Importance of Audit and Accounting Standard in Private Companies
Private companies are lowering their lease accounting standards. According to a new survey, approximately 40% of private companies are planning to implement the new lease accounting standard late or have not begun yet, despite the fact that the deadline is approaching. The goal for most private companies is to accept the new standard, and many of them have begun the transition process. According to the lease accounting software review, 12 percent of the 350 best audit and accounting polled from private companies have already completed the project.
Private companies that have completed the transition include those that are planning an IPO or are in the process of being acquired by a public company. There are also few privately held companies that have registered securities or are SEC filers, so they must trail the targets for public companies, which had to start adhering to the standard. Approximately 48 percent of private companies measured indicated that they were on or ahead of schedule. Few companies, however, may be undervaluing the work effort left before they are required to comply, just as their public company counterparts did before they were required to begin complying.
When asked to compare the lease accounting standard to the revenue recognition standard that has already gone into effect, 75 percent of the private company administrators polled believe the new leasing standards are more complex or as complex as the revenue recognition standard. Nearly 55 percent of the companies polled believe the lease accounting project is more complex than originally anticipated.
The top three challenges they cited were gathering data, changing business processes, and project-managing the enterprise-wide effort. Over 60% of private firms have formally assigned a project manager from the accounting or audit reporting team to lead the project.
More than 40 percent of the survey defendants said they have taken an record of their enterprise-wide lease portfolio. The most exciting leases to analyse are not real estate contracts, but IT, fleet, plant, machinery and equipment leases.
Only 20 percent of the defendants indicated their companies have now selected a software vendor to sustenance the new lease accounting standards. More than 50 percent plan to use spreadsheets. Private companies will profit from having an extra year to prepare for ASC 842 as they can learn from the real-world experiences of public companies . As private companies continue their efforts to meet the target, they should be mindful to set up accessible business processes for constant compliance.
KGRN Accounting Associates understand the importance of audit and accounting standards. Finally, success with lease accounting will demand an enterprise-wide effort to regularly communicate changes to the range across business units, corporate functions, and the accounting team.
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