Client Background
A regional contractor approached Hedman Partners LLP to assist in the adoption of ASC 842, Leases. The company had experienced rapid growth over the past several years and now required reviewed financial statements to secure financing for continued growth and expansion. The company maintains fleets of leased vehicles for its employees, leases several warehouses and offices and contracts with multiple vendors for IT services.
Challenges Before Hedman Partners LLP Engagement
- Numerous lease contracts
• Including real estate and equipment leases—scattered across departments. - Uncertainty about the scope of lease guidance
• Potential embedded leases and non-standard arrangements - Limited internal experience and resources
• Complex requirements of ASC 842 and the necessary accounting for right-of-use assets and lease liabilities was outside of the realm of current staff.
Hedman Partners LLP’s Approach
1. Comprehensive Lease Identification and Review
• Lease Gathering
Worked with accounting and operations to compile all existing lease agreements.
• Embedded Lease Assessment
Reviewed service contracts and other arrangements to identify embedded leases per ASC 842’s definition.
• Contract Inventory
Developed a master schedule of all lease and lease-like arrangements.
2. Practical Expedient Analysis
• Management Collaboration
Facilitated discussions with management to assess and select appropriate practical expedients (e.g., package of three, short-term lease election, hindsight).
• Tailored Solutions
Provided recommendations based on the client’s business needs and risk profile to optimize the transition process.
3. Proprietary Template Deployment
• Utilized Hedman Partners’ proprietary ASC 842 templates to:
-
- Classify Leases: Determine finance vs. operating lease classification.
- Calculate Initial Balances: Compute initial right-of-use (ROU) assets and lease liabilities.
- Automate Journal Entries: Generate recurring monthly entries for lease expense/amortization, interest, and liability reduction.
- Disclosure Summarization: Compile all necessary data for financial statement disclosures, ensuring complete ASC 842 compliance.
4. Documentation and Adoption Memo
• Formal Memo: Prepared detailed documentation supporting the adoption of ASC 842, clearly outlining judgment areas, impacts, and the rationale for practical expedient selections.
• Impact Analysis: Quantified the transition effects on the company’s balance sheet and income statement.
5. Training and Ongoing Support
• Transition Workshops: Delivered tailored training for accounting staff on ongoing lease accounting and monthly reporting requirements.
• Self-Sufficiency: Equipped the company to independently record and manage lease transactions post-implementation.
Outcomes & Benefits
Before Engagement After Hedman Partners LLP CAAS Services
Contracts scattered, potential undocumented embedded leases All contracts catalogued and assessed
Unfamiliar with ASC 842 requirements Clear guidance and tailored process
Unsure which practical expedients to elect Appropriate expedients selected with support
No tools for calculation or disclosures Automated templates for calculation and reporting
Risk of audit issues Audit-ready documentation and schedules
Audit Readiness and Outcome
• Year-End Audit Success
All ASC 842 schedules and supporting documentation were neat, organized, and ready for auditor review.
• Efficient Audit Process
External auditors expressed satisfaction with the clarity, GAAP-compliance, and support for all lease-related balances and disclosures.
• No Adjustments or Deficiencies
The client passed the audit section on leases with zero adjustments or material comments.
Conclusion
With Hedman Partners LLP’s Client Accounting & Advisory Services, the client experienced a smooth ASC 842 adoption and transition. The combination of expert guidance, proprietary tools, and effective training ensured accurate accounting, audit readiness, and self-sufficiency for future lease transactions.
Contact Hedman Partners LLP today to learn how we can support your organization with complex accounting guidance implementation.