According to a recent Deloitte survey just 7% of executives believe their companies are extremely or very prepared to comply with new lease accounting standards proposed by the Financial Accounting Standards Board (FASB).

As early as June 2011, the new proposed draft standards distributed in August 2010 may be finalized. To comply, lessees (and possibly lessors) would have to fundamentally change how they account for real estate and equipment leasing transactions, providing more extensive financial statement disclosures than ever before. The new standard would effectively eliminate all operating leases and require them to be capitalized on the company’s balance sheet. For lessees, it would also replace rent payment expense reporting with interest and amortization expense reporting.

“These changes will have an immense impact on many companies that lease commercial property,” said Josh Leonard, a leader in Deloitte’s real estate consulting practice. “Beyond the major changes involved, companies need to start looking at their lease portfolios now for adequate lease information, technology capabilities, and resources to implement and monitor the new standard, expected to be final by mid-year 2011.”

From a financial perspective, more than 80% of respondents believe that the lease accounting standards will place a significant burden on financial reporting for tenants as well as property owners. More than 40% of respondents believe the new standards would make it more difficult to obtain financing. In addition, 68% of respondents said it would have a material impact on their debt to equity ratio; and, roughly 40% thought the new lease standard would lead to shorter-term leases.

Only 35% of respondents are extremely or very confident in the integrity of their company’s lease data needed to comply with the new standard. Further, to accommodate the new standard, major IT investments would likely be needed. One-quarter of respondents said their companies are likely to have to make a major upgrade to their information technology systems, while 20% said they are likely to acquire a new system. Among companies with 1,000 or more leases, the need for IT investment was even greater – 39% of these respondents expect the new standards will lead to a major technology system upgrade, while 27% expect to acquire a new system. In addition, just 21% of respondents are extremely or very confident in the capability of their companies’ information technology provider to comply. Half the respondents at companies with 1,000 leases or more expect that implementation would take one year or longer.

To view the full text of Deloitte’s news story, click here.