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Lease accounting offer opportunities, despite challenges


The changes in lease accounting offer an opportunity to organisations to upgrade legacy IT systems and can help CIOs position their function at the forefront of business change.
This is the view of Anastasia Economos, EY Americas accounting change leader for leases, in response to the results of a recent EY survey that showed few executives in the US believe their companies are on schedule to adopt the new lease accounting standard by its 2019 effective date, although most predict the changes to lease reporting will result in nothing short of a business transformation.

“The majority of CFOs and CIOs see how these changes can align with broader goals and ambitions. What will likely bring success is strong alignment across the organisation among finance, corporate real estate, procurement, IT, tax, and treasury, as well as with internal and external audit teams,” Economos said.

“Enterprises should identify their business requirements for lease administration and accounting in order to evaluate system options as early as possible, ensure alignment across the organisation, and establish measures that drive return on investment.”

Of the 300 CFOs and CIOs from US public companies surveyed by EY in March, only 27 % of finance and IT bosses believe they’re on track to meet critical milestones to comply with the new accounting rules for leases. They noted several key obstacles, including:
• Systems challenges (51%)
• Problems collecting the required data (46%)
• Not enough people to get things done (46%)
• Difficulty interpreting the standard’s technical requirements (44%).

In addition, 26% said they still aren’t clear about who is responsible for the project.

On the other hand, 63% of respondents acknowledge that the new standard is an opportunity to deliver business transformation, with process re-engineering, lease cost reduction, and tax efficiency topping the list of benefits.

But doing so will require changing out legacy IT systems, according to 68% of respondents, and 40% of those executives said it will take nine months or more to implement systems changes. More than half (59%) are planning to put in place a dedicated on-premise technology system, while 34% plan to work in the cloud.

Only 7% will use a manual, spreadsheet-based method.

At least half of the companies expect lease accounting implementation to be quite difficult. The top six issues rated as very difficult include:
• Developing new accounting policies and procedures (19%)
• Gathering robust data and missing information (19%)
• Assessing and making systems changes (19%)
• Designing new process changes (18%)
• Managing tax considerations and impacts (16%)
• Developing new controls (13%)

Economos added that strategic and operational thinking will spur compliance but also trigger bigger business benefits.