182. Navigating ASC-842: What Construction CPAs Need to Know

Listen in as Mike Merrill and CICPAC Executive Director Kathleen Baldwin discuss the implications of the new lease accounting standard, ASC-842, on contractors’ financial statements and business operations.  ASC-842 now requires companies to record the financial impact of their leases on their balance sheets. Baldwin details how this standard affects metrics like working capital, debt covenants and bonding capacity. The conversation underscores the importance of proactive communication with sureties and banks to manage these changes effectively. This episode provides actionable insights for contractors looking to stay compliant and financially sound under the new regulations. Key Takeaways •    Implement ASC-842 by ensuring most leases are included on balance sheets, which impacts financial statements and operational decisions. •    Assess how changes to lease accounting affect working capital, influencing a contractor's bonding capacity and ability to secure future projects. •    Reevaluate debt covenants under ASC-842 to maintain compliance with lenders, as new lease liabilities may alter key financial ratios. •    Adopt lease management software, such as LeaseCrunch, to automate lease data management, enhancing compliance and reducing manual errors. •    Engage in proactive financial planning by discussing ASC-842 implications with sureties and lenders early, minimizing the risk of financial statement surprises.