Just 26.3% of public company executives report that their implementation of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board lease accounting standards is complete, according to a June 2019 Deloitte poll.
“Most of our U.S. public company clients have completed initial compliance activities, but very few have fully completed their broader lease implementation efforts,” said Sean Torr, Deloitte Risk & Financial Advisory managing director, Deloitte & Touche LLP. “I suspect we see a low rate of U.S. public company executives calling implementation ‘complete,’ because they’ve realized that ongoing work is necessary to build sustainable, long-term lease accounting programs.”
Private organizations have more time on lease accounting – and it’s needed
More than half of responding executives at privately held organizations with 100 or more real estate and/or equipment leases in their portfolios describe lease accounting implementation as “difficult.”
Mark Davis, Audit & Assurance partner and Deloitte private leader, said, “Just as private organizations can be large and complex, so can their lease portfolios. Even though the new, FASB-proposed extension would give U.S. private companies an extra year to implement the standard, that does not mean they should slow their efforts or wait until next year to get started. Many private entities have a lot of hard work still to do to hit the deadline.”
To assess how complete an organization’s lease accounting implementation efforts are, consider asking questions such as these:
Are professionals appropriately prepared? Have enough well-trained, highly-skilled professionals been hired to manage the implementation? Is it clear who is responsible for which aspects of lease accounting? Have communications and trainings been developed, tailored to specific highly involved groups of employees and vendors? Do stakeholders across the organization have a support structure in place?
Do external stakeholders understand the financial statement impacts of new lease accounting standards? How clearly has the organization communicated with its lenders and investors about lease accounting impacts to operations and financial statements?
Which internal controls for lease accounting are ready? Are controls around manual processes for interim lease accounting solutions in place? Has anyone considered the effects of transitioning data to the cloud? Has appropriate alignment with auditors been established?
Have policies been appropriately updated? Are data collection and systems implementation efforts aligned to accounting policies? Is the organization aligned with its auditors around the new accounting policy, inclusive of management judgments? Has a process been created to keep policies current with guidance?
How reliable is the organization’s lease data? Has all appropriate lease data been fully centralized, captured and checked for accuracy? Has a process to maintain lease data been developed? Is lease data aligned with the organization’s accounting policies?
What is the organization’s planned information technology approach? Have lease accounting software and systems been tested from end-to-end? Have end users of lease data been engaged early and often? Have auditors been engaged to explain their planned approach to testing lease systems? Has anyone looked at how various software user groups have overcome IT-related implementation challenges?
About the online poll
On June 20, 2019, a Deloitte Dbriefs webcast, titled “New lease accounting standards: Lessons learned from public companies” and involving the Deloitte Center for Controllership, polled more 1,230 public and private company C-suite and other executives online about lease accounting implementation. Similar online polls were conducted in February 2019, October 2018, April 2018, January 2018, May 2017, October 2016, March 2016. Answer rates differed by question and respondents differed by webcast poll.