With the January 1, 2019, deadline looming for compliance with the Financial Accounting Standards Board (FASB) lease accounting standards, only 15% of companies have completed their implementations to date, according to a KPMG survey.
Another 45% indicate that they are in the process of implementing as they brace for some of the most significant changes to lease accounting to date.
An overwhelming majority of companies rely on assistance from the ‘big four’ accounting firms to comply.
Marybeth Shamrock, KPMG's advisory lead for leasing, said: “We have seen companies start their projects around the lease accounting standards as they complete their implementation projects for the revenue recognition standards. However, companies still have a lot of work to do in order to achieve compliance with the lease accounting standards.”
Respondents to the KPMG survey included 150 finance and accounting professionals in financial services, manufacturing, retail, telecom, and media industries. Nearly half of those polled have at least 1,000 leases.
A significant proportion (57.3%) have annual revenue of $500 million to $50 billion.
FASB’s new standard, finalized after many years of debate, will require organizations that are lessees to recognize the assets and liabilities for the rights and obligations created by those leases on their balance sheets, increasing transparency and comparability among organizations that lease buildings, equipment, and other assets.
The KPMG survey also revealed that companies expect significant implementation costs. More than one-quarter of respondents expect costs to exceed $500,000.
When it comes to leveraging technology to assist with implementation, 45% of respondents who are still in the assessment phase, and 50% that have yet to begin, acknowledge that technology will be critical to streamlining implementation efforts and associated costs.
Donald Coduto, a director in KPMG's accounting advisory services, said: “The survey underscores companies' desire to not only leverage technology to implement a system to comply with the leasing standard, but to lessen the burden on IT systems, processes, and people.”
Shamrock added: “The new requirements call for a substantial change in the way companies account for all their leases - from office space to heavy equipment, trucks and airplanes - and will have implications throughout the organization, including tax, reporting, and technology.”