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Doubt creeps in on ability to adopt lease rules on time

Tammy Whitehouse | June 28, 2017

Another new poll on lease accounting says companies are starting to freak out over how they’ll meet the 2019 effective date for public companies to begin reflecting leased assets and liabilities on corporate balance sheets.

A day after PwC released data showing companies are moving slowly to adopt the new accounting standard on leasing, EY’s new survey data says only 27 percent of companies believe they are on track to achieve the critical milestones necessary to comply on time. Companies cite a host of challenges, like gathering the necessary data from lease contracts, updating or installing new systems to perform the new accounting, finding enough people hours to get the job done, and even interpreting the technical accounting requirements of the standard.

More than half of the 300 public company finance and IT leaders who participated in EY’s poll said they believed issues with information systems present the greatest risk to meeting deadlines. Nearly as many believe collecting the required data from contracts that may be scattered across a decentralized lease management process is proving difficult. Only 26 percent said they are clear on exactly who within their organizations is leading the lease accounting adoption effort.

Companies that are in the midst of transitioning to new revenue recognition requirements could take a few pages from that playbook to prepare for lease accounting, says Anastasia Economos, EY Americas accounting change leader for leases. “Enterprises should identify their business requirements for lease administration and accounting in order to evaluate system options as early as possible and ensure alignment across the organization,” she says.

Beyond compliance, Economos is advising companies to see the business improvement opportunity that the new accounting requires. Gathering all that lease data into a single location is likely to produce business insights about leasing patterns and obligations that companies have never had in the past.

“Companies want both compliance and transformation,” says Economos. “The survey results show that despite the challenges, lease accounting changes offer an opportunity to upgrade legacy IT systems and can help CIOs position their function at the forefront of business change. The majority of CFOs and CIOs see how these changes can align with broader goals and ambitions.” To achieve that, companies will need alignment across the organization among finance, corporate real estate, procurement, IT, tax and treasury, as well as with internal and external audit teams, she says.