Oil Companies Seek Two-Year Delay of Lease Accounting Rules

The Financial Accounting Resource Center™ is a comprehensive research service that provides the full text of standards, the latest news from the Accounting Policy & Practice Report ®,...

By Steve Burkholder

Oil companies and other petroleum sector players want U.S. accounting rulemakers and securities regulators to grant them a two-year delay of the January 2019 effective date of a lease accounting standard.

The balance sheets of retailers, airlines, shipping and rail companies, many banks, and hotel and restaurant chains likely will swell under Financial Accounting Standards Board rule ASC 842, issued in early 2016.

The oil companies requested the delay—citing computer software readiness worries—in a letter to the Financial Accounting Standards Board and the chief accountant of the Securities and Exchange Commission. The letter came through their trade group, the American Petroleum Institute.

The estimated 625 members of API include Exxon Mobil Corp., Chevron Corp., Shell Oil Co., ConocoPhillips Co., and BP America Inc.—all big users of property leases.

Investors will benefit from clearer, more accurate reporting of lease-related obligations and return on assets, in the front of financial statements for the first time, rulemakers and regulators say.

A FASB spokeswoman told Bloomberg BNA Aug. 17 that the board “will continue to monitor the status” of companies’ efforts to shift to the leases standard. That work includes gauging the “pervasiveness of the implementation challenges” described in the API letter, she said.

The petroleum group’s director of accounting and tax policy, Stephen Comstock, said Aug. 16, “We are still concerned about the implementation deadline because IT solutions for standardized reporting are not available or in place yet.”

Impediments to Switching

The American Petroleum Institute’s Comstock wrote that three developments “pose serious obstacles” to a broadly effective move to the new leases rules:

  •  “the dramatic change in accounting” from current generally accepted accounting principles;
  •  “the lack of software available to handle the variations and complexities of lease portfolios”; and
  •  “the effort required for companies to plan and implement the changes in a well-controlled manner.”
In June, John Bober, global technical controller for General Electric Co.’s GE Capital arm, told FASB in a meeting with Fortune 500 financial executives that U.S. companies are starting to worry about whether the computerized systems they’re setting up for reporting on their leases will be ready for the complex tasks ahead.

Financial executives and auditors have said that software companies have been busy with helping corporations get ready for the advent of far-reaching revenue accounting rules in 2018. Computer system help with leases is second on software developers’ lists, they say.

After the June 22 meeting, FASB Chairman Russell Golden said of companies: “They need to make sure that they have the IT systems in place in a timely manner.”

Companies will have had almost three years to get ready for the new leases standard. In comment letters to FASB during the leases rules’ proposal stage, some companies said they would need at least two years to prepare.

Auditor: 2-Year Delay Excessive

One auditor at a Big Four firm, who requested anonymity, told Bloomberg BNA Aug. 17 that he believes a two-year delay is excessive.

“I think those challenges can be managed,” said the auditor.

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

Copyright © 2017 Tax Management Inc. All Rights Reserved.

Request Financial Accounting