Lease Accounting Standard New Start Date Likely 2019

WASHINGTON, DC—It was so close just a few weeks ago. On Oct. 7, the Financial Accounting Standards Board held its last decision-making meeting on the lease accounting convergence project. "The Board seemed confident that the year-end 2015 target for adoption will be met," followed by a transition period of two years, wrote Bill Bosco, principal of Leasing 101 in an email newsletter distributed to followers. If they had opted for a later effective date, it would mean companies would have to grapple with transitioning to another major accounting change, the Revenue Recognition standard, in addition to the lease accounting standard. That was his prediction as recently as a week ago.

Now that year-end 2015 date is most likely off the table, or rather, to be more precise -- the date that the lease accounting standard will go into effect will be pushed ahead by one year.

Why Because the International Accounting Standards Board is almost surely going to decide that the standard should go into effect on January 1, 2019, following a staff recommendation. "It seems likely that the FASB will go along with their decision so I am changing my prediction from 2018 to 2019 for the transition year for the FASB Leases standard," he wrote in a new email sent out on Wednesday. 

FASB and IASB want to have the same date in order to make it look like they are trying to work together, Bosco tells GlobeSt.com -- but also because the Revenue Recognition transition year is 2018 and many large companies could not handle two major rules changes requiring reporting two-year balance sheets and three-year P&Ls. 

For example, Bosco noted that Walgreens reported on its 10K that it has 8,000 leased stores and CVS reports 7000 leased stores.  "The work to extract the rents, variable rent clauses, details of gross billed services to be bifurcated and deciding on which renewal options are reasonably certain to be exercised - that is a lot of work." 

"In one day one person may be able to read eight leases, extract the information, spread the numbers for the retroactive reporting requirements, get decisons on the renewals and input the data in a system." Simple math suggests that Walgreens is looking at 1000 work days for just the real estate leases, he said.

This decision by the standard-setting bodies, if it is indeed made (and why wouldn't it be?; the deadline has been pushed back multiple times) will be a relief to companies that have put off prepping for the standard.

Last year Deloitte found that almost 80% of the executives it surveyed were not ready for the standard, citing the quality of data, the complexity of compliance, and a lack of confidence in IT systems as the main concerns for companies.

Hopefully, they won't hit the snooze button because even with an official effective date for a new accounting rule finally set, most companies will need to transaction to the rule sooner in order to provide comparative financial data in their reporting for that year, as Bosco's Walgreen example shows.

Public companies include at least three years of information in their financial statements, Atlanta-based Avison Young Principal Sean Moynihan told GlobeSt.com earlier this year.

"Therefore those firms with a large number of leases will find they need to effectively transition their accounting in 2016 in order to be able to accurately report their comparative financial data."

* Reporter's note: the article was updated on 10-22 to reflect a conversation with Bill Bosco.