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Deloitte Poll: Lease Accounting Preparedness Continues to Keep Executives Awake at Night

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NEW YORK, Aug. 1, 2018 /PRNewswire/ -- As the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) lease accounting standards' effective date for U.S. publicly traded companies nears on Jan. 1, 2019, executives continue to indicate concern over their organizations' ability to comply, according to Deloitte's fifth lease accounting online poll since the standards' respective enactments in early 2016.  

Deloitte's April 2018 poll of more than 2,170 C-suite and other executives shows confidence is declining as those feeling unprepared to comply (29.5 percent) nearly double those feeling prepared (15.6 percent). This represents a drop from January 2018 statistics: unprepared (22.4 percent) and prepared (19 percent). Moreover, nearly one-half of executives (49.3 percent) report they are either "very" or "somewhat" concerned about implementing on time—up from 47.1 percent in May 2017.

"Executives have become more acutely aware of the lease accounting compliance timeline pressure and complex implementation work ahead—I suspect it's keeping more than a few awake at night," said Sean Torr, Deloitte Risk and Financial Advisory managing director, Deloitte & Touche LLP. "Particularly for U.S. public company executives facing a quickly approaching effective date, it's critical to understand that compliance is nonnegotiable and many organizations still have a lot of work to do to achieve it. While there are those who expect software to expedite implementation, it's simply not a panacea."

Organizations pursing new lease accounting software, despite FASB relief adjustments

Just 28.5 percent of executive poll respondents intend to use prior leasing software solutions with little or no modification for lease accounting implementation.

"We continue to hear that many companies are pursuing new IT solutions for the leasing standards, despite the dual-lease model approved by the FASB and the recent changes to the standard designed to simplify transition. Many of the IT solutions in the marketplace aren't necessarily able to be implemented off-the-shelf and require customization, necessitating additional effort around readiness for implementation of the standard," said James Barker, senior consultation partner for lease accounting in the national office of the Audit & Assurance practice of Deloitte & Touche LLP.

Embedded leases, "hidden hazards," add to complexity

One potential contributing factor to waning executive confidence and concern is embedded leases, lease agreements contained within larger contracts, which are difficult to identify.   

"Companies are struggling with the treatment of various lease data inputs, particularly on how best to apply the new standard to embedded leases. Since embedded leases are not likely to be labeled as 'leases' within larger agreements, they can be tough to identify, centralize and calculate. They pose a particular challenge in services industries where, for example, IT service contracts may have embedded server leases or transportation contracts may have embedded leases for railcars," said Torr.  

Barker added, "Embedded leases are not new, but the accounting and reporting consequences of failing to identify embedded leases is greater under the new rules given the on-balance sheet treatment of operating leases."

About the online poll

On April 19, 2018, the Deloitte Center for ControllershipTM hosted a Deloitte Dbriefs webcast titled "Lease accounting: Ready or not...the countdown is on," which polled more than 2,170 C-suite and other executives online about lease accounting implementation. Most respondents were lessees (50.8 percent), lessors (13.5 percent) or both lessors and lessees (15.4 percent). Similar online polls were conducted in January 2018, May 2017, October 2016 and March 2016. Answer rates differed by question.

About Deloitte

Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world's most admired brands, including more than 85 percent of the Fortune 500 and more than 6,000 private and middle market companies. Our people work across more than 20 industry sectors to make an impact that matters — delivering measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to see challenges as opportunities to transform and thrive, and help lead the way toward a stronger economy and a healthy society. Deloitte is proud to be part of the largest global professional services network serving our clients in the markets that are most important to them. 

Contacts

Shelley Pfaendler

Dan Mucisko

Public Relations

Deloitte Services LP

Public Relations

Deloitte Services LP

+1 212 492 4484

spfaendler@deloitte.com

+1 732 609 6825

dmucisko@deloitte.com      

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as "Deloitte Global") does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the "Deloitte" name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.

SOURCE Deloitte





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