Halfway through their first year of reporting under a new lease accounting standard, only about one-fourth of public company executives said their implementation activities connected with the new standard were complete.
That was the outcome of a June Webcast poll at Deloitte, which found just 26.3 percent of public companies participating in the Webcast regarded their implementation of Accounting Standards Codification Topic 842 on lease accounting to be substantially complete. Of participants with public companies, nearly one-third said they felt their organizations were only “somewhat prepared,” and 8 percent said they were unprepared.
The webcast polled 1,230-plus participants, according to Deloitte.
The new lease rules took effect on Jan. 1, so calendar-year public companies have already reported under the standard in their first- and second-quarter filings. In a February poll, Deloitte found about half of public company participants said they planned to spend at least as much time or more time working on lease accounting into 2019 as they had already spent preparing for their first quarterly filings under the new standard.
Companies have generally reported significant difficulties getting systems and software running that would provide the lease data required under the new standard for reporting in financial statements. Most U.S. public companies have completed initial compliance activities but still have work ahead of them to fully work the new accounting into their ongoing processes and controls, says Sean Torr, managing director at Deloitte.
“I suspect we see a low rate of U.S. public company executives calling implementation complete because they’ve realized that ongoing work is necessary to build sustainable, long-term lease accounting programs,” said Torr in a statement.
When asked which issues pose the biggest challenges to achieving compliance, 30 percent of the June Webcast participants said their main problem is identifying all leases and gathering necessary data. Some 17 percent also said their organizations are struggling with making the necessary changes to business processes and controls and with communication to key employee or stakeholder groups.
Fifteen percent said their organizations are struggling under the weight of managing multiple new accounting standards in rapid succession. Major rules on revenue recognition took effect in 2018, and new rules on credit losses are on deck for 2020, with leases sandwiched between.
Private companies had an additional year to prepare when the Financial Accounting Standards Board initially enacted the rule, and now FASB is preparing to extend their time line for an additional year. FASB says it recognizes implementations are strained across a number of new standards, so it plans to allow more time for the system to catch up.