Firms Not Prepared for New Lease Accounting Standards

Lucas Gilmore, “Big 4″ observer
October 20, 2010 /

According to a new study by Pricewaterhouse Coopers, European companies are unprepared for the new lease accounting standards that have been proposed by IASB (International Accounting Standards Board).

Most companies do not feel that it will improve their financial reporting.

Pricewaterhouse Coopers, in conjunction with the Rotterdam School of Management, had conducted a survey among the CFOs of major European companies. The aim was to gauge their response of IASB’s new lease accounting standards.

The majority of the respondents to the survey felt that they do not currently have the necessary processes (78%), information and data (68%), ERP systems (76%) and resources (74%) in place for implementing the new standard.

What’s more, the majority of the respondents were of the opinion that the new lease accounting standard will lead to little or no improvement in the usefulness of financial information. 74% felt that the costs involved will exceed the benefits.

25% feel that there will be any improvement but only 3% feel that any significant improvement will happen because of the new standard.

20% of the respondents feel that there will be a decline in their credit rating, 18% feel that there will be a breach of covenants while 32% expect an increase in the cost of capital.

40% of the respondents don’t know what kind of impact these ratios will have.

70% of the banks that were surveyed said that they were not sure as to whether the new standard will have an effect on their regular regulatory capital.

Only 37% of the respondents have said that they have had a discussion with their board of directors about the impact and changes the standard is going to bring in while only 5% reported in-depth discussions on the issue.

 

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