Another recent survey on lease accounting shows some stress in the system as companies wrap up one huge accounting standard adoption and dig into the next one.
Software provider LeaseAccelerator says it surveyed more than 300 accounting and finance professionals at large public and private companies based in the United States. It reveals three in four professionals are finding the adoption of the new lease accounting standard every bit as arduous as the even bigger new standard on revenue recognition. Public companies adopted new revenue recognition requirements with the start of the 2018 reporting year, and a major new standard to bring virtually all leases on to corporate balance sheets takes effect a year later.
The Financial Accounting Standards Board adopted the revenue recognition standard in 2014, initially intending for it to be effective Jan. 1, 2017, but delaying it a year to give companies more time to prepare. The board finalized the new standard on leases in 2016, setting a Jan. 1, 2019, effective date so that it would fall after, not on top of, the revenue standard.
Now that companies are finished or nearly complete with their work on revenue recognition, they’re devoting more attention to leases, says Michael Keeler, CEO of LeaseAccelerator. And they’re finding the challenges under the leasing standard to be different than those they faced with revenue recognition. “Project teams are discovering that it is not the accounting that presents the greatest challenge with compliance, but rather issues such as business process transformation and data collection that organizations are struggling with the most,” he says.
Almost 75 percent said they find the new leasing standard to be at least as complex, if not more, than revenue recognition. A similar number are finding it more complex than they originally expected. Their big challenges include collecting all the relevant data, modifying business processes to facilitate the new accounting, and managing the effort globally across multiple jurisdictions.
More than half of companies in the poll said they had fully inventoried their lease portfolio, and they found leases embedded in service contracts and outsourcing agreements to be the most difficult to identify and analyze. Only a little more than one-third of companies had identified a software vendor to assist with the new technology that would be necessary under the new requirements, the survey found.
Another recent poll by KPMG found companies still have a lot of work to do to be ready for the new lease accounting requirements. Only 15 percent said they were ready to go, and less than half said they had implementation plans under way. The remainder were still planning implementation activities or assessing how their financial statements and accounting processing would be affected by the new standard. Five percent said they had not yet lifted a finger to prepare for the new rules.
Readiness statistics in the LeaseAccelerator survey were a little different. Only 6 percent reported they were fully ready for the standard. That poll also asked companies whether they needed a delay in the effective date, and 60 percent said they believed a one-year deferral was warranted, despite recent relief extended by FASB on how companies must adopt the rules.