Many Firms Slow to Adopt Looming Lease Accounting Standards

Nearly one-quarter of firms have not started implementing new lease accounting standards nearly 18 months after their release, reported CBRE, Los Angeles, and PwC US, New York.

The Financial Accounting Standards Board and International Accounting Standards Board released ASC 842 and IFRS 16, respectively, last year. The new standards, which become effective in December 2018, require most lessees to classify their leases as a capital lease–and account for them on their balance sheets–rather than as operating leases, which do not appear on accounting balance sheets.

Firms that have started implementation report greater-than-expected effort, the report noted. Of the firms calling adoption “in progress,” 52 percent reported being less than one-quarter complete.

“Many public companies, for various reasons, including concentrating on implementing the new revenue recognition standard in 2018, have not been focused on the new lease accounting standards,” said CBRE Financial Consulting Group Senior Managing Director Jeff Beatty. “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.”

The results indicated a growing focus on lease accounting–two-thirds of firms have formed an internal working group to address the new standards. “This is an important first step for any company as the complexity and nuances of the new standards will require greater collaboration and sharing of information between business units than they are accustomed to,” the report said. “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.”

PwC Partner Sheri Wyatt noted some companies may be “underestimating” the time and effort required. “A comprehensive assessment will ultimately provide better clarity around the length and complexity of adopting these new standards,” she said.

The survey also found data collection and systems rank among the biggest challenges facing most companies, with 75 percent of respondents calling these implementation issues either somewhat or very difficult.

“Many companies will find that they will likely need to consider the integration of third-party lease administration software into their process given the complexity and additional data required to comply with the new standards,” said CBRE Director of Portfolio Services for the Americas Peter Kitchin.