Accounting

Lease Standard Requires Disclosure Rigor

By Dave Pelland Beyond the technical accounting changes, adopting the new leases standard is going to result in stronger disclosures and a variety of business process changes, panelists told FEI’s Current Financial Reporting Issues (CFRI) Monday.  By some estimates, the new leases standard rule change could add trillions of dollars in lease liabilities and right-of-use assets to corporate balance sheets.   “When you bring leases onto the balance sheet and enhance disclosure, the rigor of the reporting applied by companies, by auditors and the PCAOB is going to rise,” said PwC Partner Chad Soares. “For many companies, the liability for leases is going to be the second or third-largest liability on the balance sheet. It’s going to be significant, and it’s going to be visible, and controls are going to have to correspond with that level of rigor.”  Adding to the complexity for preparers is the timing of the new standard’s 2019 adoption date, which comes directly on the heels of the new revenue recognition standard in 2018. However, consideration will need to be given to comparative periods that, for income statement purposes, may include reporting periods as early as 2017. While administering leases is not new, the level of disclosure required by the new standard marks a notable increase. Most companies have experience tracking real estate leases, for instance, but the standard’s broader requirements to include all leases means companies are going to have to provide closer attention to assets that may have been left to line business units to manage.  “Identifying the scope of leases, in the U.S. and internationally, is the first big task,” said Gregg Nelson, Vice President and Chief Accountant of IBM. “You have to go beyond real estate to include equipment, vehciles, and anything you may use to run your business. You have to determine whether those arrangements would be considered a lease, and whether you can can the required data to comply with the standard.    Citing a PwC study released earlier this year, Soares said 80 percent of surveyed U.S. companies have started implementation efforts, primarily assessments to understand the standard and its potential effects on their company.  “We’ve been following the standard through its development, and we’ve set up a foundation for the technical changes,” said IBM...

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