More Financial Executives Worried over Implementing Leases Standard

August 29, 2018

Frustration among financial reporting executives over the Financial Accounting Standards Board’s (“FASB”) new leases guidance is rising. A recent survey on Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), revealed that 29.5 percent of executives say they are unprepared to implement the standard. The percentage is up 7.1 points (22.4 percent) from the same survey conducted in January.

With the leases standard going into effect next year for public companies (2020 for private companies), several factors are being contributed to implementation concerns. For instance, most companies consider collecting and tracking information on lease agreements in a financial system a large undertaking. Many software systems are unable to capture the entire scope of a lease contract. In addition, some companies are uncertain whether their accounting systems will work, so they are adopting the standard manually and will fully update their systems at a later date.

The survey’s results were revealed August 1, two days after the FASB issued an amendment to U.S. GAAP to improve the implementation of its leases standard. ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, frees companies from disclosing previous comparative years’ results when adopting ASU No. 2016-02. The standard also lets lessors avoid breaking out the non-leased portions of a rental contract. Despite most companies favoring the update, it does not reduce the complexity of the leases standard or make the guidance easier to implement.