Private companies struggling with lease accounting standard

A first report on how private companies are prepared for the new lease accounting standards that come into use in January 2020 suggests many have significant work remaining to meet the new requirements.

The research study of 350 finance and accounting leaders from US-based private companies with $1 billion or more in revenue looked at their plans for implementing ASC 842.

Overall, almost 55% of companies are finding the lease accounting project to be more complex than originally anticipated.

Collecting data, modifying business processes and project managing the enterprise-wide effort are the top three challenges.

The study showed equipment leases are the hardest to analyse, covering IT, fleet, plant, machinery, and equipment leases.

Despite the fact the standard is implemented in under a year’s time, only 20% of companies have now selected a software vendor to support the new lease accounting standards. More than 50% are planning to use spreadsheets.

Michael Keeler, chief executive officer of specialist software supplier LeaseAccelerator, which conducted the research, said: “Private companies will benefit from having an extra year to prepare for ASC 842, as they can learn from the real-world experiences of public companies that are adopting throughout 2019.

“As private companies continue their efforts to meet the deadline, they should be mindful not just of ‘Day 1’ considerations, but also of the need to set up scalable business processes for sustained compliance. Ultimately, success with lease accounting will demand an enterprise-wide effort to regularly communicate changes to the portfolio across business units, corporate functions, and the accounting team.”

Keeler added that public company implementations have been the focus of lease accounting readiness programmes since the Financial Accounting Standards Board (FASB) released the new standard in early 2016.

With more than three-quarters of public companies already past the effective date, the spotlight is now on private companies, he said.

Keeler added: “In almost every area of project readiness, from data and systems to process change and project management, private companies are reporting a lower state of readiness than public companies showed in last year’s survey at this time.”