Want to know what’s on the minds of those transitioning to the new lease accounting standards? More than 900 finance executives participated in PwC’s 2019 lease accounting survey, revealing key challenges and lessons learned from implementing ASC 842 and IFRS 16.
Key survey findings:
Video: Are private companies underestimating the resources needed?
Video: Impact of effective date deferral.
Many from non-public companies (40%) reported their ASC 842 implementation “in progress” while 13% have not yet started. Of those already implementing, 55% reported being halfway done. However, 35% are delaying their implementation to focus on other priorities after the FASB allowed an extra year to comply with the new rules (see video).
Are non-public companies underestimating the complexity associated with implementation? The majority (74%) estimate spending less than $250,000 on the transition. Those numbers are a sharp contrast to the much higher costs reported by public companies who have already implemented. Only 22% of those from non-public companies reported implementation teams of 5+ people (see chart), compared to 48% for public company respondents.
Ensuring completeness of lease population and identifying embedded leases topped the list of non-public company implementation challenges (see chart). Systems issues didn’t rate as high despite 51% of non-public company respondents reporting system changes or implementing new systems to enable the reporting required under ASC 842. These results stand in contrast to the systems experiences of public company survey respondents.
Video: Lease accounting system implementation status.
The survey responses from public companies were collected mostly from those already done with their implementation — or are they? Despite being past their effective date, many reported ongoing issues with their implementation. Of the 72% that have implemented new or modified existing systems to account for leases under the new standards, 31% are still exploring system enhancements or alternatives. Also, 70% cited manual work-arounds required for lease reporting following their initial system implementation.
Video: ASC 842 challenges, post-compliance.
Automating new lease reporting processes was the most challenging post-compliance implementation issue, with 77% of public company respondents rating it as somewhat or very difficult. Ongoing data capture was the second most challenging (see video). Strengthening controls only ranked as a mid-level challenge, consistent with the majority (61%) reporting having already implemented lease accounting controls as revealed elsewhere in the survey.
ASC 842 implementation costs of $1 million or more were estimated by 21% of public company respondents, increasing to 43% for those with 1,000 or more leases (see chart). More than one-third (35%) expected to spend more than originally budgeted or anticipated. Meanwhile, implementation teams of 5 or more were reported by 48%, increasing to 75% for those with 1,000 or more leases. All of these numbers stand in sharp contrast to non-public companies, which expected significantly lower resources and costs for their implementations.
Public companies already reporting under ASC 842 or IFRS 16 can offer invaluable insights to non-public companies still implementing the new standards. The 2019 lease accounting survey asked these “groundbreakers”:
“What aspect of your lease accounting implementation (if any) would you do differently if given the chance to do it over?”
More than 200 financial executives responded with more than 7,000 words of wisdom. The most common themes among the responses involved starting earlier and lessons learned regarding systems implementation and selection. Examples of some responses are highlighted.
Partner, Accounting Advisory, PwC US
Partner, Private Company Services, PwC US
Partner, Data and Process, PwC US
Partner, Finance and Systems, PwC US