Only a fifth of companies are fully prepared for new lease accounting standards, due to come into effect for US publicly traded companies from January 2019, according to a study by Deloitte. The poll found that just 21.1 per cent of companies said they were fully prepared for the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) new lease accounting standards.

Simplified guidance hasn't helped

The FASB has tried to simplify the new lease accounting implementation process as far as possible. Last November it introduced simplified guidance. However, only one in 10 of the Deloitte poll's respondents said this would help them reduce the amount of time and effort needed to implement the new standard. The new proposed guidance includes:

• eliminating the requirement to evaluate pre-existing land easements to determine if they meet the definition of a lease under the new standard;
• introducing the option to not restate comparative reporting periods in transition; and
• providing lessors with the option of combining lease and non-lease components under certain conditions.

Despite the simplified guidance, most companies will still struggle to be ready by the effective date and Deloitte's Sean Torr commented: “During the remaining months before the lease accounting standards take effect, many companies should consider stepping-up their implementation efforts. We see many organizations benefiting from instituting a cross-functional steering committee to steward resources and keep lease accounting implementation on track whether or not they plan to leverage the FASB’s new expedients.”
And Deloitte's James Barker said: “It’s possible that many companies could be underestimating the effort that will be necessary to collect lease data and aggregate it into a centralized system. And, that doesn’t take into account whether companies have adequate systems to accomplish the new accounting or will need to invest in something new.”

Data collection is biggest challenge

The poll also found that:

• 18 per cent of financial, accounting and other professionals acknowledged that implementing multiple new accounting standards, such as revenue recognition and current expected credit loss, simultaneously with lease accounting is proving difficult;
• 32.6 per cent said that the biggest implementation challenge is collecting lease data to create the necessary centralized electronic inventory;
• 50.6 per cent said that the new lease accounting standard will not alter their organizations’ respective lease versus buy strategies;
• 6.4 per cent expect the new standard to shift the balance in favour of buying equipment over leasing it;
• 2.6 per cent expect to buy more real estate rather than lease it;
• fewer than 2 per cent of respondents expect to lease rather than buy more real estate or equipment as a result.

Deloitte's Sean Torr added: “While every organization’s lease accounting implementation journey is unique, 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.”