Lease survey suggests companies are moving toward adoption

A software company’s recent survey suggests two-thirds of companies are on schedule or even ahead of schedule in preparing for the new lease accounting requirements that take effect in 2019, but even the firm’s CEO is wary of that result.

Of 250 accounting and finance leaders at U.S.-based public and private companies, most with revenues of at least $1 billion, 70 percent said they’d assigned a formal project leader and established a systems strategy, indicating at least an executive-level commitment to the effort, says LeaseAccelerator, which conducted the survey. “We were a little surprised,” said CEO Michael Keeler. “That seems like a high number compared with prior surveys and what we’re seeing in the market.”

The survey also found less than 30 percent had assigned a formal budget, and 25 percent said they hadn’t taken any steps to prepare for the standard. About one-third of those responding to the survey said they’d formed a lease accounting project team that included representatives from corporate real estate and information technology groups, but fewer had added in more cross-functional representation from groups like procurement, treasury, and operations.

Anecdotal observations from field work suggest most companies are focused more on revenue recognition, says Keeler, an even more pervasive change to accounting requirements that takes effect a year earlier, in January 2018 for public companies. “They all started kind of late and learned the hard way about what it takes to do one of these accounting changes,” he says.

The Financial Accounting Standards Board established the new lease accounting standard to bring leased assets and their related liabilities out of financial statement footnotes and onto the face of corporate balance sheets. In terms of preparing for the new lease accounting, companies will want to lock down their new processes by the final quarter of 2018, says Keeler.

“That means you have to back up and finish the implementation in the third quarter, so you really only have five or six quarters between now and when the entire public financial reporting community has to be ready,” says Keeler. “That’s really not that much time.”