No Fooling: Companies Bracing for 'Unprecedented Level of Change' in Financial Reporting

$1.2 trillion in gross lease obligations estimated to be affected; majority of companies still using spreadsheets to manage leases

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New York — April 1, 2011 — Of the joint projects being undertaken by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to converge accounting standards between US GAAP and IFRS, leasing, revenue recognition and financial instruments are expected to have the biggest impact on businesses.

The results of a survey released by consulting firm PwC affirm that each of these standards is expected to have broad impacts on companies, regardless of industry, size and whether the company is public or private. According to respondents, the changes to leasing are expected to have the most significant impact of the three, and also take the longest amount of time to implement.

"U.S. financial reporting will undergo an unprecedented level of change within the next several years, and companies can minimize disruption by starting now to raise organizational awareness and evaluate the impact convergence will have," said James Kaiser, US GAAP convergence and IFRS leader for PwC. "The impact of convergence on businesses goes well beyond just accounting and reporting," Kaiser added.

Systems, for example, are expected to need substantial updates to accommodate convergence-driven change. With leasing, where the new rules are expected to affect an estimated $1.2 trillion in gross lease obligations, more than 60 percent of respondents currently use spreadsheets to track their leases. This is likely to prove insufficient under the new standard, given that all leases will need to be recorded on the balance sheet.

Only 10 percent of respondents said they have deployed resources and begun to actively plan for implementation of the convergence standards. "But those respondents need not be overly concerned," said Kaiser. "Currently, we're advising clients to monitor the discussion around these standards and communicate to senior management and the board to keep them updated. Companies should also start to assess, at least at a high level, how the proposed changes will impact their company and form a point of view on the level of impact."

Additional key findings include:


  • Only 36 percent of respondents maintain lease information centrally while 60 percent of respondents account for their leases manually with spreadsheets, which is expected to present significant challenges in terms of data gathering, data accuracy and internal controls when adopting the new standard.
  • Almost half of respondents have already performed an inventory of their lease portfolio in advance of adoption of the new standard.
  • At this point, only nine percent of respondents have calculated an estimate of their adoption date lease liability; of those, 67 percent anticipate their liability will be higher than initially expected.

Revenue Recognition

  • More than half of respondents expect the proposed standard to impact the amount or timing of reported revenue recognition for their company.
  • One of the greatest areas of significance for respondents was the possibility that full retrospective application would be required.

Financial Instruments

  • More than half of respondents anticipate a moderate to high impact on their financial instrument reporting; however, only 19 percent of respondents were from the financial services industry, indicating that companies in a range of industries expect the financial instruments project to have a moderate to high impact on them.
  • Of those who performed an analysis of the likely impact of the financial instruments proposals, respondents expected an increase in the use of fair value and, consequently, increased income statement volatility.
  • Convergence is broadly expected to give way to IFRS adoption in the US, with 80 percent of respondents believing that IFRS will be adopted in the US in or after 2015, and only 13 percent believing that IFRS will not be adopted at all.

About the Survey

PwC's 2011 US GAAP convergence & IFRS survey examines the opinions of 1,400 respondents on accounting changes proposed by the FASB and IASB in an effort to converge accounting standards between US GAAP and IFRS. The online survey was available from February 15 through March 15, and respondents included chief financial officers, chief accounting officers, controllers, and managing directors.

Survey results, and a link to an archived Webcast on the survey, are available here.

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