EY: FASB Readiness 'Should Be Priority'

EY and FERF stress the importance of getting all ducks in a row for the new lease accounting rules. (Photo courtesy of AV Realty)

NEW YORK CITY — Lack of awareness of the new lease accounting standards issued by the Financial Accounting Standards Board and the International Accounting Standards Board isn’t an issue, judging from results of a new study conducted by EY and Financial Executives Research Foundation. Nearly 90% of the more than 125 companies surveyed across a variety of industries said they’re either somewhat very familiar or very familiar with the new guidelines. Whether the awareness leads to action is another matter. Fifty percent of all respondents have yet to take any action to prepare for the new standard; it takes effect Jan. 1, 2019 but will entail comparative reporting against 2017 and 2018 data. Eleven percent of companies surveyed have begun to perform a readiness assessment and another 7% said their project team has begun to create an inventory of lease data. More than half plan to adopt the new standard on its effective date. “Preparing for the new lease accounting standard should be a priority for companies,” says Anastasia Economos, partner, Ernst & Young LLP 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.” EY and FERF note that companies that will be affected by the new accounting rules need to consider their 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. However, most haven’t begun to budget for the cost of meeting the new standard, with 83% saying they have yet to take that step. Only 5% reported that that they have designated more than $500,000 over the next three years to get in compliance with standard. One survey respondent quoted in the EY/FERF report, titled Paving a path to success: preparing for new lease accounting standards , isn’t expecting to see “a huge impact on our financial statements.” Nonetheless, the respondent said, “We realize there’s a lot of work to go through to identify all leases. So at the end of the day, even though we don’t we expect a significant financial impact, it’s going to take a lot of work to prove that to ourselves and the auditors.” At Morristown, NJ-based FERF, president and CEO Andrej Suskavcevic says “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. 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.” One consideration is that specific best practices or one organization maynot be ideal for another. “In reality, the new guidance will not affect all organizations in the same way,” the report states. “Some companies only have a limited number of leasing arrangements, while others routinely enter into hundreds of leases for new equipment or real estate properties as a way to obtain the use of assets necessary to operate their business without the burden of purchasing or disposing of them when no longer needed. Such historical off-balance sheet financing will now find its way onto the balance sheet as a lease liability and a corresponding right-of-use asset.”