New standard means major IT systems change.

• Author: Ladd, Scott
• Position: LEASE ACCOUNTING

Only a small fraction of 284 executives queried in December believe their companies are extremely or very prepared to comply with the new lease accounting standard proposed by the Financial Accounting Standards Board, a study by Deloitte has found.

With the standard expected as early as June, lessees as well as lessors would have to fundamentally change accounting for real estate and equipment leasing transactions by providing more extensive financial statement disclosures than they have before.

In effect, the new standard would eliminate all operating leases and require capitalization on the company's balance sheet.

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The survey reveals that more than 80 percent of respondents think the lease accounting standard will be a significant burden on financial reporting, for tenants and property owners alike.

Other significant survey findings reveal:

* More than 40 percent believe the new standard would make it more difficult to obtain financing.

* 68 percent believe it would have a material impact on debt-to-equity ratio.

* About 40 percent thought the new standard would lead to shorter term leases.

* Only 35 percent are extremely confident or very confident in the integrity of their company's lease data needed to comply with the new standard.

* 25 percent said their companies arc likely to have to make major information technology investments and upgrades to their IT systems to accommodate the new standard.

* 20 percent thought it would require purchasing a new system.

For companies with 1,000 or more leases, the expressed need for IT investment was greater--39 percent equated the adaption of the standard with a major technology...