Evaluating Your Current Lease Accounting Software and Lease Administration Software
Five Steps to Understanding What Systems are Used to Track Leases
You need both a lease accounting and a lease administration application to effectively comply with the new lease accounting standards. But should you use one vendor for both lease accounting and lease administration or should you take a best of breed approach?
Having these two applications tightly integrated ensures that the accounting team is always aware of any new leases; modifications to existing leases; and end-of-term plans for expiring leases. But taking a single vendor approach leaves you with only a few options to choose from as only a handful of software providers purport to offer both the lease accounting and lease administration functionality. Even selecting one vendor for lease administration of your various types of assets can be challenging. Most lease administration vendors specialize in either real estate or non-real estate (IT, fleet, equipment). in this article we will discuss the pros and cons of a single vendor and best-of-breed strategy for lease accounting and lease administration software.
Step 1 – Evaluate Your Current Lease Accounting Software
Start by understanding your current accounting process. How is the data gathered today to support capital lease accounting for assets reported on the balance sheet? And how is the data gathered today to support operating leases reported in your footnotes and disclosures? At most companies, including even the largest and most innovative ones, the accounting process is highly spreadsheet driven. Local business units aggregate leasing data for real estate and equipment on a regional basis then forward it onto headquarters as part of the quarterly financial reporting process. Headquarters rolls up the various regional leasing data into one master spreadsheet that is used to calculate the capital and operating lease obligations.
Step 2 – Evaluate Your Current Real Estate Lease Administration Software
Over the past decade most large companies have centralized the corporate real estate function across various geographic regions. As a result, there is either an in-house shared services unit that manages all corporate real estate or the function has been outsourced to a specialized third party. Chances are good whether you are using an in-house or outsourced approach that there is a centralized lease administration application tracking all the property leases. Some companies have invested in a fully-featured Integrated Workplace Management System (IWMS) that manages not only leases, but capital planning, building construction, space planning, facility maintenance and environmental reporting. Whether you are using a Lease Administration application or iWMS, the system should track most of the key terms for real estate leases from expansion clauses and renewal dates to variable rents and CAMs charges.
Step 3 – Evaluate Your Current Equipment Lease Administration Software
Very few companies have invested in an enterprise-wide, centralized application to track all of their equipment leases. As a result, equipment leasing data is both everywhere and nowhere. Some key terms about leases may be stored in procurement and ERP applications, but most is housed in file cabinets and spreadsheets. However, there are exceptions. Companies with concentrated lease portfolios in certain asset categories may have implemented better tracking mechanisms. For example, many companies in the utilities sector used Enterprise Asset Management applications to track leases. Logistics companies use specialized applications to track the ocean shipping containers and rail cars they lease to move product through the supply chain.
Step 4 – Evaluate Your Current Fleet Management Applications
If you are leasing a fleet of 500 or more automobiles, trucks or vans, then your logistics team may have invested in a Fleet Management System. These applications track the vehicle identification numbers for each asset along with driver assignments, maintenance records and manufacturer warranties. Although, Fleet Management systems were not designed specifically to manage leases, they often provide many of the necessary capabilities to administer the vehicles throughout their lifecycle.
Step 5 – Evaluate Your Current IT Asset Management Applications
Most large iT organizations have an IT Asset Management (ITAM) system that tracks all of the laptops, desktops, printers, servers, routers, switches, software, storage devices and other data center equipment across the enterprise. For each asset, ITAM will rack the serial numbers, hardware configurations, software applications and vendor contract data. Although, ITAM applications were not designed to administer leases, they often provide many of the necessary capabilities to manage mid-term and end-of-term events for IT assets.