New Lease Accounting Standards Have Finance Depts Working Overtime

More than one-half (54.7 percent) of respondents to a recent Deloitte poll expect their organizations to increase the amount of time and effort spent on implementing the new Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) lease accounting standards in the coming year.

In some sectors, respondents expect to spend considerably more time and effort on lease accounting implementation. These sectors include: automotive (77.1 percent); health plans (65.9 percent); health care providers (62.8 percent); industrial products and services (61.7 percent); retail, wholesale and distribution (61.3 percent); and media and entertainment (61 percent).

“For the many companies impacted by the new lease accounting standards, the biggest challenge may be in identifying leases themselves,” said James Barker, senior consultation partner in the national office of accounting services of Deloitte & Touche LLP. “Identifying equipment leases embedded within service arrangements and evaluating so-called secondary use arrangements where an asset is utilized without disrupting its primary use — like ads on the side of a building or cable wires added to utility-owned poles — are areas where many companies are focused.”

Lease accounting compliance challenges expected in the coming year include collecting all required lease data in a centralized, electronic inventory (24.7 percent) and implementing multiple new accounting standards, such as revenue recognition or current expected credit loss (CECL), simultaneous to lease accounting (16.3 percent).

Leading the charge in lease accounting implementation for more than half (55.2 percent) of respondents’ organizations is the controllership function. Just 13.8 percent reported that the task was a collaborative effort involving the controllership, information technology, real estate and treasury professionals.

“It makes sense to have the controllership heavily involved in lease accounting implementation, but we’re encouraged to see that some organizations are teaming more broadly on the effort,” said Sean Torr, Deloitte Advisory managing director, Deloitte & Touche LLP. “Any organization’s lease portfolio can impact myriad groups, so leveraging a multidisciplinary taskforce can help more teams realize value from the large operational undertaking of lease accounting implementation.”

For more information on how the controllership can support lease accounting implementation efforts, visit the Deloitte Center for Controllership^TM.

More than 3,300 professionals participated in the Deloitte Dbriefs webcast, “Lease accounting: Early steps in FASB compliance and centralizing data,” Oct. 24, 2016. Poll respondents represented several sectors including banking and securities (9.8 percent); technology (8.3 percent); travel, hospitality and leisure (8.1 percent); retail and distribution (7.8 percent); and real estate (6.8 percent).