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Executives fret over lease accounting standards

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Executives fret over lease accounting standards

Nearly half of corporate executives are concerned

Monday, July 31, 2017
By Michael Cohn,

Nearly half of corporate executives are concerned about their ability to implement the lease accounting standards, according to a survey by Deloitte.

The survey found that 47.1 percent of C-suite and other corporate executives are concerned about their organizations’ ability to implement on the new standards on time. The Financial Accounting Standards Board released the leasing standard in February of last year, while the International Accounting Standards Board released a somewhat different version of the standard in January 2016. FASB’s standard takes effect for public companies for or interim and annual reporting periods beginning after Dec. 15, 2018 (and a year later for private companies), while the IASB’s takes effect for annual reporting periods beginning on after Jan. 1, 2019.

Deloitte polled corporate executives in different sectors, and found concerns were highest in the oil and gas industry (56.2 percent); followed by consumer products (55.9 percent); retail, wholesale and distribution (54.3 percent); health care providers (53.6 percent); and media and entertainment (52.6 percent).

Deloitte and some of the other Big Four firms have been polling corporate executives about their readiness for the leasing and revenue recognition standards, and found many of them expressing wariness about their preparedness for both sets of standards from FASB and the IASB. However, Deloitte is seeing some improvement in preparedness since the last time it polled executives.

While in the new poll, 31.4 percent of executives said their organizations were unprepared to comply with the new lease accounting standard, that was down from the 34.19 percent who said they were unprepared in October 2016 and the 43.6 percent in March 2016. Only 11.4 percent of the corporate executives polled reported their organizations were extremely or very prepared to comply in the recent poll, up slightly from 11 percent in October and 7.9 percent in March 2016.

“The large number of executive leaders still expressing concern regarding lease accounting implementation halfway into the three-year preparation window is indicative of the complexity of the issue,” said Deloitte Risk and Financial Advisory managing director Sean Torr in a statement. “Lease accounting implementation has several long lead-time activities, including process and system enhancements, data collection and validation, and effective stakeholder engagement. These activities require a broader scale and scope than many companies initially contemplated.”

Just 7.8 percent of corporate leaders expect their organizations to early adopt the new lease accounting standards, a drop from March 2016 (10.8 percent). Similarly the number of executives who said lease accounting implementation would be easy lowered to 11.4 percent from March 2016 (17 percent).

Both FASB and the IASB are allowing organizations to adopt the lease accounting standard early before the effective date, but the IASB is requiring those that do to also adopt the revenue recognition standard at the same time. The revenue recognition standard generally takes effect a year ahead of the leasing standard.

“Continuing focus on the fast-approaching revenue recognition standard has limited the attention placed on the new leasing guidance by many companies,” said James Barker, senior consultation partner for lease accounting in the national office of Deloitte & Touche LLP, in a statement. “We are also starting to hear from companies with real concerns about their ability to implement the new leasing standard by the required adoption date. These concerns largely relate to perceived systems needs and limited resources to implement systems.”
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