More Companies Report Lease Accounting Woesby
Few executives recently surveyed by EY believe their companies are on schedule to adopt the new lease accounting standard by its 2019 effective date, yet most predict the changes to lease reporting will result in nothing short of a business transformation.
EY surveyed 300 CFOs and CIOs in March who hail from US public companies with annual revenues ranging from $1 billion to more than $10 billion.
Only 27 percent of finance and IT bosses believe they’re on track to meet critical milestones to comply with the new accounting rules for leases. They noted several key obstacles, including:
• Systems challenges (51 percent)
• Problems collecting the required data (46 percent)
• Not enough people to get things done (46 percent)
• Difficulty interpreting the standard’s technical requirements (44 percent)
In addition, 26 percent said they still aren’t clear about who is responsible for the project.
On the other hand, 63 percent of respondents acknowledge that the new standard is an opportunity to deliver business transformation, with process re-engineering, lease cost reduction, and tax efficiency topping the list of benefits.
But doing so will require changing out legacy IT systems, according to 68 percent of respondents, and 40 percent of those executives said it will take nine months or more to implement systems changes. More than half (59 percent) are planning to put in place a dedicated on-premise technology system, while 34 percent plan to work in the cloud. Only 7 percent will use a manual, spreadsheet-based method.
At least half of the companies expect lease accounting implementation to be quite difficult. The top six issues rated as very difficult include:
• Developing new accounting policies and procedures (19 percent)
• Gathering robust data and missing information (19 percent)
• Assessing and making systems changes (19 percent)
• Designing new process changes (18 percent)
• Managing tax considerations and impacts (16 percent)
• Developing new controls (13 percent)
“The survey results show that despite the challenges, lease accounting changes offer an opportunity to upgrade legacy IT systems and can help CIOs position their function at the forefront of business change,” Anastasia Economos, EY Americas accounting change leader for leases, said in a prepared statement. “The majority of CFOs and CIOs see how these changes can align with broader goals and ambitions. What will likely bring success is strong alignment across the organization among finance, corporate real estate, procurement, IT, tax, and treasury, as well as with internal and external audit teams.”
Strategic and operational thinking will spur compliance but also trigger bigger business benefits, she added.
“Enterprises should identify their business requirements for lease administration and accounting in order to evaluate system options as early as possible, ensure alignment across the organization, and establish measures that drive return on investment,” Economos said.
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.