More Big 4 surveys on big accounting changes suggest companies are starting to face a kind of paralysis over how to move forward and make it all work.
On revenue recognition, for example, where companies are facing adoption of a massive new accounting standard with the start of 2018, a recent KPMG poll suggests the vast majority of companies are still trying to digest how it will affect them. The same KPMG poll, as well as recent polls from PwC and Deloitte, suggest companies are also wringing their hands over how they will comply with a new standard on lease accounting.
In the KPMG survey, 80 percent of respondents said their companies were still in the assessment phase, studying the standard to determine how the company’s accounting and business processes will be affected by the new requirements. “We have some additional data we’ve collected that tells us most of the companies that are still in the assessment phase are in the relatively early stages of that,” says Steve Thompson, a partner at KPMG leading the revenue recognition effort. “We’re a year and a half away from the effective date for calendar-year public companies. That’s concerning to us.”
Accounting experts worry companies are not leaving themselves enough time to make whatever changes they determine necessary to processes and systems to comply with the standard, says Thompson. “If it takes nine to 12 months on average, companies need, in the next three to six months, to wrap up their assessments and think about what changes they need to make to their processes and systems to get started on that,” he says.
The KPMG survey also suggests nearly two-thirds of respondents have not yet involved the tax department in the assessment. “Tax is an area where, if companies are making changes, tax needs to be involved,” says Thompson. “They may have their own requirements to be concerned about.”
With respect to revenue recognition, at least: “Companies need to really buckle down on their assessment activities and really make that a priority,” says Thompson.
On the lease accounting front, companies have a longer lead time to adopt a standard that’s not quite as dramatic in terms of the accounting change. The long lead time, giving companies until 2019 to bring assets and liabilities associated with leasing on to the balance sheet, was intentional on the part of the Financial Accounting Standards Board. The board knew companies already had their hands full with the revenue recognition changes, not to mention changes in financial instruments accounting as well.
The KPMG and PwC polls offer slightly different characterizations of where companies are with respect to the lease accounting changes. KPMG’s poll, for example, says nearly half of all companies have not even begun to assess how the lease standard will affect them. PwC’s poll, however, says 70 percent of respondents have begun their assessments on lease accounting changes they will face.
In PwC’s poll, 75 percent said implementing new leasing IT systems will be difficult, and 73 percent said data collection will be difficult. Nearly as many said they expect challenges in allocating resources to the effort. That’s relatively consistent with Deloitte’s recent findings on lease accounting changes on the horizon.