Survey shows majority of organizations are not prepared to comply with the new FASB and IASB lease accounting standards.
If your organization isn’t ready to tackle ASC 842 and IFRS 16 yet, you’re not alone.
More than 60 percent of companies are “somewhat or not too prepared” to comply with the new FASB and IASB lease accounting standards – not to mention the roughly 10 percent that aren’t ready at all – according to recent surveys by Deloitte & Touche LLP.
US public companies will be required to adopt the new FASB standard for fiscal years beginning after December 15, 2018. However with the required lookback reporting for 2017 and 2018, companies should be upgrading software and consolidating lease data now so that calculations for balance sheet impact can be made early.
Software for lease accounting is a big part of the compliance picture for many companies. More than 30 percent of respondents said their current software is inadequate required reporting and upgrades or new software will be necessary. The majority of respondents also indicated that getting data on all leases collected into a centralized inventory will be their biggest implementation challenge. Developing and instituting processes to evaluate quarterly adjustments/reassessment for the balance sheet and profits/losses as required is also a big concern.
So what should companies be doing now? Here’s a quick list of priorities:
- Assess the organizations’ quantity of leases and types, figure out how much lease data is in electronic form, and perform some due diligence to find data gaps or incorrect data.
- Determine any possible accounting and tax challenges resulting from lease obligations.
- Put in place a project management team responsible for coordinating all compliance efforts.
- Develop a plan to manage processes and data that span different business units, types of files, IT systems, languages and geographies.
- Analyze lease data from contracts that is essential lease accounting and disclosure, which may call for a separate project team.
- Determine if the current lease data management software and systems can handle the standards’ compliance requirements for reporting and audits.
For companies in the planning stages of lease accounting compliance, CoStar offers a variety of resources including a white paper on Data Consolidation Lease Accounting Compliance. We also offer a series of videos that demonstrate our software’s key capabilities and functionality including the set up for FAS 13 and ASC Topic 842 leases, adding lease amortization schedules, journal entry processing, accounting summary and forecast reports, and more.
Deloitte’s survey results are based on more than 5,400 participants, half of which said their organizations were real estate or equipment lessees. See the full survey here.