The ever-evolving world of commercial real estate can be tough to keep up with. This is true for both newbies and pros alike. Take, for example, the newly implemented standards for lease accounting, known throughout the kingdom of commercial property management as ASC 842. While a crisp, clean and transparent financial statement is a beautiful thing to behold, it can often present a number of difficulties or pitfalls.
What Exactly is ASC 842?
ASC 842 was implemented for public companies at the start of 2019 and for private companies more recently in 2022. This is the new industry-wide standard that governs how those businesses in the commercial real estate sector must record or maintain their financial and operational lease agreements. Transparency is the new rule of thumb and ASC 842 is that rule enforcer.
Why would there be a need for this kind of transparency? Well, it’s only too easy to unintentionally misrepresent legitimate lease agreements and their placement in a company’s books. ASC 842 serves as a fast reminder that accuracy and consistency are expected across the board. With that introduction, we now want to share the top five ASC 842 failures to avoid.
5 Ways to Avoid the Lingering Pitfalls of ASC 842
While it seems a great idea and these new regs really help to keep everything in check, it also presents unique challenges for those companies and personnel who are tasked with keeping up with these assets and the revenues they generate. With that in mind, let’s consider ways to prevent or avoid any possible failures when it comes to ASC 842 compliance.
- Don’t Take Your Team for Granted
Make certain that your team knows the importance of accuracy and transparency. Account for everything that must be accounted for and make sure you have the right people in place who know how to pay close attention to those details. It’s only too easy to incorrectly identify or classify leases or to neglect lease modifications or embedded leases which are often overlooked.
The point here is to staff your team with qualified accountants who have properly studied “all things” ASC 842 and know the business both inside and out. Once your team is ready then cut them loose and let them make that proverbial ASC 842 magic happen.
- Don’t Rush It
Properly cataloging all of the lease details, especially if there are a considerable number of leased properties, takes a good deal of time. When it comes to ASC 42 accuracy is king. Obviously, this becomes less of a burden over time but when it comes to doing it right the suggestion here is to do it right the first time. Otherwise, more time is lost to rushed choices that can result in easy to overlook mistakes.
To be sure, deadlines are wanted but patience is called for. There’s the old axiom, “do you want it tomorrow or do you want it right?” The choice here should be easy. Make sure it’s done right.
- Don’t Fall Prey to Poor Training and Communication
As with most anything in life, communication is essential and that’s especially true in the business of commercial property management. Make sure that your accounting team is properly trained and informed about everything that is expected when it comes to ASC 842 compliance.
Organizing leases under ASC 842 can be a monumental task. There’s a lot to keep up with. In addition to the valuation of leased commercial properties, there’s also the matter of leased equipment such as computers or telephones, warehouse space, vehicles and so much more. Make sure your team knows how to account for what must be accounted for.
- Don’t Fail To Anticipate How This Affects Your Commercial Leasing Business
Understanding and anticipating the impacts of ASC 842 can be a win-win for property owners and lessors. When property managers develop stronger habits for transparency and internal controls, this means that your business is able to create a more productive and inspiring work environment. Playing by the rules is not just good advice but it also helps to encourage stronger networking opportunities with tenants and property agents alike.
Word of mouth is a big deal in the commercial property realm. When it comes to securing future opportunities now is a great time to flaunt your professional muscle by being ASC 842 compliant.
- Don’t Choose the Wrong Software Solution
When it comes to properly managing commercial leases, there are a lot of applications to choose from. Some are better than others. Some are too complicated. Some are a little too basic. Some are too expensive and some are unreliable.
Choosing the wrong software package can create havoc and undo a lot of hard work. When it comes to researching the solution for your commercial leasing business, it’s wise to do your due diligence and to make sure that the solution you choose for your team is a user-friendly choice for everyone involved.
Make sure that your chosen software is accessible to your entire team in real time and across multiple platforms. This way, ASC 842 compliance becomes more of a team effort. It’s not just about slushing through the details. It’s about creating a proper and relevant catalog of leases and properties that are available and manageable at any time and for anyone involved in helping you achieve your ASC 842 goals.
Make ASC 842 Compliancy Your New Golden Rule
“Happy ASC 842, happy life.” Well, it doesn’t rhyme and it’s not nearly as catchy but it’s every bit as true. We all know that any new law or mandate comes with a small army of rules and regulations and it can be tricky to keep up with every little thing that is expected and even demanded. This is why the more detail-oriented members of your accounting team should be brought to task, properly trained and given the time to make sure that your property management business is up to date and ASC 842 compliant. As for rule five above and choosing the right ASC 842 compliance software, you can schedule your free demo here.
