Background
The new lease accounting standard ASC 842, introduced by the Financial Accounting Standards Board (FASB), significantly changed the landscape for financial institutions such as credit unions and banks. The complex regulations necessitated a large-scale transition that required careful planning, execution, and a deep understanding of the intricacies of the new accounting standards.
Recognizing the monumental challenge that this transition presented to these institutions, NLA, a leading provider of lease administration and lease accounting services, stepped up to help financial institutions across the country transition to ASC 842.
Objectives
NLA’s primary goal was to guide these institutions through the transition, ensuring a clear understanding of the new regulations and providing effective solutions for implementing the changes. Objectives included:
- Providing detailed ASC 842 education and training for the staff of the financial institutions.
- Assisting with the identification of all lease contracts to be classified under ASC 842.
- Designing and implementing effective processes to manage the new lease accounting standard.
- Ensuring all financial statements and reports were correctly adjusted and compliant with ASC 842.
Implementation
Education and Training
NLA started by conducting comprehensive training sessions. Through these, they explained the key differences between the previous standard (ASC 840) and the new standard (ASC 842), the effects on financial statements, and the practical implications of these changes.
Identification and Classification of Lease Contracts
NLA’s lease administration and accounint team worked closely with the financial institutions to identify and classify all lease contracts that were to come under the purview of ASC 842. This process was methodical and meticulous, ensuring that no leases were overlooked.
Process Design and Implementation
Next, NLA undertook the challenge of updating or replacing the existing lease management systems. Recognizing that a one-size-fits-all solution was inappropriate given the distinct needs of each institution, NLA designed and implemented customized processes that best served each client’s requirements. These processes were designed with an emphasis on compliance, efficiency, and ease of use.
Adjusting Financial Statements
Finally, NLA ensured that all financial reports were accurately adjusted to reflect the changes. This involved not just the actual re-calculation and recording of numbers, but also ensuring the appropriate disclosures were made, keeping in line with the transparency emphasized by ASC 842.
Results
NLA successfully guided the transition to ASC 842 for multiple credit unions and banks. All the institutions that partnered with NLA reported a smooth transition to the new standards. Not only did NLA’s comprehensive approach ensure regulatory compliance, but it also allowed the institutions to effectively manage their leases under the new standard.
Staff training significantly improved the institutions’ understanding of the new standards, leading to increased confidence in dealing with the new requirements. The custom systems implemented by NLA proved to be efficient and user-friendly, which improved the productivity of the financial teams involved in lease management.
The transition also had a positive impact on the investors and members of these institutions, who appreciated the enhanced transparency in financial reporting under the new ASC 842 rules.