Companies still unprepared for leasing standard

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Most companies are still unprepared to adopt the new lease accounting standard, according to a new survey by Deloitte, and don’t believe the Financial Accounting Standards Board’s recent efforts to make implementation easier will save them any time or effort as they work on complying with the new rules.

Only 21.2 percent of finance, accounting and other professionals said their companies are “extremely” or “very” prepared to comply with FASB’s and the International Accounting Standards Board new lease accounting standards

The poll from the Deloitte Center for Controllership found that percentage is more than double the number expressing confidence, compared to a survey in early 2016 (9.8 percent), when the standards were initially issued, but it’s still a relatively low proportion as the deadline for adoption is approaching on Jan. 1, 2019 for U.S. public companies.

“During the remaining months before the lease accounting standards take effect, many companies should consider stepping-up their implementation efforts,” said Deloitte Risk and Financial Advisory managing director Sean Torr in a statement. “We see many organizations benefiting from instituting a cross-functional steering committee to steward resources and keep lease accounting implementation on track whether or not they plan to leverage the FASB’s new expedients.”  

Last November, FASB released proposed guidance to simplify the implementation process for the new standard by eliminating the requirement to evaluate pre-existing land easements to see if they meet the definition of a lease under the standard; offering an option to avoid restating comparative reporting periods in transition; and giving lessors the option of combining lease and non-lease components under some conditions. 

But even with the new guidance, only 10.2 percent of the survey respondents expect FASB’s expedient measures to reduce the amount of time and effort they need to implement the standard.

“These recent changes proposed by the FASB are all intended to help companies achieve a timely adoption but it’s clear from the poll results that, despite the help, many companies will likely still struggle to be ready by the effective date,” said James Barker, senior consultation partner for lease accounting in the national office of Deloitte & Touche LLP, in a statement.

Eighteen percent of the survey respondents said that implementing multiple new accounting standards, such as revenue recognition and current expected credit loss, simultaneously with lease accounting is proving difficult. The biggest implementation challenge is collecting lease data to produce the necessary centralized electronic inventory (32.6 percent, up from 24.7 percent in 2016).

More than half the survey respondents (50.6 percent) said the new lease accounting standard won’t change their organizations’ lease versus buy strategies. Only 6.4 percent anticipate the new standard will change the balance in favor of buying equipment over leasing it. Just 2.6 percent anticipate purchasing more real estate instead of leasing it. Fewer than 2 percent of respondents anticipate leasing rather than buying more real estate or equipment as a result of the standard.

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Accounting standards Financial reporting FASB Deloitte IASB