What You Don't Know About New Lease Accounting Rules Could Hurt (and Cost) You

by FEI Daily Staff

More than half of surveyed companies have taken action to comply with new accounting standards aimed at improving the transparency of leased assets on financial statements, but 83 percent say they haven’t budgeted for the associated costs.

That was one of the key findings from a survey conducted by EY and FERF, which will be released at FEI's lease accounting conference June 16 in Dallas, to assess the readiness of more than 125 U.S. companies with respect to new guidance issued in early 2016 by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).

The study sought to get a better sense of how and when companies plan to address the challenges of preparing for the new standards, which could have a significant effect on many companies’ financial operations – from implementing new accounting policies and processes to deploying new IT systems.

Awareness Expanding

Most companies are aware of the new guidance, which is not surprising given the decade-long effort to revise accounting for leases. Furthermore, more than half of respondents have started acting toward adopting the new standards. For instance, although many are still determining the steps they will need to take to comply, others have taken steps ranging from forming a project team to completing a readiness assessment to meet the new standards.

In reality, the new guidance will not affect all organizations the same. Some companies only have a limited number of leasing arrangements, while others routinely enter into hundreds of leases for new equipment or real estate properties to finance capital expenditures. Such historical off-balance sheet financing will now find its way onto the balance sheet as a lease liability and a corresponding right-of-use asset.

For calendar year-end public business entities applying U.S. GAAP, the new standard will be effective in 2019. Adapting to the new regulations could represent a major challenge for some companies, especially true for multinational enterprises that have decentralized operations and may need to report in accordance with U.S. GAAP and IFRS. The standards proposed by the FASB and IASB differ on some key points, which adds complexity to the implementation.

To comply with the new standards, companies will need to capture all lease data, make certain determinations for accounting purposes, integrate information and reporting systems, and improve processes for sharing data across multiple business functions.  This will require them to implement new accounting policies, enhance enabling technology and revamp business processes and financial controls.

To help financial executives understand the implications of the new leasing standard, and to begin compliance initiatives, Financial Executives International has scheduled The New Lease Accounting Standard Conference: What You Need to Know, taking place June 16 in Dallas. The event, featuring insights from industry leaders on this major shift in accounting policy, is also being live-streamed.

Learn more about this event and register today!