A Closer Look: Lease Accounting Implementation Update

Implementation Status

Companies are waking up to the fact that they are less than six quarters away from the effective date of the new lease accounting standard, Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). A calendar year public entity presenting three year comparative financial statements that adopts the new standard as of the effective date (January 1, 2019) is required to report (in 2019) as if the standard had been adopted effective January 1, 2017 (the earliest comparative period presented). In a recent study by PricewaterhouseCoopers and CBRE Group, approximately 25% of over 600 finance executives stated their companies have not yet begun the process of implementing the new lease guidance. Over half of the study participants stated they were assessing the impacts of the new rules, and about 25% said they had started implementation.

Challenges

Among those who have implemented, approximately half stated the process was more difficult than expected. These companies reported that the two most significant challenges were data collection and having proper systems in place. The study further indicated that almost 50% of companies expect to implement a new lease management system to comply with the requirements of the standard. Many plan to modify
their existing ERP system to accommodate the changes.

Don’t Overlook Tax Implications

The new standard may also create tax issues related to transfer pricing and state tax apportionment. These tax issues are expected to be particularly acute in states that use property factors to apportion taxable business income.

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CCH ARM Editorial

CCH ARM Editorial

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