For anyone wondering how their preparations for the new lease accounting standards by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) compare to other companies, Deloitte did a little homework.
A recent survey of more than 3,300 professionals revealed a range of implementation progress – or not.
For example, some sectors expect to increase the amount of time and effort they spend on lease accounting implementation in 2017. They include:
- Automotive (77.1 percent)
- Health plans (65.9 percent)
- Healthcare providers (62.8 percent)
- Industrial products and services (61.7 percent)
- Retail, wholesale, and distribution (61.3 percent)
- Media and entertainment (61 percent)
“For the many companies impacted by the new lease accounting standards, the biggest challenge may be in identifying leases themselves,” James Barker, senior consultation partner in the national office of Deloitte & Touche LLP, said in a prepared statement. “Identifying equipment leases embedded within service arrangements and evaluating so-called secondary-use arrangements where an asset is utilized without disrupting its primary use – like ads on the side of a building or cable wires added to utility-owned poles – are areas where many companies are focused.”
The FASB issued its long-awaited lease accounting standard in February 2016, a little more than a month after the IASB released its version.
In the United States, public companies will be required to adopt the new standard for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2018. Private companies will be required to apply the new leasing standard for fiscal years beginning after Dec. 15, 2019, and interim periods within fiscal years beginning after Dec. 15, 2020.
The IASB standard is effective for annual reporting periods beginning on or after Jan. 1, 2019.
Here are a few of the highlights from questions asked in the Deloitte survey:
How prepared is your company to deal with the new lease accounting standards? The majority (54.6 percent) said somewhat or not too prepared; 13.8 percent said extremely or very prepared.
Which group is leading or likely to lead the implementation in your organization? The majority (55.2 percent) said “controllership,” while 13.8 percent reported that the task was a collaborative effort involving the controllership, IT, real estate, and treasury professionals.
“It makes sense to have the controllership heavily involved in lease accounting implementation, but we’re encouraged to see that some organizations are teaming more broadly on the effort,” said Sean Torr, Deloitte Advisory managing director for Deloitte & Touche. “Any organization’s lease portfolio can impact myriad groups, so leveraging a multidisciplinary task force can help more teams realize value from the large operational undertaking of lease accounting implementation.”
Which best describes your implementation guideline? 36.4 percent of privately held companies said on time, 23.6 percent of public companies said on time, and less than 7 percent for each said they would adopt the standard early.
What will be the top implementation challenge in the next 12 months? About a quarter (24.7 percent) said collecting data on all leases in a centralized inventory, while 16.3 percent said implementing other new accounting standards – such as revenue recognition and current expected credit loss – at the same time as lease accounting.
Other challenges include figuring out where to start (15 percent), determining if IT now in place for tracking lease data was adequate to manage implementation and compliance (9.4 percent), and overcoming board and C-suite assumptions that there will be little or no effect on financial reporting and operations (5.3 percent).