The jury’s still out on the material effects of the new lease accounting rule, as the full potential impact is still being analyzed. One early analysis that looked at the 100 largest lessees in the US resulted in 76 percent saying the new lease accounting rules would produce a material effect on balance sheets. A separate report found that only eight percent of companies have put a dollar figure on what the expected material effect will be.
In order to comply with the SEC requirement of Staff Accounting Bulletin No. 74, companies are making disclosures in order to provide investors with any advance warning about how new accounting standards might affect them. Of those reported figures, the range is wide – anywhere from $1.2 billion to $13 billion – with many experts anticipating the gross effect to be in the trillions.
The results of both analysis were based on the compilation of 10-K and 10-Q disclosures for the top 100 public companies in terms of total lease obligations. Of those companies, Microsoft, elected to adopt both the leasing standard and the revenue recognition standard earlier than required and at the same time. While this was optional, very few companies have done so considering the enormity of the effort.
With the new standards also comes new ways of evaluating and implementing accounting processes. Surprisingly, only 18 percent of the 100 largest lessees are utilizing new policies and controls to assist the new accounting, while another 18 percent are considering software applications. Utilizing lease accounting and lease management software can help measure the impact on balance sheets and ensure accurate reporting and projections. Private companies can learn from public company’s implementation experience and hopefully ease some of the pain. Specifically as it relates to software selection, most solutions will have worked out the kinks in the first round of implementation with the public companies, allowing for a smoother transition.