We’re rounding out Grassi’s Top 5 Contractor Strategies for 2022. Our final strategy is not an optional one if your construction company is not prepared to comply with the new lease accounting standard this year.
Strategy #5: Get ASC 842 Compliance Right
The construction contractor’s financial statement is about to undergo another change. Much like the changes to their GAAP revenue recognition model, contractors will now have to adopt changes to reporting leasing arrangements (as the lessee). In short, all long-term leases will be pulled up on the contractor’s balance sheet as a right of use asset with an offsetting current and long-term liability. The challenge will not be in identifying and accounting for the leases, but rather in how bringing on debt impacts the contractor’s working capital, maintenance of financial covenants, project pre-qualification and so on.
While the CPA industry is educating the credit community on these changes, the construction company’s financial professional should be analyzing the potential impact of ASC 842 and engaging in an active dialogue with the bank and/or surety with the ultimate goal of maintaining the bond program and modifying financial covenants.
To help contractors prepare for this change, which is effective for private companies’ fiscal years beginning after December 15, 2021 and interim periods beginning after December 15, 2022, Grassi partnered with CICPAC to create a comprehensive Implementation Guide. Download your copy today and contact your Grassi advisor or one of our Construction professionals to make sure you get ASC 842 compliance right.
This article is the fifth in the series, Top 5 Contractor Strategies for 2022, from Grassi’s Construction team. Also read about our first four strategies to help your construction company navigate the year ahead:
Strategy #2: Live Your Cash Flow Forecast and Budgets
Strategy #3: Evaluate Your Income Tax Strategies
Strategy #4: Don’t Neglect Your Succession and Estate Planning