Companies slow to adapt to new lease accounting rules

More than a year after the Financial Accounting Standards Board (FASB) issued a new standard on lease accounting in early 2016, most companies have made no progress in transitioning to the new rules, new research shows.

Public companies must adopt the new approach to reporting lease transactions by 2019, and all other organizations need to begin adopting it by 2020.

However, in a poll of more than 2,200 CFOs from companies in the largest US metropolitan areas, 80% said their organization has not begun the transition.

The research by Robert Half Management Resources also found that among the businesses that have started to address the new standard, only 18% have completed the diagnostic work necessary to determine how much effort will be required.

The key pain points noted were technology upgrades, staff training and change management.

Tim Hird, executive director of Robert Half Management Resources, said: “The new lease accounting standard is highly complex and affects all parts of organizations, so firms must be careful not to underestimate the time and work involved in adopting it.

“Companies that haven’t begun the transition may find themselves behind before they even start.”

Chris Wright, managing director of the financial reporting remediation and compliance practice for global consulting firm Protiviti, a Robert Half subsidiary, said the scope of the transition is creating challenges for companies.

“The new guidance is much more than accounting,” he said, “It requires systems upgrades, new reporting processes throughout the business and updated training.

“The transition also necessitates a well-rounded change-management initiative, which is proving to be a massive effort, especially for large companies, and particularly coming on the heels of the adoption of the new revenue recognition standard.”

Resourcing challenge

Because the standard’s requirements are new, firms are having trouble finding professionals with the needed expertise, Hird added.

He said: “To address this, businesses can hire individuals able to apply the knowledge gained from previous compliance initiatives to lease accounting, and work with consultants who have been trained on the new standard and completed projects for it.”

Among the largest companies, those with 1,000 or more employees, one in five (22 %) have begun the transition, while only 17% of the smallest organizations (20 to 49 employees) have started.

A greater percentage of the largest firms have at least started writing new accounting procedures and policies and developed a project plan to address gaps identified in their diagnostic work.

Conversely, the smallest companies are more likely to have identified staff who will be assigned to the transition, inventoried systems changes to be made, and investigated lease and property systems to facilitate adoption.

The largest businesses may be struggling with the scope of the transition, the survey results suggest. CFOs at these firms were most likely to identify managing change and diagnosing the adjustments needed to be made as primary challenges.

CFOs in the transportation sector are experiencing the greatest difficulty locating professionals with the required expertise.