Lease Accounting

New Lease Accounting Rules Pose Challenges, Study Says

The standards take effect in a mere six quarters for public companies, but many have not yet begun, or only recently began, to assess what must be ...
William SprouseJune 28, 2017
New Lease Accounting Rules Pose Challenges, Study Says

Companies are slowly taking steps to adopt new accounting standards for leased assets, according to a report from PricewaterhouseCoopers and CBRE Group. The study found that only 23% of more than 600 finance executives said their companies have yet to begin the initial adoption process of the standards

The new lease accounting standards, issued by the Financial Accounting Standards Boards and International Accounting Standards Board, require companies to elevate leased assets and related liabilities out of footnote disclosures and onto the face of their balance sheets, according to a report from Compliance Week. The standards into effect for public companies in 2019 and private companies in 2020.

More than half of the study participants said they were assessing the impacts of the new rules, and 25% said they had started implementation. Among those in the implementation phase, 47% said adoption was taking more effort than expected. In last year’s survey, 84% of respondents said they planned to begin implementation this year.

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“Given the breadth and potential systems and process changes associated with implementing the new standards, companies should consider a phased approach that begins with a current-state assessment focused on lease inventory, processes, and data and system capabilities,” said Sheri Wyatt, a partner at PwC. “Some companies may be underestimating the time and effort required, but a comprehensive assessment will ultimately provide better clarity around the length and complexity of adopting these new standards.”

PwC and CBRE said companies should take steps to determine what their leasing portfolio looks like, begin collecting data to close gaps and remediate quality issues, and then select a system to conduct the accounting.

Data collection and systems are seen as two of the biggest challenges, according to the survey, with a strong majority of respondents saying they were facing difficulty.

“These companies are now beginning to realize they are only six quarters away from the effective date and that it is time to pick up their pace,” added Jeff Beatty, senior managing director CBRE, a commercial real estate services firm.