MILWAUKEE, November 2, 2018 – In a survey of auditors at 77 US CPA firms conducted by LeaseCrunch®, 58% believe that the new recognition of a lease obligation will adversely affect loan covenants for their clients.
LeaseCrunch® is the only lease accounting software made by former CPA firm auditors for CPA firm auditors, with a development team made up of CPAs, former Big 4 public accounting auditors, accounting academics and a former FASB staff member.
Questions asked on survey:
1) Have you started conversations with clients about meeting the new lease accounting reporting requirements?
| Yes | 90% |
| No | 10% |
(Responses for CPA firms that have started conversations with clients about the new lease standard.)
Do you have any clients who are, or will be, early adopters of the new lease standard?
| Yes, public and private | 4% |
| Yes, private only | 22% |
| Yes, public only | 1% |
| No | 72% |
| 69 | 100% |
Have there been any problems with: {could select multiple responses}
| Determining which practical expedients should be applied | 22% |
| No problems so far | 21% |
| Book vs. tax implications | 17% |
| Determining the incremental borrowing rate | 14% |
| Accounting for operating leases | 11% |
| Determining the lease term | 9% |
| Don't yet know what problems may exist | 6% |
2) Have any clients raised the issue of potentially violating bank loan covenants when the new lease standard impacts the balance sheet?
| Yes | 68% |
| No | 32% |
3) In general, do you think that recognition of a lease obligation will adversely affect loan covenants for your clients?
| Yes | 59% |
| No | 41% |
4) Have your clients completed an inventory of their leases?
| Yes, completed | 14% |
| Most have started | 20% |
| A few have started | 43% |
| None have started | 22% |
5) For clients who completed an inventory of their leases, was the actual number of leases more or less than thought?
| More than thought | 17% |
| Less than thought | 1% |
| What was anticipated | 48% |
| I don't know | 33% |
6) Are existing controls at clients adequate to ensure identification, classification, and documentation of existing leases?
| Yes, existing controls generally are sufficient | 32% |
| No, existing controls generally will require revision/enhancement | 45% |
| Controls generally have not been documented or tested | 23% |
7) Do you expect your clients to adopt the package of practical expedients on transition?
| Yes, most will elect the practical expedient package | 60% |
| No, most will elect to apply the new standard immediately | 3% |
| Still under consideration | 38% |
8) Do you expect clients to separate lease and nonlease (e.g., service elements) components within a lease or elect the practical expedient that permits a lessee to combine lease and nonlease components to calculate the lease liability?
| Generally expect clients to elect separate accounting and a smaller liability/obligation | 8% |
| Generally expect clients to elect the practical expedient | 55% |
| Too soon to tell | 38% |
9) Do you expect private clients to determine an incremental borrowing rate following the revised guidance or to elect the practical expedient to use a risk-free rate?
| Generally expect clients to determine an incremental borrowing rate | 18% |
| Generally expect clients to elect the practical expedient and use the risk free rate | 40% |
| Too soon to tell | 42% |
10) Do you have any questions about any of the following topics as they relate to the new lease accounting standard: {could select multiple responses}
| I have no questions about the new lease standard | 22% |
| Policy elections and practical expedients | 18% |
| Book vs. tax implications | 14% |
| Guiding clients on how to collect lease data | 13% |
| Selecting a software solution | 12% |
| Impact on debt covenants | 11% |
| Identifying and classifying client leases | 10% |
11) Do you feel the FASB has adequately explained what is required for you to help clients comply with the new lease accounting standard?
| Yes | 75% |
| No | 25% |
12) Does implementation of the new revenue recognition guidance and the new leasing guidance in consecutive years an issue with clients?
| Yes, implementation is straining resources | 57% |
| No, there is little or no overlap between the two standards | 19% |
| Too soon to tell | 23% |
13) With major changes to revenue recognition and leases in consecutive years, should FASB have allowed for more time between initiatives to allow for easier implementation?
| Strongly agree with more time between standards | 27% |
| Agree | 32% |
| Neutral | 27% |
| Disagree | 12% |
| Strongly disagree, no need for more time between standards | 1% |
The survey was conducted in September and October 2018.
For more information go to: www.LeaseCrunch.com
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Press Contact:
John Vita
John Steven Vita Communications
847/853-8283