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Accounting & Disclosure

Readiness Doubts Emerge for New Accounting Standards

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August 08, 2018

Survey: time running out for lease-accounting standard implementation

Accounting-MoneyNew lease-accounting standards become effective at the start of 2019, less than five months away, and companies are concerned about being ready in time, according to a survey from Deloitte.

The survey, conducted during a May webinar on the topic by the consulting firm, found that 41.3% of respondents, were somewhat concerned about their ability to implement the standard by January 1, 2019, while 5.8% were very concerned. That is a slight improvement over the month before, when 42.1% were somewhat concerned and 7.2% were very concerned. However, those numbers are disquieting given respondents then had just seven months left to prepare, and a few months earlier the Financial Accounting Standards Board (FASB) had approved two ways to ease the transition. 


James Barker, a senior consultation partner at Deloitte, noted that the new standard, known as ASC 842, was 10 years in the making and stemmed from concerns that accounting for leases has provided lessees with off-balance-sheet financing.

“The goal of the guidance is to make sure leases are accounted for on the balance sheet,” Barker said, adding that originally the initiative focused on lessee accounting but the final language also changes the way lessors account for the leases they provide.

More than a quarter of respondents, 28.5%, said their companies will continue to use the same existing lease-accounting systems with little or no modification. However, 33.5% said they are already implementing a new technology solution or are in the early stages, while only 3.9% said a new technology solution was “substantially complete.” The largest portion, 34.1%, either didn’t know or said the question was not applicable.

“Anecdotally, we’re seeing more companies looking to implement new systems, especially lessees but also lessors,” Barker said. “We see that as a big challenge, and that’s one of the reasons a lot of US public companies are worried today about adopting the standard by January 1.”

He added that numerous vendors are offering solutions, often modules that can be incorporated into an existing enterprise resource planning (ERP) system, but “most vendors are behind.” That’s not surprising, he said, given it is a new standard, but as a result many solutions are effectively still in beta testing.

“We’ve heard many companies’ systems won’t be ready by Jan. 1, so they’re shifting to more of a manual work-around, often using spreadsheets, or they may use a bridge system and intend to move to something more robust and permanent later on,” Barker said.

Market participants responded to the survey a few months after FASB approved changes that significantly ease implementing it. One change eliminated the requirement for companies to recast their comparative period financial statements in accordance with the new guidance.

“Now companies can adopt the guidance on that effective date and not worry about restating comparative periods,” Barker said, adding that change was anticipated. “The other improvement allows lessors, under certain conditions, to account for the lease and related services together, rather than separately.”

The survey found that 35.9% of respondents said those technical improvements would ease their companies’ implementation efforts while 11.2% said they wouldn’t. The rest said they were unaffected by the changes, or they didn’t know what the impact would be.

The time needed to implement the standard was cited by 38.4% of respondents as the greatest challenge to their companies’ ability to collect lease data in a centralized, electronic inventory for lease-accounting implementation. Meanwhile, 27.4% noted the difficulty in engaging different constituencies in the company, and 11.1% pointed to finding a comprehensive IT solution.

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