Companies lagging on lease accounting efforts, Deloitte finds

Both public and private companies are struggling with implementing the new lease accounting standard, according to a new survey by Deloitte.

The survey found that only 29.9 percent of private companies plan to adopt the new lease standard on schedule when it takes effect next year. Most of the private companies surveyed by Deloitte are still reporting they are unprepared (33.2 percent) or just somewhat prepared (43.8 percent) to comply, which isn’t much of a change since the last time Deloitte asked companies the question in an survey last October.

Public companies are already supposed to be using the standard since mid-December of last year, but many of them are having difficulty with it. Around 23.9 percent of public companies think they will have to invest even more effort to produce their post-Q1 filings, while 25 percent believe they will need to invest the same amount of effort. The reason why involves changing their existing processes. The survey found that nearly one-third (30.8 percent) of public companies are still relying on manual processes for complying with lease accounting, while another 12.9 percent are still trying to determine or reassess the best approach for lease accounting going forward.

Deloitte building in Ottawa
Deloitte's Canadian office stands in Ottawa, on Wednesday, August 10 2011. Photographer: Brent Lewin/Bloomberg

“One would expect that the level of effort around lease accounting compliance would drop off considerably for U.S. public companies once 2019 first-quarter earnings are filed, but that’s simply not the case,” said Deloitte risk and financial advisory managing director Sean Torr in a statement. “Whether public companies need to better streamline lease accounting operations, fix temporary manual processes, or refine technology solutions, there remains a lot of work ahead for many public companies. Private entities appear to have even more work ahead.”

More than half (52.6 percent) of publicly traded companies are using leasing software for compliance, compared to just 13.4 percent of privately held companies. Most private organizations are employing either manual processes or existing solutions (43.8 percent), still trying to decide what approach to take (29.5 percent), or reassessing technology because their first software solution didn’t work (8.7 percent).

“It’s critical to understand that lease accounting compliance is non-negotiable, and many organizations still have a lot of work to do to achieve compliance — particularly on the private side,” stated Mark Davis, audit & assurance partner and national managing partner of Deloitte Private Enterprises for Deloitte & Touche LLP. “However, the one thing private companies have to their advantage is that public companies were required to implement the new standard first. Private company leaders can learn a lot from public companies’ efforts to date.”

Separately, Deloitte recently released its 10th annual life sciences accounting and financial reporting update. The report discusses how pharmaceutical, biotechnology, medical technology and other life sciences companies can navigate new accounting standards including the new leases standard.

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