ASC 842 requires that all leases longer than 12 months be recorded as both a Right-of-Use Asset and Lease Liability on the balance sheet. Due to this, lease information needs to be abstracted and collected with the nuances of ASC 842 accounted for. NetLease Complete's lease abstraction service can help you abstract information in a way that meets the requirements of ASC 842.
Key Takeaways
- Lease abstraction is a critical step when adopting ASC 842. Doing it right requires a nuanced understanding of the new guidance.
- Commercial real estate leases are lengthy documents, so a lease abstract is a powerful way to condense all the essential information into an easily-accessible form.
- Manual lease abstraction can be time-consuming and services like NetLease Complete can help speed up the process and make the resulting data easier to use.
What is Lease Abstraction?
Least abstraction entails extracting, processing and organizing the most important lease information. A lease abstract gives you the critical lease data at-a-glance so you can properly adopt ASC 842. A lease abstract for purposes of the new standard will contemplate information such as:
- Property address
- Lease payments: both lease and non-lease components
- Lease incentives
- Initial direct costs
- Prepayments
- Critical dates such as expiration and renewals options
Why Do You Need Lease Abstraction?
ASC 842 requires that all leases longer than 12 months be recorded as both a Right-of-Use Asset and Lease Liability on the balance sheet. Because of this, lease information needs to be collected with the nuances of ASC 842 in mind. This means that the exercise is not a simple copy/paste as many abstraction tools would have you believe. While tools such as AI abstraction can certainly help you find key data faster, they are error-prone and require an understanding of the new standard to be applied correctly.
For accounting teams to be able to correctly record leases on their balance sheets, they need these details on hand, quickly. This is proving challenging for companies who do not have their leases in a centralized location.
What Are the Advantages of Lease Abstraction?
- Time-saving: No more flicking through PDFs or combing through emails to track down the right information.
- Reduced risk: Lease abstraction with ASC 842 in mind will ensure that you are setting up your schedules correctly the first time.
- Better decision-making: Once the data is abstracted, it is easily accessible for everyone. The right people can make the decisions they need with all the information they want. You may find yourselves analyzing the data in new ways that make your company more successful.
However, this can be easier said than done as full lease abstraction can be time-consuming, particularly when done with the nuances of ASC 842 in mind.
How Can You Make Lease Abstraction Easier?
Lease management can be a full-time job. Keeping track of all the details of a large portfolio needs careful attention so no one drops any balls. Many companies deal with this process manually. They use spreadsheets, emails, and documents to track this critical information. However, this can be an inefficient use of time and result in human error, or not everyone being able to access the information when they need it.
Using a service like NetLease Complete, which can extract the key information for each lease from your lease contracts, and add the abstracted information into NetLease for you, will make the process faster. Having your abstraction completed by someone who understands ASC 842 is critical to ensuring that adoption is an exercise you only have to do once.
What Does NetLease Complete Offer?
NetLease Complete uses Netgain’s lease abstraction process and automated accounting software to take any private company’s lease portfolio and get you into compliance fast. Whether you report annually, quarterly or monthly, we’ve got you covered. Our services include:
- Lease review, abstraction and loading of key data into your dedicated NetLease account – your adoption is managed by lease accounting experts with ASC 842 in mind.
- Compliance with ASC 842.
- ASC 842 adoption memo and template footnote disclosure language.
- Audit support for ASC 842 adoption.
Whether you have already abstracted your lease contracts and want to input information into our software, or you need our help with abstraction – we can help you. After that, you will receive access to your fully populated NetLease account within three business days (for under 10 leases). Then, you will be ready to prepare your financial statements and book journal entries.
Bottom Line
Lease abstraction, done right by expert accountants, is a po
werful tool to help companies successfully complete their ASC 842 adoption. By using NetLease Complete, you can get support extracting information from leases, as well as inputting that information into NetLease. After that, you will benefit from the automation that the software provides.
