“You may delay, but time will not, and lost time is never found again.” — Benjamin Franklin
We’ll take a guess that accountants and compliance directors are thinking the same thing as ol’ Ben about the time that 60.5 percent of organizations apparently are losing by being “somewhat or not too prepared” for the new lease accounting standards – not to mention the roughly 10 percent that aren’t ready at all.
Those statistics are according to a recent survey and report by Deloitte & Touche LLP, which indicates that almost half (47 percent) of respondents said implementation of the lease accounting standards by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) will be somewhat or extremely difficult.
The majority of respondents (61.3 percent) said they’d have to comply with the FASB standard, 19.4 percent said FASB and IASB, 2.7 percent said IASB, and 2.9 percent said neither.
In February, the FASB issued its long-awaited lease accounting standard, which will require companies to report most operating leases on their balance sheets. The IASB introduced its own version in January, and although the project was a convergence effort between the two boards, there are differences between the two standards.
US public companies will be required to adopt the new FASB standard for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2018. The IASB standard is effective for annual reporting periods beginning on or after Jan. 1, 2019.
So, time’s a-wastin’, folks.
“Those organizations facing the fastest compliance timeline are publicly traded and operating on a calendar fiscal year,” Sean Torr, Deloitte’s lease accounting services leader, said in a prepared statement. “Many are spending the balance of 2016 consolidating lease data so that calculations can begin in early 2017, as ultimate compliance with these new rules in 2019 will require lookback reporting for 2017 and 2018.”
The new standards may seem like a niche concern but they aren’t, Torr added.
“I’d encourage any leader of an organization with real estate or equipment leases to take the time now to learn about the potentially broad-reaching impacts of these new accounting requirements,” he said.
Compliance with the standards will require many stakeholders to weight in, he stated, and having leaders onboard with the effort could make a big difference in implementation success.
Other takeaways include:
- About a third (31.3 percent) of respondents said their current software is adequate for compliance, while 27.7 percent said upgrades or new software will be necessary.
- The biggest implementation challenge in the next 12 months for 33.4 percent of organizations is getting data on all leases collected in a centralized inventory. About a fifth (20.5 percent) said the biggest headache is developing and instituting processes to evaluate quarterly adjustments/reassessment for the balance sheet and profits/losses as required.
So, what to do? Here’s a snapshot of Deloitte’s recommendations in evaluating what the new standards will mean.
- Professionals should assess organizations’ lease volumes and types, electronic lease data and data gaps, and possible accounting and tax challenges.
- Put in place a project management team responsible for coordinating the whole thing.
- Develop a plan to manage anything that spans various business units, types of files, IT systems, languages, and geographies.
- Analyzing lease data from contracts is a must; the information will be needed for lease accounting and disclosure. That’ll require its own plan and resources.
- Determine if the current IT system can handle the standards’ compliance requirements.
The survey results were based on more than 5,400 participants in a Deloitte webcast in March that included an online poll. Half (49.5 percent) said their organizations were real estate or equipment lessees, while 16.3 percent said they were lessors.
About Terry Sheridan
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.