Companies are notoriously lax when it comes to preparing for new accounting standards, such as the upcoming lease accounting standard for private companies.
However, as Deloitte points out in a new survey, some companies may be even further behind than usual, given the changes in the pandemic. For example, real estate needs change for companies with employees working remotely. With the adoption of remote jobs, they may have to exit the lease, modify it, or execute a sale and purchase transaction. As these scenarios develop, different accounting treatments are needed, according to Deloitte.
Deloitte also notes that recent migrations to the cloud could also have an impact as companies adopt the cloud accounting guidelines of the Financial Accounting Standards Board. Under the lease accounting standard, Deloitte states that companies could set up agreements in the cloud for a specific accounting treatment.
“Some organizational changes made during an outage caused by a pandemic have implications for lease accounting, including cloud migration and changes in the real estate footprint,” says Sean Torr, CEO and controller of Deloitte Risk Financial Advisory, leader in accounting and reporting, Deloitte & Touche LLP in prepared comments. “Whether private entity leaders are among the highly worrying percentage of people who don’t feel prepared to comply or not with the lease accounting standard, now is the time for these leaders to start asking questions about the state. of implementation efforts “.
According to accounting changes, companies must include most leases in their balance sheets for fiscal years beginning after December 15, 2021. Despite the changes caused by the pandemic, Deloitte found that many companies are confident will be able to cope with the new standard. In the survey, one-fifth (19.8%) of executives in private organizations do not feel prepared to comply with the FASB’s lease accounting standard, while 27.7% say they are willing to comply. the. Deloitte claims this is the highest confidence rate of private entities in six years.
Of course, many of these companies took advantage of the additional year that FASB offered to adopt the standard. At the time, 63.8% of private company executives indicated they would take advantage of the extension, according to Tim Kolber, managing director and co-director of accounting standards implementation services at Deloitte & Audit practice. Touch LLP.
Torr says proper accounting of leases should be a priority for private organizations in the coming months. Deloitte says they should ensure that all proper lease data is fully centralized, captured and checked for accuracy. Next, you need to check if it is aligned with your organization’s accounting policies. Finally, companies need to develop a process to maintain lease data in the future.