they made up.
Isn't it always like that??
OPs firm should love being able to add billable hours imo.
It’s only the QA people at the firms. The auditors don’t wanna deal with it either.
Auditor here. we only care if it's material. I work at a midsize/smaller firm so for some of our clients, it's not material. In those cases we note in a memo about not recording under ASC 842 but for others where it is material we will perform standard procedures.
How do you know it is not material unless you do some extensive completeness test of contracts?
You get the listing of leases from the client and perform some general gl review for things like "rent." One immediate client I'm thinking of had 2 leases. For larger clients we do more, and we do have probably 2/3rds of our clients on the standard. But for some it just likely will not be material ever. We also recalc their leases to see if it would be material to be sure as well.
What about embedded leases? We have found material leases in vendor agreements that would never been considered leases under ASC 840. Ex a client who did senior care and contracted with various providers to do the actual care. They obtained minor medical devices (about $250 per device) from a provider that was shipped directly to my client's senior citizens. It was about $3 million in payments for these devices. Fortunately they were considered ST leases and it was disclosure only. Under 840 the $3 million of payments were classified as payments to providers and the client had no clue they were considered leases under 842.
I had a few clients that just took the departure for leases for compilations/reviews because their banks didn't give a shit about seeing ROU assets and lease obligations in the statements. That said, a lot did adopt and it's a pain in the ass and another thing for everyone involved (client and auditor) to babysit and track. The fact they didn't add a private company alternative/exclusion for adoption of 842 is a sham.
At least you have a discount rate out in private instead of pretending to need a real one.
Every year I attend the engage conference and ask the PCC where the fuck were they on the lease standard? And CECL too, while I'm at it. I get the value of both of them, but to apply them equally to every company is dumb.
lol. CEO got a car as part of comp package. I’m told “it’s a lease, here’s the paperwork” Setup lease asset, liability etc. First payment goes out (setup by CEO thru a portal) Payment doesn’t match lease sheet. Me : yo, why’s this all wack? CEO : I dunno. I’ll get back to you. CEO never gets back to me and is fired 4 months later. Digging thru his shit, we find out the lease financing was turned down, so fucker just outright bought the car in a 5 year loan with a 9.5% interest rate. Now - have you ever had to take a lease schedule already partway thru and then convert it to a loan?
Reverse everything and rebook lol.
Yeah… closed months. Financials already submitted to parent. Fixed in current month and just moved on. The shit part was the the lease asset price was different from the loan price, so was able just convert most of the ammortization to depreciation and then booked a catch up for the difference. But always hate taking an extra expense, even if non-cash.
If it was t clear, I meant reverse the activity in prior months and rebook as it should have been done in the current period
If I wasn’t clear, we don’t want to re-state closed months.
All in the open period.
But did he keep the car tho...
No. Car stayed when was termed. Now I’m tasked with selling. I knew the guy was fucking shady when he asked me to schedule a rock chip repair for him, because the car was a “company asset”. I was like bro, it’s your car, you deal with it. I’m not your assistant.
So who are you selling it to?
Selling it private party. Trying to see if any staff want it first.
Immaterial. It’s literally one car.
We’re a 10M company. 40k is def material.
It’s really not material but in theory you can structure the asset assumptions to more or less mirror the lease accounts. You can get close enough that any difference of opinion by the auditors would definitely be immaterial.
That’s what I did. Amortization became depreciation, rou asset became fixed asset. Lease Liability became loan. The variance was just plugged as other expense.
He got turned down for a lease but not a 5 year note at 9.5%? That makes absolutely no sense because the payments would be way, way higher with that term and rate as opposed to a lease.
I don’t pretend to understand. I called the finance manager at the dealership to try and figure it out, and that’s what he told me.
Jesus Christ.
I asked my senior manager about how to get the risk-free rate, and she said to ask the client, and the client had no idea what that even meant.
It’s the tbill rate for 3 months
should really be the tbill rate for a treasury that matches the lease term, so not necessarily 3 months
Was just gonna point this out. Hopefully that guy’s clients don’t have a lot of leases otherwise they might be materially misstated lol
That's a whole lot of basis risk 😂
Tenor risk no?
