Private companies fail to implement the standard for accounting for leases

About 40 percent of private companies are behind in implementing the new lease accounting standard or have yet to start preparing, even though the implementation deadline is approaching, according to a new survey.

The deadline for most US-based private companies to adopt the new standard is next January, and many kicked off the transition project earlier this year. The investigation, by rental accounting software provider LeaseAccelerator, found that 12 percent of 350 financial and accountant executives surveyed from private companies based in the United States indicated that they had already completed the project.

Those that have completed the transition include private companies that are planning IPOs in the near future or that are in the process of being acquired by a state-owned company. There are also private companies that have registered securities or are SEC filers and therefore must meet deadlines for public companies, which were due to start complying with the standard last December. About 48 percent of private companies surveyed said they were on time or ahead of schedule. However, some companies may underestimate the work effort left before they are required to comply, just as their state-owned company counterparts did before they were required to start complying last December.

When asked to compare the standard for accounting for leases to the standard for accounting for income that has already come into effect, 75% of private company executives surveyed found the new rental standards to be more complex or also complex. Almost 55% of the companies surveyed find the rental contract accounting project to be more complex than initially expected. Collecting data, changing business processes, and managing enterprise-wide projects are the top three challenges they cited. More than 60 percent of private companies have formally appointed a project manager from the accounting or financial reporting team to lead the project.

Over 40% of those surveyed said they took inventory of their company-wide lease portfolio. The most difficult leases to analyze are not real estate contracts, but IT, fleet, plant, machinery and equipment leases.

Only 20 percent of those surveyed said their company had now selected a software vendor to support the new lease accounting standards. Over 50% plan to use spreadsheets.

“Private companies will have an additional year to prepare for ASC 842, as they will be able to learn from the real experiences of public companies adopting throughout 2019,” said Michael Keeler, CEO of LeaseAccelerator, in a statement. “As private companies continue their efforts to meet deadlines, they need to be aware not only of ‘Day 1’ considerations, but also of the need for scalable business processes in place for sustainable compliance. Ultimately, successful lease accounting will require a company-wide effort to regularly communicate portfolio changes between business units, corporate functions, and the accounting team.

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