71% of organizations don’t know how much their leases cost

Visual Lease, a provider of lease optimization software, has released its latest Visual Lease Data Institute report, The 2022 Lease Market Analysis: Lease Accounting Readiness.

The study found that while leases typically make up a large portion of an organization’s budget, nearly three-quarters (71%) of private companies aren’t entirely convinced about how much their leases are costing their business. This lack of awareness and visibility is one of the reasons companies are slow to transition to new lease accounting standards. Notably, a third (33%) of private companies are still not fully prepared for the transition to ASC 842, which is in effect for all financial statements in 2022 and 2023 and beyond.

Although the effective date of GASB 87 is six months earlier (June 15, 2021), there seems to be a delay in the implementation of the standard. Forty-four percent of the government market is not fully prepared for the transition to GASB 87 and only 18% of government institutions are at a point where they plan to maintain lease accounting beyond initial compliance. Additionally, nearly a quarter of government entities are unaware of GASB 96, an impending standard that will impact how government organizations report on their subscription-based information technology agreements (SBITA). ) for fiscal years beginning after June 15, 2022.

“For years companies may have been able to manage and track their leases flexibly, but that is no longer the case with new lease accounting standards, which require leased assets to be reflected in the balance sheet,” said the Visual Lease founder. and CEO, Marc Betesh. “In addition to these new standards, the global economic climate is creating additional concerns regarding the implementation of appropriate internal controls and lease management processes.”

Labor shortages and retention issues are also contributing to private companies and government entities delaying their transition to the new standards. 93% of private companies and 86% of government organizations say their teams are already overworked, making lease accounting even more overwhelming. And nearly 40% of private companies say avoiding employee burnout is a top concern associated with maintaining adequate control over their lease portfolio.

“The silver lining is that the new standards provide companies with the ability to prioritize lease management not only to ensure lease accounting compliance, but also to make more robust business decisions and better manage risk,” said added Betesh.

Risks associated with not implementing an appropriate lease management strategy include:

An unnecessarily complex lease accounting process that relies on manual effort.

An annual audit failed due to incomplete and inaccurate rental data, potentially leading to increased fees, loss of credibility and diminished credit.

The inability to pivot and meet new business needs due to a lack of visibility into important lease details.

By implementing a centralized registration system, private businesses and government entities have been able to recognize a range of benefits, including automation, reduced risk, more opportunities for cost reduction, and a new level of customer service and support. Due to these numerous benefits, private companies were able to save an average of 600 hours and government entities were able to save an average of 765 hours by using third-party lease accounting software.

To compile the report’s findings, Visual Lease surveyed 200 finance and accounting professionals at companies with more than 1,000 employees and 100 US financial management professionals at local, state and federal government organizations. In the research, industry leaders from Visual Lease and other organizations such as RSM, On Q Financial and Indeed, break down common challenges and barriers faced by private and government markets; how organizations can leverage lease accounting to make faster, smarter decisions; and best practices for accelerating and maintaining lease accounting compliance, while preparing for new guidance, such as GASB 96.

For the full study results, download The 2022 Lease Market Analysis: Lease Accounting Readiness.

For information on lease accounting and strategic lease portfolio management, subscribe to The Visual Lease Data Institute podcast.

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