ATLANTA—Nearly two years ago, Avison Young's Sean Moynihan warned that “many companies will be blindsided” by the new lease accounting standards, which are due to begin taking effect in December 2018, and that preparing for the changes should begin as soon as possible. A new study from AY finds that the majority of companies still lag when it comes to managing the impact of the new rules from the Financial Accounting Standards Board and the International Accounting Standards Board.

“Roughly 77% of companies we surveyed have said that their auditors are looking into the new guidelines or that their accountants are evaluating the impact of the new standards,” says Moynihan, principal at AY in Atlanta. “Companies need to reexamine existing leases before the new standard, a process that could take as long as 12 months, in order to extract embedded operating costs, such as taxes, insurance, common area maintenance and initial direct costs for compliance.”

AY's study also shows that 85% of more than 100 small- and mid-companies' operating leases are not currently on their balance sheets. That means more than US$2.8 trillion of leases going on balance sheets across the globe after the effective date of the new standards. “Lease classification, rental rate structure, options and concessions are additional factors that may significantly increase lease values as well, if companies do not thoroughly review what actions may be taken in advance of the effective date,” Moynihan says.