MORRISTOWN, N.J., June 16, 2016 /PRNewswire/ -- Financial Executives Research Foundation (FERF), the independent, non-profit research affiliate of Financial Executives International (FEI), in collaboration with EY, has issued a new study titled Paving a path to success: preparing for new lease accounting standards. As the new leasing guidance recently issued by Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) aims to improve the transparency of leased assets on financial statements, companies should prepare for the significant impact the standards will have on their financial operations.
This report, based on a survey of more than 125 companies, assesses what companies are doing to address the challenges of preparing for the new lease accounting standards.
Key results from the survey include:
- Companies are aware of the new lease accounting standard. Nearly 90 percent of respondents said they are either somewhat or very familiar with the standards, with 33 percent saying they are very familiar and have followed the FASB and IASB board activities closely.
- Some companies are starting to take action. While 50 percent of all respondents have yet to take steps to prepare for the new standard, 11 percent of companies have started to perform a readiness assessment and another 7 percent said their project team has begun to create an inventory of lease data.
- Companies need to consider implications. Nearly 60 percent of all respondents indicated they expect either a moderate or a significant impact on their balance sheets and financial statement disclosures due to the new standards.
- Companies expect challenges. Nearly 75 percent of all respondents expected to have significant or moderate difficulty developing policies, processes and internal controls and to experience some difficulty getting through the first-year audit.
- Most companies have not budgeted for costs. Among all respondents, 83 percent said they have not started to create a budget for meeting the new standard. Just 5 percent reported that that they have designated more than $500,000 over the next three years to get in compliance with standard.
- Companies expect to implement new technology. While a majority of the respondents rely on spreadsheets to track and account for leases, more than 80 percent are still evaluating technology options.
- Few companies plan to early adopt. More than half of the respondents were planning to adopt as of the effective date.
"Hearing from senior-level financial executives from more than 125 companies, we know that businesses are aware of the challenges they may face given the new leasing guidance," said Andrej Suskavcevic, President and CEO of FERF and FEI. "However, we hope this research will spur companies into action so they will be well educated and prepared to meet the challenges of implementing the new lease accounting standards. We stand ready to assist our members and the industry to educate themselves and put best practices into action today."
Anastasia Economos, Partner, Ernst & Young LLP Financial Accounting Advisory Services, and EY Americas Lease Accounting Change Leader noted, "preparing for the new lease accounting standard should be a priority for companies. Companies who have started to assess their capabilities are gaining clarity on how the standards will impact their financial operations and what they need to do around data, process and technology."
EY Financial Accounting Advisory Services is participating in Financial Executives International's (FEI) event, "The New Lease Accounting Standard Conference: What You Need to Know" being held today in Dallas, Texas. To learn more about the Paving a path to success research, visit ey.com or FEI's website.
About this survey
The study surveyed more than 125 companies from various industries. Most of the survey respondents were CFOs and senior-level financial executives specializing in accounting, finance, reporting or accounting policy. The survey examined companies' understanding of the new lease accounting standard; when and how they are planning to prepare; and ways companies would address certain challenges that may evolve. The complete study is available online at the links above.
About Financial Executives Research Foundation, Inc.
Financial Executives Research Foundation (FERF) is the non-profit 501(c)(3) research affiliate of Financial Executives International (FEI). FERF researchers identify key financial issues and develop impartial, timely research reports for FEI members and nonmembers alike, in a variety of publication formats. FERF relies primarily on voluntary tax-deductible contributions from corporations and individuals, and publications can be ordered by logging onto www.ferf.org/reports.
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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
This news release has been issued by Ernst & Young LLP, a member firm of EY serving clients in the US.
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