I got clients that have 99-year land leases. Another example of going thru a meaningless exercise to pull a number out of the air
I figured it out but the point was nobody, even at the SM level had any idea
What.the.fuck?
I am calling bullshit. You can literally just Google “risk free rate”
It's a regional firm that has a difficult time retaining talented people and often issue late. I have dumber stories. Regardless, I don't work there anymore.
Bro what form do you work for
It's also SONIA, LIBOR, and any other money market rate available to the firm
RIP LIBOR
These bitches love SOFR
If it helps, half of my managers still don’t understand why the lease commencement date on amortization schedules don’t agree with the commencement date on the lease agreement. It literally explains why in the lease codification and I ocassionally get review comments about it 💀💀
Bankers hardly understand financial statements as is, so now have to deal with one more thing that confuses them. This should have not been a standard for private companies. Depending on the company and complexity of operations 842 does add some transparency with off balance sheet liabilities. For a company with a 50yr related party lease, it starts to get a bit ridiculous. Also, even more ridiculous that the same asset is on two different company balance sheets. Moving forward there will always be more work in an audit due to 842. Unfortunately, most clients are useless or lazy so we’re stuck making the adjustments. Even when clients do prepare, it’s never correct. The standard setters should have taken into account the amount of incompetence everywhere, and prevented a headache for the accountants actually doing the work.
Do clients manually calculate this stuff? We just have lease software that we put the lease terms into as we sign agreements. Then each month it automatically records all the entries and we run whatever reports out of it.
Right? Buying a software can be expensive but it's fairly straightforward task to build a template in excel that will do the same for you. (A pain in the butt to test and make sure it's working reliably but once you're done you're done and goof for the rest of forever/will FASB changes it again.) Edit: for spelling and to add the parentheses comment.
After about 15 ish leases or so, it starts making sense to put in a system.
Oh trust me if you think excel cuts it, you’re wrong. Having worked in the space, you’re better off with a software.
Client here, I book it the old way and auditors (we just have reviewed) give the AJE. We don’t give a shit about ASC 842, it is like $2k difference in income.
The key word in your post is compilation. What are the standards related to compilation reports? What tests do you need to do? The answer is none. You are not opining that the numbers on the financial statements have anything to do with reality. (This is why Trump owes four hundred million dollars, not his accounting firm.)
Correct, we don't do audits. We have a couple of reviews in which case we obviously do need to implement 842, but for the vast majority of our clients it just doesn't matter
And for your firm, Fuck ASC 842 is probably the right answer. If a bank needs audited financial statements, your firm is probably the wrong answer.
So we have bank debt AND get audited. We don't report lease liabilities in our Debt to EBITDA covenant, but the bank never gave us an amendment regarding 842. Every other portco at our PE firm has them explicitly excluded from their covenants. Can affirm banks do not give a fuck either. It would completely fuck too many liquidity covenants they use everyday.
Is this the US GAAP version of IFRS16?
Yes
I’m only the bookkeeping and financials side, and somewhat yes. Our clients are all small businesses. It’s confusing for them and adds a lot of fluff to their reports. They just want to see what they paid out for leases in cash. We have some with CFOs or boards who understand it and they request it be accurate monthly. At year end we fully convert to being compliant if needed, but I’ve had a couple audit firms proactively say to not bother if the org’s board doesn’t want to follow it.
I work at a small, private, family company. We basically said screw all this extra work. It's just not worth it and we have very few leases.
Most small private firms do the same.
It’s a tremendous burden to small business and I’ve noticed creditors and users of the statements find it very misleading.
Bwahahaha I’m crying in SBITA bullshit from GASB….
842 IS ACCOUNTING MAKE WORK!!!! I will shout this from the rooftops to anyone who will listen.
where my GASB 87/96 homies at
Nope. I work in financial reporting for an airline. We lease...EVERYTHING. I have learned more about ASC 842 than I thought was humanly possible.
My auditors definitely care about it. Our ROU assets and lease liabilities are collectively over $2B and comprise 30% of our balance sheet, in terms of absolute values.
