Financial Executives Research Foundation (FERF), in collaboration with EY, issued a new study assessing what companies are doing to address the challenges brought by the new lease accounting standards.

As the new leasing guidance recently issued by Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) aims to improve the transparency of leased assets on financial statements, companies should prepare for the significant impact the standards will have on their financial operations.

The study is based on a survey of more than 125 companies. Key results from the survey include:

• Companies are aware of the new lease accounting standard. Nearly 90% of respondents said they are either somewhat or very familiar with the standards, with 33% saying they are very familiar and have followed the FASB and IASB board activities closely.
• Some companies are starting to take action. While 50% of all respondents have yet to take steps to prepare for the new standard, 11% have started to perform a readiness assessment and another 7% said their project team has begun to create an inventory of lease data. “Preparing for the new lease accounting standard should be a priority for companies,” said Anastasia Economos, partnerat Ernst & Young Financial Accounting Advisory Services and EY Americas Lease Accounting change leader. “Companies who have started to assess their capabilities are gaining clarity on how the standards will impact their financial operations and what they need to do around data, process and technology.”
• Companies need to consider implications. Nearly 60% of all respondents indicated they expect either a moderate or a significant impact on their balance sheets and financial statement disclosures due to the new standards.
• Companies expect challenges. Nearly 75% of all respondents expect to have significant or moderate difficulty developing policies, processes and internal controls and to experience some difficulty getting through the first-year audit.
• Most companies have not budgeted for costs. Among all respondents, 83% said they have not started to create a budget for meeting the new standard. Just 5% reported that that they have designated more than $500,000 over the next three years to get in compliance with standard.
• Companies expect to implement new technology. While a majority of the respondents rely on spreadsheets to track and account for leases, more than 80% are still evaluating technology options.
• Few companies plan to early adopt. More than half of the respondents were planning to adopt as of the effective date.

“Hearing from senior-level financial executives from more than 125 companies, we know that businesses are aware of the challenges they may face given the new leasing guidance,” said Andrej Suskavcevic, president and CEO of FERF and Financial Executives International. “However, we hope this research will spur companies into action so they will be well educated and prepared to meet the challenges of implementing the new lease accounting standards. We stand ready to assist our members and the industry to educate themselves and put best practices into action today.”

FERF is the independent, non-profit research affiliate of Financial Executives International (FEI).