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US Companies Slow To Implement New Leasing Standard

by Mike Godfrey,, Washington

16 May 2016

A survey by LeaseAccelerator has found a low level of market readiness for the implementation of the new US Generally Accepted Accounting Principles (US GAAP) lease accounting standard announced earlier this year by the Financial Accounting Standards Board (FASB).

In line with the new Accounting Standard – IFRS 16 Leases – announced by the International Accounting Standards Board, the new leasing provisions under US GAAP will require lessees to report all their current lease commitments on their balance sheets.

It will be effective from the fiscal years beginning after December 15, 2018. However, companies will also have to provide three years of comparative income statements, beginning on January 1st, 2017 for calendar year-end filers.

Most leasing commitments are presently categorized as "operating leases," which are disclosed only in the notes to financial statements. It is thought that almost half of listed companies using IFRS or US GAAP will be affected by the lease accounting changes, and some industry sectors will be more affected than others – airlines, retailers, and travel/leisure services providers, with the most off-balance-sheet leases, are expected to be most affected.

The study found that 85 percent of respondents were in the process of reading, studying, and implementing the new standard. Fewer than 10 percent of respondents believed they currently had the right systems in place to comply. Of those surveyed, 42 percent were expecting the implementation of the new standards to be either "pretty painful" or "extremely painful."

In addition, most companies did not even have an up-to-date inventory of their leases, with 64 percent of companies with large leasing portfolios stating that it could take months to produce such an inventory. Most companies also did not have a system of record in place for equipment leases – almost 65 percent are using spreadsheets or "a little of everything" to track these assets.

"Only a handful of companies have adopted best practices for the accounting and administration of their equipment leases," said Michael Keeler, CEO of LeaseAccelerator. "Companies should get started now implementing the necessary systems, processes and controls if they are going to meet the deadlines for the new lease accounting standards."

TAGS: generally accepted accounting principles (GAAP) | compliance | business | law | accounting | United States | standards | services

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