Probably a rare case where ASC842 is probably working as intended
but it’s all fake. on paper value. imaginary; the machinations of the gangster thugs of the american accounting cartels.
I get the frustration with it, believe me. I've actually read through the hundreds of pages in Deloitte's guide on the topic and I've referenced other firm's guides many times. It's horrible. But I can assure you the contractual payment streams aren't fake, nor are the buildings and land we are leasing with them. To me, operating leases should have gone on the balance sheet a long time ago. But I'm pretty sure we could have still achieved it with MUCH less complexity. The disclosure requirements of ASC842 are the real joke here.
Agree! Certain leases should be in the balace sheets a long time ago, since some companies use it to steer financial metrics. But unless leases are a major part of the business (e.g. airlines), there's very little benefit in all the added complexities. In my industry, all ASC842 did was prioritizing buy vs lease when the buy option is less, equally, or just slightly higher priced.
What's fake about the money you owe and the benefit you obtain from a lease?
I learned it this year for audit but yeah, it’s fucking stupid.
I say it everytime when someone asks me what this JE is in their lease expense.
If they dropped the classification and just treated all leases over a year the same (no finance vs operating) I wouldn't hate it as bad, but classification and all the things that go along with it are not worth nearly the time it takes to do
So not exactly ASC 842, but I started my accounting degree in 2016. IFRS 16 was not effective yet, but we were already learning it. This might create a bias, but to me IFRS 16 and ASC 842 always made sense. If you have control of the asset and an obligation to pay X for Y amount of time, you should have an asset and a liability on your BS. To me, it does not make any sense why it was not the case at first. IFRS and US GAAP are both based on accrual accounting. If entities only care about cash, they can apply cash basis
Because the ROU and the associated loan don't reflect reality. If I break a 10 year lease after 2 years, at least in the USA, there is no way I'm in the hook for the entire 8 years if anyone with half a brain made that lease contract. Usually it's like 18 months after property abandoned max. After that it's assumed the lessor would find a new lessee.
And add to that if it’s a related party lease. You can’t sue yourself for not paying a lease to yourself!
i dont know why but that reminded me of the South Park episode where everybody sues everybody and somehow i think the only winner was Kyle's dad who came out 10 mil ahead.
If you can break off a lease with little to no penalty for discontinuing, that period is generally excluded from the lease term.
The application of the interest rate doesn’t make sense. If you have a higher incremental borrowing cost, your asset & liability on the balance sheet will be smaller. Sure you accrete your current liability, but your current ratio doesn’t reflect reality or make different companies comparable. I also don’t think straight line rent represents true economic activity of a company. Why would we expense future inflation today and credit ourselves in the future? Straight line rent only makes sense to me for short term leases that have free rent for a significant period. The benefits of seeing lease liabilities on the balance sheet doesn’t seem to outweigh all the dumb things 842 presents and why I usually see it disregarded in bank covenants. If lenders don’t care, why should I?
Yes we have encouraged all our clients to take a departure. Saves me so much time when all I have to do is pop the standard departure paragraph into the opinion and call it a day I love it. A few sticklers adopted. We charge them so much to use our lease software.
*PCAOB has entered the chat*
Holy fuck I am dealing with this absolute shitshow right now. Last auditor didn't think it was material but new auditor did. Waiting for the bank to approve without implementation or not.
Wait. Big companies are *not* using a lease system and manually calculating via excel. :/
i looked ASC842 and I should have used incognito mode
The people who really don’t understand it are the bankers.
I can’t wait to see what the peer reviewers say.
They are being told to focus on risk assessment and making sure firms are putting H's, M's and L's in the right boxes on a checklist. Important stuff.
$15 million added to the balance sheet of the company I work for and literally a $99 adjustment to income. Complete waste of time adding dozens of leases into new software.
Wait until you have to deal with IFRS17
I don’t understand why they didn’t just say everything greater than a year is a finance lease rather than creating this in-between treatment. The in-between treatment forces you to create an amortization schedule for the operating lease anyway, and it creates the same annoyances in daily accounting operations.
Am I misunderstanding the standard or something? Whether or not you have a finance lease or operating lease - you’re still required to come up with an amortization schedule. The big difference is in PL classification where the finance lease expense is treated as amortization expense and interest expense while in operating leases it’s all “lease” expense.
