As you are evaluating, selecting, and implementing lease accounting software, you will need to consider how you new application will interact with the other financial and operational systems in your IT ecosystem. There are 12 enterprise applications that typically store information about real estate or equipment leases. These applications may be an upstream source of information needed for your lease accounting. Or the applications may be a downstream target that requires regular updates from your lease accounting system. There are three categories of applications that you should research: 1) financial systems, 2) asset management systems and 3) supply chain systems.
The Top 12 Applications that Track Leasing Data
1) General Ledger
Perhaps the most important system to consider is the general ledger. You will want the debits and credits created from your leasing subledger to be uploaded into your GL on a monthly basis. The lease accounting data can be consolidated with other journal entries to generate the appropriate financial reports and disclosures.
2) Accounts Payable
Throughout the term of a lease, your accounts payable organization will be processing invoices and making payments to lessors. To create the proper journal entries for lease accounting, you will need visibility into the transactions being logged in your accounts payable application.
3) Accounts Receivable
If your organization subleases portions of your real estate holdings then there may be a need to regularly collect payments from tenants. At the end of each real estate lease you should be requesting refunds of security deposits. In these scenarios, there may be a need for your lease accounting application to interact with your accounts receivable system.
4) Fixed Asset Management System
Your fixed asset management system should track right-of-use assets just as it tracks other types of plant, property, and equipment. Maintaining an accurate inventory of leased real estate and equipment in the fixed asset system is critical for calculating the depreciation used in financial reporting and property tax calculations. Additionally, an accurate inventory of all assets is required to secure proper insurance coverage for leased real estate and equipment.
5) Treasury Management System
Several of the more sophisticated treasury management systems have leasing functionality. While most do not perform lease accounting, some treasury systems do have the ability to capture the details of leases, model future cash flows, and calculate the present values. If your treasury organization depends on having accurate, up-to-date information about your leasing portfolio, then the lease accounting application may be a good source of data.
6) Real Estate Administration System
Many companies have a real estate administration application that serves as the system of record for all property leases. As new buildings, land and other property leases are signed you will need to ensure that the appropriate data is populated in both your lease accounting and real estate applications. And throughout the term of the lease you will need to ensure that the two applications remain in sync as expansions, contractions, renewals and variable rent changes occur.
6) IT Asset Management Systems
If your company has a sizable portfolio of computer assets, then you may have an IT asset management system. As new IT assets are leased you will need to ensure the appropriate data is populated in both your lease accounting system and your IT asset management application. And throughout the term of the lease you will need ensure the two applications remain synchronized as you swap, return, renew and/or buyout assets.
7) Fleet Management Systems
If your company has a sizable fleet of vehicles, then you may use a fleet management system to track all of your vans, trucks, and company cars. As new vehicles are leased you will need to ensure the appropriate data is populated in both your lease accounting system and your IT asset management application. And throughout the term of the lease you will need to ensure the two applications remain synchronized as you swap, return, renew and/or buyout vehicles.
9) Other Enterprise Asset Management Systems
The most common asset management systems that touch leases are for real estate, IT, and fleet. However, your company may also have specialized systems to track rail cars, shipping containers, corporate aircraft, telecom circuits, material handling equipment, and other types of equipment. Your lease accounting software will need to interact with these specialized asset management systems to track new leases as well as renewals and terminations of existing contracts.
10) Procurement and Sourcing Applications
If the appropriate controls are in place, all new leases should flow through the procurement organization with a corresponding purchase order. Most e-procurement systems are not configured to store all the details of leasing contracts. However, lease accounting systems would benefit from gaining visibility into purchase order information such as the PO Number, lessor name, asset descriptions, cost center, ship-to address, and employees approving the transaction.
11) Contract Management System
When a new real estate, IT, fleet, or equipment lease is established, copies of the master lease agreement and schedules should be stored in a contract management system. Details about the lease may be automatically or manually abstracted from the documents then entered into the contract system. Any data that is abstracted, either at the schedule level or asset level, should be passed along from the contract management system to the lease accounting application.
12) ERP Master Data Management
To function properly, your lease accounting application needs to maintain current financial variables. For example, you would not want your lease accounting engine to use outdated foreign exchange rates or general ledger codes. Additionally, you will want your lease accounting system to be populated with up-to-date master data. You should ensure that the list of your company’s physical locations, preferred leasing companies, and employee names is synchronized between your ERP and lease accounting application.