ASC 842 is one of the most significant changes to financial accounting standards and creates additional considerations for companies planning an IPO or a SPAC.
In her article for Crunchbase News, BPM Assurance Manager Dantong Wang examines the various things companies contemplating an initial public offering or going public through a SPAC must consider about ASC 842, the new lease accounting standard. Dantong lists three key compliance considerations: identifying leases; properly managing and reporting lease data; and maintaining a sustainable and reliable internal process.
Dantong explains, “The first step in adoption is to identify the population of contracts that are impacted by the standard. … Under the new standard, businesses not only have to consider traditional lease agreements, but also any ‘embedded leases’ that could be included in any contracts not labeled as a ‘lease contract.’” The new lease standard also requires a lot more data inputs than the previous model.
As for timing on adoption, Dantong says, “Large companies that do not qualify as an Emerging Growth Company (EGC) are required to have adopted ASC 842 as of Jan. 1, 2019. This means that companies pursuing SPACs and expect to have $700 million or more in public equity float would have to go back and adjust their 2019 and 2020 financial statements if they have not already adopted the standard.”
About Dantong Wang
As a trusted technical accounting advisor, Dantong guides clients through complex transactions, such as business combinations and acquisitions ranging from $50 to $700+ million in deal sizes. She helps clients implement new accounting standards, convert accounting standards between U.S. GAAP and IFRS, and analyze numerous hybrid financing instruments.