Lease Accounting Transition Pressures Shift To Private Companies

With the Financial Accounting Standards Board’s new lease accounting standard deadline now past for public companies, the challenge has shifted to private organizations to adopt the requirement by 2020. A Robert Half and Protiviti survey of CFOs at private companies found that 26% have started but not completed the transition, and an additional 18% have yet to begin the process. The new standard requires companies to recognize assets and liabilities for virtually all long-term leases and increases disclosure requirements.

Lease accounting standard adoption at private companies, by company size
Lease accounting standard adoption at private companies, by industry

Small private organizations are lagging behind their larger counterparts for adoption, the research shows:

  • Just 38% of firms with 20 to 49 employees have completed the transition, compared to 61% of organizations with 1,000 or more employees.
  • Among firms yet to complete the transition, 89% of executives at the biggest companies reported concerns about meeting the deadline, versus 43% of small-company CFOs.
  • The top transition challenges are training staff on the new standard (23%) and change management (20%).

View data tables with the results by company sizeand industry.

“While private businesses have learned valuable strategies from public companies’ transition experience, many organizations still don’t realize the amount of work required to adopt the new lease accounting standard,” said Tim Hird, an executive vice president with Robert Half. “Private companies with decentralized business units and high lease volumes will be most impacted, but any firm still in the early stages of the compliance process — or that hasn’t started at all — will soon find pressures mounting and options dwindling.”

Outside Experts in Demand 
Most private firms that have started or completed the transition expect to seek additional help in upcoming years, the survey shows. Approximately 6 in 10 CFOs (61%) said they will use a combination of external and internal resources or external resources only to staff future lease accounting initiatives.

Hird added, “Private companies often lack the necessary staff and expertise to manage the change. Working with consultants and interim professionals can help firms access needed skills or relieve full-time employees of everyday duties so they can shift their focus to the transition.”

Companies Turn to Advanced Technologies 
Organizations that successfully completed the adoption frequently utilized new tools, the research found. Four in 10 companies (40%) relied primarily on cutting-edge technologies like artificial intelligence and machine learning to comply with the standard, and a similar percentage (41%) expect to lean more heavily on advanced technologies in future years.

“The new lease accounting standard has proved challenging to organizations of all types and requires careful coordination of departments and resources,” said Chris Wright, managing director of the financial reporting remediation and compliance practice for Protiviti, a global consulting firm and Robert Half subsidiary. “Advanced technologies can make compliance faster and more effective, while allowing staff to focus on more strategic aspects of the transition.”