Insight

Lease accounting is right around the corner

KPMG’s Lease Accounting Survey reveals the key remaining challenges and provides insight into how to respond

With only months left before the new lease accounting standard becomes effective, KPMG’s latest survey reveals that a large percentage of public companies still have significant work to do. Collecting and validating data is most difficult and the entire process is more complex and expensive than anticipated for both public and private companies. Companies need to use their remaining time wisely and focus on any roadblocks to implementation.

According to this latest KPMG survey of almost 400 companies, many companies are still struggling with challenges that are making it hard to reach the implementation finish line. Compared to last year, some progress has been made, particularly in selecting a lease accounting software (from 18 percent to 54 percent) and performing a lease inventory (from 29 percent to 40 percent); however, only small improvements have been made in other key activities, such as collecting and validating data (from 4 percent to 11 percent) and completing an accounting assessment (from 13 percent to 19 percent).

 A significant number of companies may have underestimated just how time consuming the process is and are currently scrambling to meet the deadline.

Other key survey insights include:

  • The top challenges companies are still facing involve identifying embedded leases in contracts and abstracting and entering leases into a leasing system; 
  • To deal with these challenges at this late date, many companies will need to increase their budgets and seek out the expertise of outside advisors as well as become familiar with leading practices at peer organizations and regulatory bodies. Completing accounting and process assessments are key steps;
  • Companies need to realize how complex and expensive the process is. Total expected cost for implementation increased from prior year for 65 percent of public companies, primarily caused by the need for new lease accounting software. If possible, companies should complete their accounting and process assessments before beginning their system implementations; otherwise, accept some inefficiencies with running a parallel track;
  • Both public and private companies need to quickly collect and validate all data that needs to be migrated into a lease accounting system. The risk of getting it wrong may involve higher post-implementation costs and a loss of confidence.

Download the survey results for additional insights.