With only six months to the effective date of a new accounting rule to bring leases on to corporate balance sheets, more than half of companies have not started to prepare, according to a new survey.
In an online poll by Robert Half and Protiviti of more than 2,000 finance leaders, 56 percent of companies said they had not begun transitioning to the new lease accounting standard that takes effect for public companies on Jan. 1, 2019. Private companies have an additional year to comply.
The new rule requires companies to take careful stock of their leases, not only for property and equipment but also for lease arrangements embedded in service contracts, and reflect them on the face of financial statements. The adoption of major new rules on leasing follows an even larger effort at many companies during 2017 to begin reflecting new rules on how to recognize revenue in financial statements. That standard took effect Jan. 1, 2018, for public companies.
The survey found that even among companies that have taken steps to prepare for the new accounting, much work remains to be done. Only 48 percent of companies reported they had completed their assessment of how they are affected by the new accounting and how much work they will need to do to comply.
It appears larger companies are further along than smaller companies, according to the poll, with 69 percent of the largest companies saying they’ve started the process compared to only 37 percent of the smallest organizations. Companies ranked the biggest challenges they are having in transitioning to the new accounting, citing most often training staff, diagnosing the needed changes, and finding staff resources who can do the work.
With the revenue recognition standard preceding leases, companies appear to be leveraging what they learned in that implementation exercise, according to the poll. Nearly three-fourths said that transition was even more difficult than the transition to lease rules, and 83 percent said they expect to apply some of what they learned through revenue recognition to the lease adoption effort.
“Companies may be tempted to pause and take a breath after completing their revenue recognition work, but time is a luxury they don’t have,” said Chris Wright, managing director at Protiviti, in a statement. “Adopting the new standard requires a substantial effort to prepare a firm’s people, processes, and systems.”
As examples, Wright said companies can expect to expend signifiant time and energy in identifying and implementing a lease administration system and abstracting the relevant data from their lease and service contracts. “Although lessons learned from the revenue recognition transition are valuable, not every organization was as impacted by that standard as they will be by new lease accounting rules,” Wright said.