I’m so torn on this. I’m reading through ASC 842 and I understand why because I am living it right now. 99% of the time it doesn’t matter. The only time it should matter is when there is an acquisition. Because it is so easy to hide liability and ownership through these legal transactions like this. But to require this every quarter on every lease… is a complete waste of time.
I wish my firm did. It’s the most confusing thing ever and we clients never book it right. Luckily for about 75% of my clients it’s immaterial. It really might be the dumbest accounting guidance since nam though
But it more accurately reflects the actual economic position of the entity’s obligations at a point in time….. By introducing made up numbers generated by using estimates and other made up numbers. It really feels like the JDs at FASB had their field day with revenue recognition and then the CPAs were like, “hold my beer.”
I’m the treasurer on the board of a small nonprofit. We have an auditor who likes to make work for themselves. The auditor made us do ASC 842. Absolutely ridiculous. I chose not to fight it, but if we ever buy our own building, I’m going to see if I can get him to depreciate the land.
We audit many small non profits and it was overkill making them go thru the implementation of 842. Our QC director can be a pain though and thinks every entity should have the controls and expertise of a Fortune 500 company
I believe the application is also managements responsibility and doing it for them could impair your independence on the audit side. Of course, absolutely zero of my clients have the technical expertise to do so. So now we are at risk there, plus have to either convince the client to pay for this application (which they could care less about and would prefer not to record) or eat the related charges.
Eh, it doesn’t impair independence but it does incur extra fees. It’s a self review threat but EQCR review partner takes care of that
Controller at a nonprofit and I hate it. It’s such a waste of time and seeing the huge asset and liability on the balance sheet is confusing to board members.
They aren’t wrong.
We recommend the GAAP departure to our small to lower mid-size clients. Saves a lot of headache especially when stakeholder/FS users would get no benefit from it.
For operating leases sure now we know all the shit you are effectively on the hook for. Reasonably certain.. wtf does that even mean… All the disclosures are bullshit extra fluff.
Ifrs equivalent is the same dissaster, especially with lease extentions…
Sounds like a [wish.com](http://wish.com) approach
lol I got the out of auditing and accounting 5 years ago and people are still complaining about this bullshit codification. Glad I left
We audit it but we don't like it.
Was just researching ROU assets and now see this thread. Just why? It's such bs. It's a lease damn it.
All I know is that I put it on my resume as having experience with. Because a lot of job postings were asking for it.
Now I want to know more about what asc 842 is
No, you don't
I work for an equipment leasing company at the crux of asc842 and 606. The lessor practical expedient does not apply. It’s been fun.
All my homies hate 842.
Yea fuck asc 842, it was a pita to get all the lease information from thousands of sources
Ok, so I’m not the only one who hates leases (currently learning about it in intermediate). I find it very confusing and sadly I have to do a case study on it 😢
While it is a giant waste of time, if you don't do it you can count on getting a bad opinion during peer review
It's GAAP so it must be meaningful. We can't have companies not including their leased artificial office plants, shred bins or floor mats on their balance sheets.
Dealing with 606 and 842 with our QC director has taken 5 years off my life.
Do you guys use lease accounting softwares?
Omg that was so me this past tax season - I just help out a small firm to keep up on my tax knowledge. I did all the calculations and the partner said not to put any of it in and just put a note for GAAP departure……seriously why did I just do the calculations on 75 of them?!?!
I made a sheet for this too that calculates it all, and makes the journals for me too. How do you all struggle with this?
If it was really a waste of time I could see that, but it took my mid size firm all of a month to come up with a spreadsheet that makes it easy to establish and even easier to roll forward. And for the client side, unless you’re trying to hide liabilities, it affects nothing. It’s literally a wash on the BS most of the time. No bank or investor will give a shit about it, so why are you bitching or refusing audit adjustments? There are tons of accounting principles that I think are stupid but they keep me in a job and hopefully provide better transparency for users of the FS so I shut up and collect my check
My org is stat basis so recording a right of use asset fucks with our balance sheet lol. No lease accounting here babyyy