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Companies Slow to Respond to New Accounting Standards
A recent survey by audit, tax and advisory firm KPMG LLP indicates that nearly 80% of public companies have not completed an assessment of the impacts of the new revenue recognition standard issued by the Financial Accounting Standards Board (FASB). In addition, 60% of respondents indicated that they are running behind schedule in their overall implementation of the standard, which has an effective date of Jan. 1, 2018, for calendar-year public companies and one year later for nonpublic companies.
Generally, respondents feel their efforts to move forward with implementation have been hampered by competing internal business priorities, human resources constraints and financial limitations. Two-thirds of respondents believe implementation costs will total under $1 million, 17% foresee spending between $1 million and $2.5 million, and for 16%, up to $20 million. Respondents were divided as to whether their systems will need to change, or if they will rely on existing systems or manual processes to operationalize the new standard.
Lease Accounting
Nearly half of all companies surveyed have not begun to assess the impacts of the new FASB lease accounting standards, which have the effect of moving most operating leases onto a company's balance sheet. The standards have an effective date of Jan. 1, 2019 for calendar-year public companies and one year later for nonpublic companies. Few companies have conducted an inventory of their leases or even formed project teams to help implement the new leasing rules, according to the survey. Respondents indicated that they are most challenged by implementing the IT systems needed to move leases onto balance sheets.
The challenge that many may be underestimating is that since most large companies have thousands of operating leases spread across numerous geographic locations, simply identifying these leases is likely to be a huge undertaking. These leases will then need to be abstracted, analyzed, entered into a lease accounting system, validated, and monitored through the lease term as they are accounted for on a company's balance sheet.
KPMG surveyed more than 140 companies, representing all major industries, this spring. Nearly 80% of respondents reported revenue of $1 billion or more. Seventy-six percent of companies are public, and 24% of companies are privately held. The full survey results can be found at http://tinyurl.com/hnfsqdp.
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