Deadline approaching for lease accounting changes

Companies are still behind schedule in getting ready for the impending lease accounting standard, according to a new survey.

Only 43 percent of public companies are in the final implementation stage of deploying a tool and migrating data for the new standard. For public companies, the new leases standard takes effect for fiscal years, and interim periods within those fiscal years, starting after Dec. 15, 2018, so for a calendar year company, it would be effective Jan. 1, 2019.

Compared to public companies, private companies are taking full advantage of the extra year they are being given by the Financial Accounting Standards Board to respond to the new leases standard, known as ASC 842. The survey, by accounting CPE provider Encoursa and lease accounting software provider LeaseQuery, found that 44 percent of private companies are still in the early stages of assessing their implementation plan.

When they were asked about the most challenging elements of adopting the new standard, accountants ranked understanding the new standards as their biggest challenge, higher than budgetary or staffing constraints. Liz Briggson, a practicing CPA in Michigan who is head of partnerships at Encoursa, noted that the responses speak to the complexity of the new standards. “Whereas the current standards differentiate between operating and capital leases using a well-known five-part test, the pending standards introduce new concepts such as identifying embedded leases, separating lease and non-lease components, and applying discount rates in an unprecedented way,” she said.

In response to the complexity of the new leasing standard, the survey found that seven out of ten public companies are selecting lease accounting software to help them deal with the new standard.

“Implementing and utilizing lease accounting software enables accountants to thoroughly assess their lease portfolio on the front-end with the help of knowledgeable advisors and confidently maintain compliance with the standards on a go-forward basis,” said Briggson. “Similar to fixed asset management practices, spreadsheets will simply no longer cut it.”

Nearly half the companies surveyed plan to implement the new leasing standard with fewer than one to two team members. “With a lean approach, smartly harnessing technology will go a long way in assuring a timely, effective and efficient transition,” said Briggson.

FASB meeting
Financial Accounting Standards Board meeting at FASB headquarters in Norwalk, Connecticut

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