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Only 1 in 5 Are Extremely or Very Prepared to Implement New Lease Accounting Standards as Deadline Draws Closer

Majority of surveyed companies do not expect recent FASB moves to have significant effect on easing the transition

New York, March 19, 2018 — Just 21.2 percent of finance, accounting and other professionals say their companies are “extremely” or “very” prepared to comply with the Financial Accounting Standards Board’s (FASB) and International Accounting Standards Board’s (IASB) respective new lease accounting standards, according to a recent poll from the Deloitte Center for ControllershipTM. That’s more than double the number expressing confidence from early 2016 (9.8 percent), when the standards were initially issued, but still relatively low as the deadline for adoption (Jan. 1, 2019 for U.S. publicly traded companies) draws closer.

“During the remaining months before the lease accounting standards take effect, many companies should consider stepping-up their implementation efforts,” said Sean Torr, Deloitte Risk and Financial Advisory managing director, Deloitte & Touche LLP. “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.”

Reactions to recently proposed FASB guidance
In November 2017, the FASB issued new proposed guidance to simplify the lease accounting implementation process, including: 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.

Even with the new guidance, only 10.2 percent of respondents anticipate the FASB’s practical expedient measures will reduce the amount of time and effort needed to implement the new standard.

“These recent changes proposed by the FASB are all intended to help companies achieve a timely adoption but it’s clear from the poll results that, despite the help, many companies will likely still 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.

“The FASB relief provisions are a big deal for companies transitioning to the new lease accounting rules. But no one should slow their implementation efforts as a result of it. 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,” Barker continued.

Lease data abstraction challenges continue
Nearly one-fifth (18 percent) of respondents acknowledged that implementing multiple new accounting standards, such as revenue recognition and current expected credit loss, simultaneously with lease accounting is proving difficult. But, lease data collection to create the necessary centralized electronic inventory remains the biggest implementation challenge (32.6 percent; up from 24.7 percent in 2016).

Torr continued, “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.”

Minimal impact expected for lease versus buy strategies
One-half of respondents (50.6 percent) say the new lease accounting standard will not alter their organizations’ respective lease versus buy strategies. Only 6.4 percent expect the new standard to shift the balance in favor of buying equipment over leasing it. Just 2.6 percent expect to buy more real estate rather than lease it. Fewer than 2 percent of respondents expect to lease rather than buy more real estate or equipment as a result.

About the online poll
On Jan. 31, 2018, the Deloitte Center for ControllershipTM hosted a Deloitte Dbriefs webcast titled “Lease accounting implementation enters final stretch,” which polled more than 3,850 professionals — many working in accounting (53 percent) and finance (21.5 percent) — about lease accounting implementation. Similar online polls were conducted in May 2017, October 2016 and March 2016. Answer rates differed by question.

About Deloitte
Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world’s most admired brands, including more than 85 percent of the Fortune 500 and more than 6,000 private and middle market companies. Our people work across more than 20 industry sectors to make an impact that matters — delivering measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to see challenges as opportunities to transform and thrive, and help lead the way toward a stronger economy and a healthy society. Deloitte is proud to be part of the largest global professional services network serving our clients in the markets that are most important to them.

Media contacts:

Shelley Pfaendler
Public Relations
Deloitte Services LP
+1 212 492 4484

Daniel Mucisko
Public Relations
Deloitte Services LP
+1 732 609 6825

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