SEC Comment Letters Reveal Lease Accounting Lessons for Private Companies – LeaseQuery Report

After a challenging year, private companies should look for opportunities to get an edge on what’s ahead

ATLANTA--(BUSINESS WIRE)--After evaluating recent SEC comment letters* on lease accounting disclosures, LeaseQuery, a recognized leader of purpose-built accounting software, announced the findings in its new report, Lease Accounting SECrets Private Companies Can Learn From Public Companies. The report uncovers insight into some challenges private companies may encounter when on the other side of implementation - and how to avoid them.

The report assesses SEC comment letters on lease accounting disclosures from public companies’ 2019 and 2020 filings across a range of industries, including healthcare, biotechnology, retail and financial services. Based on the letters written, it is evident that as private companies gear up for the complex lease accounting transition process for compliance under FASB ASC 842, they should leverage these lessons learned from public companies.

“With the lease accounting transition deadline approaching, private companies must not be complacent in thinking there is ample time to comply,” said George Azih, CEO and founder of LeaseQuery. “The time-consuming and complex process cannot be completed overnight. By looking at SEC comment letters of public companies, private companies can better navigate the hurdles of the transition process and avoid making the same mistakes.”

Common themes in SEC comments include:

Bring Clarity to COVID-19 Concessions and Changes

With so many companies reconsidering their real estate footprint and renegotiating lease terms due to the COVID-19 pandemic aftermath, it’s crucial for private companies to ensure their implementation process includes a detailed review of lease changes and concessions.

Get Descriptive When Documenting Discount Rates

When documenting discount rates, which can define the lease liability recorded on the balance sheet and lease classification, companies should document incremental borrowing rates applied to their lease portfolios.

Track Terms and Understand Value of Variable Rent Payments

Many lease contracts contain variable or contingent rent provisions related to sales, usage rates or inflation, and businesses must keep in mind they are to be accounted for differently than fixed rent payments.

Treat ROU Right, or Risk Non-compliance

For many companies transitioning to the new lease accounting standard, calculating the right of use (ROU) asset can be a challenge. Companies must understand the impact lease modifications have on both the lease liability and ROU asset in order to have a successful transition.

With fluctuating lease portfolios and business needs, coupled with the challenges of complying with the new standard, it is imperative that companies centralize their lease data, know every facet of their lease portfolio and have the technology and resources on hand to identify and solve any barriers to compliance.

For more information, read the full report: Lease Accounting SECrets Private Companies Can Learn From Public Companies.

*Research Methodology

LeaseQuery evaluated SEC comment letters on lease accounting disclosures from public companies’ 2019 and 2020 filings across a range of industries, including healthcare, biotechnology, retail and financial services. The SEC issues comment letters on public financial filings when they conclude disclosures need clarification or correction. Filers then have the opportunity to respond to the SEC and provide additional information or propose amended disclosures. Both the SEC’s original comment letter and the filer’s response are made public when the SEC is satisfied that the comments have been addressed.

About LeaseQuery

LeaseQuery helps more than 10,000 accountants and other finance professionals eliminate lease accounting errors through its CPA-approved lease accounting software. It is the first lease accounting software built by accountants for accountants. By providing specialized consulting services in addition to its software solution, LeaseQuery facilitates compliance with the most comprehensive regulatory reform in 40 years for companies across all sectors.