Growth Companies

Lease Accounting: What’s the Holdup?

"Many companies will likely struggle to be ready by the effective date” of the updated lease accounting standard, says a Deloitte executive.
Vincent RyanMarch 30, 2018
Lease Accounting: What’s the Holdup?

With about nine months to go before the new lease accounting standard for publicly-traded companies must be adopted, only about one-fifth of finance leaders surveyed by the Deloitte Center for Controllership say they are “prepared” or “very prepared” to comply with it. (See infographic, “Lease Accounting: A Lack of Urgency?” below.)

The Financial Accounting Standards Board’s Accounting Standards Update No. 2016-02, Leases (Topic 842) seemingly gave companies plenty of time to implement the changes. However, many issuers have also been busy tackling the larger-impact revenue recognition standards.

In November 2017, the FASB tweaked guidance to simplify the lease accounting implementation process. It introduced the option to not restate comparative reporting periods in transition. In addition, it gave lessors the option of combining lease and non-lease components under certain conditions.

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Despite the help, “many companies will likely struggle to be ready by the effective date,” said James Barker, senior consultation partner for lease accounting in the national office of Deloitte & Touche LLP.

Indeed, only 10% of the 3,890 finance professionals Deloitte polled on January 31 think those FASB measures will reduce the time and effort needed to implement the new standard.

Sean Torr, Deloitte Risk and Financial Advisory managing director, had some advice for issuers:

“I’d aim to have all leases centralized and in an electronic format as quickly as possible to avoid compliance timeline risk. Further, finance and accounting teams need time with the data to conduct their own analyses and calculations for financial reporting purposes.”

The ASU has big ramifications for lease accounting. But one-half of companies don’t expect it to change their lease vs. buy strategies, found the Deloitte survey. Only 6.4% expect the new standard to shift the balance in favor of buying equipment over leasing it. Just 2.6% expect to buy more real estate rather than lease it.