Jason Milch



New Intelligize Report Highlights Challenges for Companies in Adapting to New Lease Accounting Rules

NEW YORK (October 1, 2020) – Nearly two years after the implementation of a radical change to the rules governing how companies must account for all leases, a new report released today by compliance management and analytics provider Intelligize indicates that the Securities and Exchange Commission has yet to make strict enforcement a priority.

Only Fools Rush In: A Study of SEC Comment Letters on Lease Accounting, analyzes every SEC comment letter and reply publicly available as of Aug. 31, 2020, relating to the Financial Accounting Standards Board’s ASC 842 lease accounting standard since it took effect on Jan. 1, 2019. ASC 842 requires the tracking and disclosure of all of a company’s leased assets, both finance and operational. It updates the previous ASC 840 standard, which included a loophole that allowed corporations to report their operational leases – often a major portion of a lease portfolio – in their financial statements’ footnotes.

The report’s findings confirm that FASB and the SEC have exercised considerable patience in enforcing the new standard. This has been most evident in the lengthy lead times FASB has established and its flexible response to changing real-world conditions. When FASB first announced ASC 842 in 2016, it did so with a three-year window for large public companies to adapt to the rule, while giving private and emerging-growth companies an even longer runway, which was then pushed back twice – once because many companies were unprepared, and again due to the COVID-19 pandemic. FASB also adjusted ASC 842 itself, allowing companies to effectively bypass rules governing lease modifications when the pandemic caused mass modifications of commercial leases.

The report shows similar restraint on the SEC’s part, focusing its enforcement on foundational issues – protecting ASC 842’s goal of getting leases onto the books and clarifying what is and is not a lease – rather than flagging more obscure applications of the standard.

“On the heels of the nearly universal implementation of the new revenue recognition standard the previous year, many companies, particularly those in retail, manufacturing and real estate, were faced with a similarly challenging new accounting standard related to their leases,” said Robert Peters, co-author of the report and a senior director at Intelligize. “The SEC focused its reviews on the identification and analysis used to determine the applicable lease categorizations, much as it had done with contracts under the revenue recognition standard.”

The Intelligize study is divided into three sections, examining a) whom the SEC queried; b) the topics it asked companies about; and c) how long it took to resolve various issues. Additional key findings included:

  • The three industries receiving the most ASC 842-related comment letter threads from the SEC were trade and services (16 of the 71 comment threads), real estate and construction (15 of 71), and manufacturing (14 of 71). Companies in these sectors all require large physical footprints in order to operate, and thus have significant leasing requirements.
  • Despite regulators’ attempts to protect smaller issuers, they not only drew the most scrutiny from SEC staff examiners but also required additional time to resolve the underlying concerns. Companies that lack market capitalization (for example, Regulation A issuers) spent, on average, 65 days corresponding with the SEC. Meanwhile, micro-cap companies fielded the most follow-up questions (0.40) from examiners.
  • On average, ASC 842 comment letter threads have more SEC staff follow-ups (0.18) and take longer to resolve (35.39 days) than standard comment letter threads covering financial statements and management discussion and analysis.
  • ASC 842 comments on lease identification and classification took nearly twice as long to resolve (83.43 days on average) than comments on sale and leaseback transactions, which took the second-longest at 42.5 days.

EDITOR’S NOTE: Media outlets may republish the report’s tables and charts, with source credit given to Intelligize.


About Intelligize

Intelligize is the leading provider of best-in-class content, exclusive news collections, regulatory insights, and powerful analytical tools for compliance and transactional professionals.

Intelligize offers a web-based research platform that ensures law firms, accounting firms, corporations, and other organizations stay compliant with government regulations, build stronger deals and agreements, and deliver value to their shareholders and clients.

Headquartered in the New York metro area, Intelligize serves Fortune 500 companies, including Starbucks, IBM, Microsoft, Verizon, and Walmart, as well as many of the top global law and accounting firms.

In 2016, Intelligize became a wholly owned subsidiary of LexisNexis®, a leading global provider of content-enabled workflow solutions designed specifically for professionals in the legal, risk management, corporate, government, law enforcement, accounting, and academic markets.

For more information, visit


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