Most businesses struggling with the new lease accounting standard

Three-quarters of companies find the new financial accounting standards board’s lease accounting standard more complex than expected.

The FASB standard, published in 2016, requires organizations that lease assets to recognize assets and liabilities on the balance sheet for the rights and obligations created by these leases. For some companies, this has meant the need to rely on more sophisticated accounting software that allows more complex calculations and reports.

Many real estate and equipment leases, previously often disclosed only in the footnotes of documents filed by investors, will now be capitalized on companies’ balance sheets. The International Accounting Standard Board estimates that more than $ 2.2 trillion in assets and liabilities will flow through corporate balance sheets in the years to come.

While 75 percent of companies reported more complexity than expected in a recent survey, just over a third made the decision to select a software solution to solve the problem. Deploying software on is a barrier to implementing the standard for just over a third of companies, but data collection, also a problem that can be solved with software, is the biggest barrier, with almost 60% of companies saying this is their stumbling block.

The survey also found that 75% of companies find the new rental standards to be just as complex or more difficult than the new revenue recognition standard.

Despite FASB compliance issues, 54% of companies are on schedule for their lease accounting projects. Just over 20 percent are late.

The most difficult leases to analyze for the new lease accounting standard, according to more than half of survey respondents, are those embedded in service contracts and outsourcing agreements.

“With the end of revenue recognition projects, companies are now paying full attention to lease accounting standards,” said Michael Keeler, CEO of LeaseAccelerator, who conducted the survey. “And project teams are finding that it’s not accounting that presents the biggest compliance challenge, but rather issues like business process transformation and data collection that organizations face the most.” .

The LeaseAccelerator Readiness Survey involved more than 300 interviewees in the accounting and finance functions of large US-based public and private companies.

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