Only 9.8% of more than 5,400 financial and accounting professionals recently polled say their companies are prepared to comply with the new Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) lease accounting standards.
Moreover, only 15% of respondents in the Deloitte survey expect compliance to be easy.
Sean Torr, director leading Deloitte Advisory's efforts around the new lease standards, Deloitte & Touche LLP (pictured above) said: "Following the release of both new lease accounting standards, it's clear that creating a centralized, electronic repository of all equipment and real estate leases held should be a priority for companies with leased assets.
"Those organizations facing the fastest compliance timeline are publicly traded and operating on a calendar fiscal year. Many are spending the balance of 2016 consolidating lease data so that calculations can begin in early 2017, as ultimate compliance with these new rules in 2019 will require lookback reporting for 2017 and 2018."
Respondents said the top challenges to lease accounting implementation are:
● collecting necessary data on all organizational leases in a centralized, electronic repository (33.3%); and
● instituting processes to evaluate quarterly adjustments for the balance sheet, as well as profit and loss statements (20.5%);
James Barker, national office senior consultation partner, Deloitte & Touche LLP stressed: "Having a lot of leases or just a few complex leases in your portfolio can create management challenges. Other difficulties can arise due to disparate tracking systems, expanding global footprints and M&A activity.
"If you think your organization may have a tougher time complying with the new lease accounting standards than most, get started developing your implementation roadmap now."
Understandably, sectors with higher numbers of leases expected the highest level of difficulty implementing the lease accounting standards. Industries with more than half of respondents expressing concern included: retail and distribution (61.2%); automotive (59.3%); telecomm (56.9%); process and industrial products (54.4%); travel, hospitality and leisure (53.9%); consumer products (52.4%); health care providers (51.7%); and power and utilities (50.7%).
Torr continued, "While the new lease accounting standards may seem a niche accounting or finance concern, they are not. I'd encourage any leader of an organization with real estate or equipment leases to take the time now to learn about the potentially broad-reaching impacts of these new accounting requirements.
“Compliance will likely require input from multiple stakeholders from different parts of the organization. Having top leaders' support could really make a difference in successful implementation."
Early steps to evaluate the implications of the new lease accounting standards can include:
• assess your organization's current lease landscape, discerning lease volumes and types, availability of electronic lease data and data gaps within them, as well as any potential accounting, tax and process-related challenges;
• develop a cross-functional project management team to coordinate implementation activities with necessary resources to support it;
• build a granular implementation plan to manage efforts that may span various business units, file types, IT systems, languages and geographies;
• plan to invest time in lease data abstraction, as culling contracts to get to details needed for lease accounting and disclosure will require a plan and resources of its own; and
• determine if your organization's IT infrastructure can support compliance with the new standard(s) with which it must comply, including comprehension and management of new storage, calculation and reporting requirements.
More than 5,400 professionals participated in a Deloitte Dbriefs webcast, Bring it on—Discussing the FASB's new leases standard, on March 15, 2016.