More than a year after the FASB and the IASB issued new guidance for reporting leases on financial statements (ASC 842 and IFRS 16, respectively), 23% of organizations still haven’t started assessing the impact of the changes; 52% are in the assessment phase, with most in the earlier stages of their efforts.
Those are some of the key findings of the PwC/CBRE 2017 lease accounting survey. Other notable findings reveal the challenges ahead and steps companies are taking now to prepare for the initial 2019 effective date.
Not surprisingly, most organizations are still assessing the impact of the new lease accounting standard. Of the 23% who haven’t started, the majority (73%) have fewer than 1,000 leases and 60% are private companies who have an extra year to comply. Others who face a 2019 deadline or have thousands of leases probably need to accelerate their implementation plans or risk running out of time. Of those who have started implementing, 47% report greater than expected effort -- compared to 25% overall. Only 3% plan to adopt the new standard early, which may be an indication of the challenges involved.
Data collection and systems are among the biggest challenges with around 75% of respondents indicating that these implementation issues are “somewhat or very difficult.” Most organizations (70%) are extracting data from their leases manually, while much smaller groups are using third parties (8%), leveraging technology (4%), or requesting data directly from lessor vendors (1%).
A significant majority (66%) expect to make some type of system change, with 43% indicating they will implement a new lease management system. Will companies have enough time to make the needed system changes? Nearly one-quarter of respondents were unsure, while 7% indicated they don’t believe enough time remains to implement a new system. Still, almost half of respondents are evaluating vendors or have already chosen a system. Companies that haven’t started addressing their systems needs may risk running out of options as available resources become increasingly scarce as the compliance deadline draws closer.
Companies are investing both money and talent into making the needed changes. Transition costs of less than $250,000 were expected by 43% of respondents. But most of those expecting such low costs (79%) were still assessing the standard or had not yet started; nearly half of the group expecting low costs also expected to make no system change. Once impact assessments are complete, companies may better understand the costs involved, and estimates may be revised higher.
Most organizations (72%) are using existing internal resources to implement the changes, while 23% are hiring consultants; 10% report hiring additional internal resources. Some organizations are using some combination of all three resources -- existing personnel, new hires and consultants. Meanwhile, 85% expect to dedicate up to four full-time resources to their leasing transition.
Many organizations recognize that the changes needed to adopt the new accounting standards will allow them to improve lease management. About one-third expect to improve lease portfolio reporting and administration and visibility into leasing costs. But 29% expect no improvements and 10% were unsure. Those able to capitalize on potential savings can offset the cost of compliance.
PwC offers a multidisciplinary approach to advise companies as they plan for and implement their transition to the new lease accounting standard. We can advise and assist you assess the impact, select and implement a lease management and reporting solution, and assist with your leasing data collection efforts. See details on PwC’s accelerated assessment and additional services to help put your leasing transformation on the fast track.