Lease accounting: The opportunity beyond compliance
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Lease accounting: The opportunity beyond compliance

Vivek Saxena

Finance and Accounting and Enterprise Risk and Compliance Service Line Leader



The deadline for complying with new FASB and IFRS lease accounting standards is drawing closer. While organizations grapple to get compliant, many have yet to think about what processes and controls they need for their leasing operations and data to stay compliant beyond January 1, 2019.

Compliance alone is not enough. Your company needs the ability to continuously update its lease accounting system with the most accurate and complete leasing information.

Consider these scenarios:

  • Start and end-of-term events: As your leasing portfolio changes you need full visibility of:
    • New leases signed by business units across your global operations
    • Outsourcing and services contracts that are now considered leases according to the new definitions
    • Equipment lease end dates and the decisions to renew, buyout, or return the assets
  • Mid-term events: There can be changes in the middle of a leasing term so you must track and capture asset-level information on:
    • New subleases
    • Changes to real-estate leases as office space and other factors expand or close
    • Changes to equipment, such as swaps for component failures or upgrades for capacity requirements
    • Lost, stolen, or damaged equipment that requires early buyout or returns
    • Updates to performance, usage, and index-based rents that change regularly
  • Changes to operational data, including:
    • Movement of leased equipment, such as computers and vehicles, across your facilities and cost centers
    • Changes in reference data fields when companies create new cost centers after mergers, acquisitions, or divestiture
    • To keep your lease accounting system up to date, you need robust processes to capture changes as they occur. You also need to decide what information to collect and from where. Here are some best practices to help you capture leasing information and gain full visibility:
  • Design the right process: Process design is often considered a scientific endeavor. Adopting the right approach can be the difference between success and failure. Between meeting your goals and fire-fighting chaos. Processes must be documented at the right level of detail, including controls, performance indicators, best practices, and responsibility, etc. And they should become standard operating procedures throughout your operations. Get the process design right and you can focus on how your people, process, and technology can support the outcomes you want.
  • Automate data collection: Most lease accounting data is in master lease agreements and schedules, which means extracting it can be time consuming. By automating the data flow from your internal systems, such as procurement and contract management systems, and using machine learning technologies to extract information from unstructured data sources, such as PDF contracts, you can centralize all your data, save time, and cut errors.
  • Collaborate and integrate: The data you need lives in many different systems and functions, such as accounts payable, procurement, real-estate administration, IT asset management, and fleet management. Collaborating with all these groups and tapping into the technologies they use is a must.
  • Bring in the experts: Embedded leases are different from traditional leases in the way they are written. Similarly, sale/leaseback transactions require a broader set of considerations than a typical lease. To navigate the complexity, appoint lease contract analysts to review and calculate what you must report.

Looking beyond compliance

Armed with your lease accounting data, you have the opportunity to make sharper leasing decisions that have a broader business impact, such as:

  • Identifying opportunities to consolidate lessors, select preferred ones, make better spend decisions, and mitigate risk
  • Negotiating better leasing terms and conditions through competitive analysis
  • Standardizing terms for each leasing asset class
  • Eliminating/minimizing unnecessary costs from not taking timely action on leases that are about to expire or come up for renewalMany companies are investing their efforts in preparing the financial reporting information they need to comply with the new standards by the deadline. However, by taking a broader view of your leasing process, you can deliver benefits that add value to the business as a whole, not just keep the regulator from your door.

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