LeaseAccelerator announced the results of the its third annual Progress Report on ASC 842, which focuses exclusively on U.S.-based private companies and their readiness for the new lease accounting standards. The deadline for most U.S.-based private companies to adopt the new standard is January 2020, prompting many to launch the project in early 2019.

In an effort to provide a quantitative progress report on the status of compliance efforts for private companies, LeaseAccelerator conducted a research study in late January 2019. Approximately 350 finance and accounting leaders from U.S.-based private companies with $1 billion or more in revenue were surveyed. The study did not include any public companies.

“The focus on lease accounting readiness since the Financial Accounting Standards Board (FASB) released the new standard in early 2016 has been primarily on public company implementations. With more than three-quarters of public companies already past the effective date, the spotlight is now on private companies as they quickly approach their end-of-year deadlines,” said Michael Keeler, CEO of LeaseAccelerator. “In almost every area of project readiness, from data and systems to process change and project management, private companies are reporting a lower state of readiness than public companies showed in last year’s survey at this time.”

Key findings of the 2019 LeaseAccelerator Progress Report include:

• As or more challenging than revenue recognition: As compared to the new revenue recognition accounting standards (ASC 606), 75 percent are finding the new leasing standards to be more complex or as complex.
• Higher than anticipated complexity: Almost 55 percent of companies are finding the lease accounting project to be more complex than originally anticipated. Collecting data, modifying business processes and project managing the enterprise-wide effort are the top three challenges.
• Equipment leases hardest to analyze: More than 40 percent of companies have taken an inventory of their enterprise-wide lease portfolio. The most challenging leases to analyze are not real estate contracts, but IT, fleet, plant, machinery and equipment leases.
• Few companies have selected software: Only 20 percent of companies have now selected a software vendor to support the new lease accounting standards. More than 50 percent are planning to use spreadsheets.

“Private companies will benefit from having an extra year to prepare for ASC 842 as they can learn from the real-world experiences of public companies that are adopting throughout 2019. As private companies continue their efforts to meet the deadline, they should be mindful not just of ‘Day 1’ considerations, but also of the need to set up scalable business processes for sustained compliance. Ultimately, success with lease accounting will demand an enterprise-wide effort to regularly communicate changes to the portfolio across business units, corporate functions, and the accounting team,” Keeler said.

You can download and read the full report here.