Preparers seem more concerned about how they will gather and manage the data they need to comply with new lease accounting rules than they are about new IT system needs, according to a recent Deloitte poll.
In a webcast on the new lease accounting rules issued in February by the Financial Accounting Standards Board, 33 percent of the more than 5,400 participants said they expect the biggest challenge over the next 12 months will be collecting the necessary data from throughout the organization and assembling it into a centralized, electronic inventory.
Another 20 percent said they expect their biggest worries around developing and instituting processes to evaluate quarterly adjustments and results as required under the standard. Only 8 percent said it is IT system upgrades that keeps them up at night.
FASB and the International Accounting Standards Board both issued new lease accounting standards that require all entities to reflect nearly all assets and liabilities associated with leasing activities on the balance sheet. The GAAP standard take effect in 2019 for public companies, and they’ll need to present three years worth of data reflecting the new rules at that point. FASB intentionally left a long lead time as companies work through adopting an even bigger change to revenue recognition due in 2018.
“I would have thought more would identify systems or technical issues as their biggest challenge, but everyone is focused on data and processes right now,” says Sean Torr, a director at Deloitte leading the firm’s efforts around the new standard. “The data comes first in a long lead time that’s going to be required to get all the data into one place and make sure it’s normalized. So it’s the first up and also the longest duration activity.”
In the same poll, 47 percent of participants said they expected the standard to be somewhat or extremely difficult to implement. Only 20 percent were neutral on whether it would be difficult, and a still smaller number at 15 percent expect the task to be easy.
With the rules not taking effect until 2019, only 10 percent said they felt well prepared to comply with the new rules. Another 34 percent said they felt somewhat prepared, while 36 percent said they were not prepared.
“The level of preparation is not a surprise,” says Torr. Many companies have been on hold waiting for the final standard, and we’ve only had the final standard for a few months.” Now that most companies are through their year-end and first quarter reporting, Torr says he expects implementation activity to begin picking up over the coming months.