The year-end push to adopt new lease accounting is taking more time and more money than companies expected, according to a new poll by EY.
A significant majority, 85 percent, of the finance and IT professionals in EY’s poll said their companies will adopt the standard on time. Nearly three-fourths of companies are implementing a long-term technology solution to achieve compliance, and 85 percent of those say they will rely on manual or interim solutions at the effective date because the long-term system will not be ready in time.
Accounting Standards Codification Topic 842 takes effect Jan. 1, 2019, for most public companies, requiring them for the first time to reflect lease-related assets and liabilities on the balance sheet rather than in footnote disclosures. Companies have faced numerous challenges in preparing for the new standard, which follows by a year the adoption of an even bigger accounting change, ASC 606 on revenue recognition.
In addition to deploying manual workarounds while they wait for long-term systems to come on line, companies are indicating through EY’s survey that they are relying on third-party resources and higher budgets to get the job done. Nearly half, or 45 percent, said they are using temporary contingent workers to support the lease change, compared with 17 percent a year ago. While at the end of 2017 only 28 percent of companies expected the final implementation bill to fall between $1 million and $5 million, now 47 percent are bracing for a final cost in that range.
“Compliance with the new leases standard has become a larger, more complicated endeavor than many companies originally anticipated,” said Anastasia Economos, EY Americas leases leader, in a statement. Companies have hit stumbling blocks in choosing a system, gathering the necessary data from across the organization, interpreting contracts, identifying embedded leases, assembling data, and deploying systems, said Economos.
The problems were magnified in large, global organizations with large numbers of leases, some of which may have been written in different languages. Data collection alone was daunting enough, according to the survey, where 83 percent globally and 78 percent in the United States said inventorying and collecting data was challenging.
Data is fragmented across legacy systems, making data gathering and reconciling difficult. Three-quarters are worried about establishing master data requirements and the specifications needed for data strategy.