2016 Lease accounting survey – top findings

Finance and real estate executives share their views on the impact of the new lease accounting standards

What will be the impact of sweeping changes to lease accounting recently finalized by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB)? How are companies preparing for the coming changes?

To find out, PwC and CBRE surveyed executives from organizations’ accounting, finance and real estate functions about actions they are considering to prepare for the new standards. Key findings from the survey, summarized here, reveal the challenges ahead and steps companies are taking now.

Explore the survey data. Analyze responses by industry and using other filters

View the data behind our key findings. See our data explorer.

When do you expect to begin implementing the new standard?

  • Most companies plan to put time on their side by starting the leasing transition process in 2016.
  • This is a stark contrast to many companies that seemed to get off to a slow start in implementing the new revenue recognition accounting standard.
Leasing survey – implementation plans – PwC

Current state indicates challenges ahead

  • For companies with substantial leasing, spreadsheet-based accounting may not be practical. Consider:
    -   maintenance required
    -   susceptibility to error
  • For companies with significant lease portfolios, trying to adopt without system upgrades or integration could miss an opportunity to automate labor-intensive activities and free up valuable resources.
  • Companies that track leases on spreadsheets and manage leases in a decentralized manner may face significant challenges in gathering data.
  • Many companies are still accounting for their leases of corporate real estate using spreadsheets and accounts payable systems with no formal corporate real estate asset management system for these leased properties.
  • Even for the more sophisticated corporate real estate groups that have asset management systems, these systems are often freestanding and utilized more for lease administration purposes, with no integration with the company’s accounting systems.
Leasing survey – systems and processes – PwC

Potential pain points

Not your typical accounting change

  • Despite being an “accounting change,” companies are most challenged by systems and data issues.
  • Prior to adoption, management will need to catalogue existing leases and gather data such as lease term, various payment terms, and other provisions to measure the amounts to be included on balance sheet.
  • Gathering and analyzing the information could take considerable time and effort, depending on the number of leases, the variety and complexity of the lease portfolio and the availability of records.
  • In many cases, original records may be difficult to find or may not be available.
  • Other factors, like identifying embedded leases may become more important since most leases will require balance sheet recognition.
Leasing survey – implementation issues – PwC

Lease vs. buy

Do you expect your company's lease vs. buy strategy to change as a result of the new standard?

  • Because the new model will eliminate off-balance sheet accounting for virtually all existing operating leases, it may also eliminate one of the key perceived advantages of leasing.
  • The new standard may be an impetus for revisiting some real estate strategies.
  • Changes to strategy may include re-evaluating lease versus buy decisions and considering the accounting ramifications of alternate lease structures.
Leasing survey – lease vs. buy – PwC

Other potential impacts on real estate strategy

Leasing survey – real estate processes – PwC
Leasing survey – real estate reduction – PwC

What types of leases will companies be transitioning under the new standard?

Percentage of respondents holding various types of leases

  • An embedded lease may occur when the right to use a specified asset is conveyed in a contract that is not yet otherwise explicitly structured as a lease.
  • A careful review of contracts during an initial impact assessment can help identify embedded leases that need to be accounted for under the scope of the new standard.
Leasing survey – contracts in portfolios – PwC

Transition plans

Will companies elect specified reliefs upon adopting the new standard?

  • FASB rules provide companies with certain specified reliefs upon transition that must be elected as a package and applied to all of an organization’s leases.
  • For companies that are unsure, it may be beneficial to prioritize decisions on adoption and transition elections. This will help determine the project timeline and lay the foundation for later decisions related to key project milestones such as resource needs, etc.
Leasing survey – transition plans – PwC

Potential impact and level of effort ahead

  • Size and complexity of companies’ lease portfolios, as indicated in select data points from our survey, will determine the challenge of transitioning to the new standard.
  • We have found that, after companies formalize the process of gathering leasing data, many are surprised to find that they have more lease contracts than they originally thought.
Leasing survey-portfolio character – PwC

About this survey

Industry breakdown of respondents taking the survey

  • Responses collected through an open, online survey between March and April of 2016.
  • Responses submitted from more than 500 executives responsible for lease accounting or lease management.
  • More than 75% of respondents were CFOs, controllers or finance directors/ managers.
  • Responses came from across a wide range of industries (see chart).
  • Primarily US GAAP reporters, with 18% requiring some type of dual reporting.
Leasing survey – industry respondents – PwC

Contact us

Henri Leveque
Partner, Deals, Global Data and Analytics Leader
Tel: +1 (678) 419 3100
Email

Chad Kokenge
Partner, Deals, Accounting Advisory Services Leader
Tel: +1 (646) 471 4684
Email

Sheri Wyatt
Partner, Deals, Accounting Advisory Services
Tel: +1 (312) 298 2425
Email

Follow us