Back in 2016 when FASB released their new lease accounting standard changes, the implementation deadline seemed far away and there were more immediate accounting issues to deal with (such as the new revenue recognition standard). As a result, many organizations put off preparing for the changes in lease accounting.
Fast forward 2 years, and now the deadline is rapidly approaching. And according to research by the big 4 accounting firms, most companies are not prepared. In February 2018, KPMG reported that only 15 percent of companies they surveyed said they were ready for the changes in lease accounting.
Deloitte published research in March that indicated only 21 percent of companies report being prepared to comply with lease accounting changes from FASB.
While the reasons behind the delay are understandable, organizations are taking a huge risk if they continue to put off preparations for the changes in lease accounting. The task of gathering all lease data will take a considerable amount of time (several months at least). And, as the deadline approaches, the demand for expert resources to implement lease accounting technology will increase while availability tightens up. You might face a situation where you can’t make the deadline.
What are the deadlines for the changes in lease accounting?
It’s coming fast: public companies need to be ready to adopt the changes in lease accounting by January 1, 2019. Other companies have an additional year.
It will take longer than you think to get ready for the changes in lease accounting
There are many lease accounting software vendors out there reassuring companies about how fast they can get their tools up and running. And it’s true: in most cases, getting the software ready will be the fastest part of the process. Yet that reassurance may be giving people a misleading sense of how long the entire lease accounting readiness project will take.
Here’s what you have to do to get ready for the changes in lease accounting (beyond software implementation) that will take much longer:
- Assemble a team to lead the project.
- Find all your lease documents.
- Figure out exactly which data points you need to collect for lease accounting calculations.
- Abstract the contents of all your lease documents.
- Assess what’s missing and find that information.
- Validate your lease data.
- Develop new procedures for collecting and updating lease data in the future.
- Determine the impact of the changes in lease accounting on your financial reporting.
- Develop new standardized leasing policies for your organization.
Learn more about the process from this helpful guide: How to Implement Lease Accounting Technology
While the timeline will vary for every organization, experts say it will be difficult for a large company to accomplish all this in less than 6 months. As of right now, you have 7 months.
And, as the deadline approaches, the law of supply and demand will work against you.
A critical resource will be in short supply as the deadline approaches
There are certainly a lot of lease accounting tools out there. But given the number of companies who have yet to implement software to handle the changes in lease accounting, experts predict that there isn’t enough vendor capacity to handle the demand.
What does that mean? The closer we get to the implementation deadline for public companies (who have more data and more complex implementation needs) the more difficult it will be to get help from vendors. That might even include your accounting advisory partners.
Every software vendor understands this and many (including Visual Lease) are ramping up their capacity as fast as they can. But chances are, as 2018 draws to a close, vendors will simply be challenged to handle the volume of work that pours in as companies are finally ready to implement software just before the deadline.
The best advice for implementing the changes in lease accounting
Don’t put off starting preparations for the changes in lease accounting another day. And, if you are already working on it, try to step up the process if you possibly can. The consequences of missing the deadline are severe and you need to do everything you can to make sure that doesn’t happen.
Don’t wait to select software.
We have seen come companies waiting until data collection is complete to begin looking at lease accounting technology to handle the calculations. While that strategy may have worked fine last year, time will not allow you to take that path at this point.
A smarter strategy is to implement lease accounting technology while you’re collecting data. You’ll be able to migrate data as it becomes available, test as you go, and be ready for compliance as soon as your data collection and validation is complete. You can save yourself valuable time and lock in vendor resources so you don’t have to scramble for them as the deadline approaches for the changes in lease accounting.