Executives Uneasy Over Lease Accounting IT Systems

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By Steve Burkholder

U.S. companies—facing challenges on how they will account for some of their leasing contracts under new rules—are starting to worry about whether the computerized systems they’re putting in place will be ready for the complex tasks required.

“A number of companies are reporting their concerns” about the leasing IT systems they’re evaluating as they purchase and bring on the systems, John Bober, global technical controller for General Electric Company’s GE Capital arm, said June 22 at a meeting of FASB and FEI’s financial reporting committee.

“They’re concerned that the systems are not in the proper state, they will not have a good quality control system over financial reporting when they go live on Jan. 1, 2019,” Bober said at the meeting of FEI Committee on Corporate Reporting.

Many companies have subsequently changed their tune when reporting their prospects for preparation of the new standard. The companies are signaling to the accounting rulemakers that “complications” in lease terms and reporting indicate that spreadsheets and relatively simple record-keeping won’t do the job anymore, Financial Executives International found in the recent poll.

Direct Influence on Balance Sheets

The balance sheets of airlines, retailers, many banks, hotel and restaurant chains, telecoms and other companies are expected to balloon under the FASB standard, ASC 842, issued in early 2016.

Individual companies will have to book on their balance sheets—rather than simply disclose in footnotes to financial filings—what could be billions of dollars in lease liabilities. Public companies will also have to perform an analysis of their internal controls on their financial reporting of leases even if the amounts involved are not large.

They want to avoid run-ins over those controls with auditors and Washington regulators.

Will Systems Be in Proper State?

One-third of companies on the committee have concerns about the readiness of systems providers, according to a preliminary review of the poll results. The committee believes that the final figure may be higher as more companies formally choose the specific IT system for recording and tracking leases for accounting purposes.

The FEI committee, made up of dozens of controllers and chief accountants from Fortune 500 and other companies, earlier had sent messages to FASB that various simplifications and “practical expedients” in the 2016 leases rules would help produce a smooth transition to the new accounting.

The basic model for U.S. accounting for leases also won’t change markedly, beyond the landmark first-time booking of lease obligations on the balance sheet.

FASB Surprised

FASB members voiced some surprise on learning of the fresh worries of companies stemming from more involved tasks of shifting to IT systems for cataloging and tracking leases, and about the possible lack of readiness in 2019.

FASB Chairman Russell Golden told Bloomberg BNA, that companies are signaling that “the actual IT systems” companies are adopting present a risk of lack of readiness “and they need to monitor it, and I think that we need to monitor it.”

“They need to make sure that they have the IT systems in place in a timely manner,” Golden said, referring to U.S. companies.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn. at sburkholder@bna.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bna.com

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