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Ten Strategies to Accelerate Your Lease Accounting Project
It’s 2017. For many companies the lease accounting project that they only recently started is already behind. Companies are scrambling to learn the new standards, create a project team, find all of their leases, extract the necessary data from each lease, and implement a lease accounting software solution.
But don’t panic! We estimate that 80% of Fortune 500 companies are behind schedule on their lease accounting projects, and for good reason. Implementation of the new revenue recognition rules, which recently went into effect, was the major focus for most companies. The gravitational pull of RevRec combined with the day-to-day demands of running the business are enough to prevent many controllerships from devoting the attention and focus needed to ramp up their leasing initiative.
The big question is this: What can you do to speed up the implementation process and reduce the risk of missing the upcoming deadlines? Below are ten strategies you can take to accelerate your lease accounting project.
1) Survey Business Units to Assess Your Readiness
If you are just getting started on your lease accounting project, one of your first tasks should be to size and scope the overall work effort. One quick way to get your arms around the complexity of your lease portfolio is to conduct an internal survey. Send out a simple 10 to 15 question web-based survey asking questions about the composition of your lease portfolio and the maturity of process, controls, and systems. The responses to the survey will give you a sense of not only the sophistication of your leasing program, but also the challenges you can anticipate with the accounting change process.
2) Test a Sample of Leases to Arrive at Budget Estimates
A key success factor in any project is obtaining the appropriate level of funding and resourcing to get the job done. However, estimating the work is still a guessing game for most large companies because there are relatively few companies that have implemented the standards – so no benchmarks. One way to get an estimate of the per-lease work effort required is to take a sampling of your leases and run them through the new accounting process: from contract to journal entry. For most companies, 25 to 50 leases will represent a good sample size. Have your project team review each of these leases, abstract the relevant data, and enter it into a system and perform the accounting.
3) Use Invoices to Inventory Your Leases
A critical early step in your lease accounting project will be to conduct an enterprise-wide census of all your leases. One quick approach to identifying all of your leases is to obtain a list of all recurring payments made across the business. Ask your Accounts Payable team(s) for a report of all invoices that are being paid on a regular basis – whether monthly, quarterly, semi-annually, or annually. You can search through the payables report to identify vendors and payments that might be leases. As necessary, you may need to contact the business owner that approves the invoice to obtain additional details on each lease.
4) Use Artificial Intelligence Technologies to Find Your Leases
Another approach to conducting a census is to leverage specialized technologies that can automatically discover your leases by searching document repositories. Some vendors refer to this capability as spiders or bots while others describe it as contract analysis or lease identification. Regardless of the name, these “e-discovery” applications serve a common purpose. They will crawl through your contracts, much like the way the Google’s search engine does, to identify contract provisions and commercial terms typically found in a lease. You can even program these discovery technologies to identify potential embedded leases in other types of contracts.
5) Use Vendor Marketing Guides to Define Software Requirements
Typically, the first step in a software selection process is to define a set of functional requirements for the application. A short-cut approach is to use some of the marketing literature available from the lease accounting software vendors to jump start your requirements definition. A handful of vendors offer evaluation guides to compare the features and functions of lease accounting applications. Review these guides to understand what a lease accounting application can offer. Then pick and choose the features that are important to your selection process to include in an RFP.
6) Use Free Trials to Educate Your Self on Lease Accounting Software
Another way to quickly educate yourself about the features of a lease accounting application is to take a “test drive.” A handful of the cloud-based lease accounting providers offer 30-day free trials which you can enroll in online. Other providers will offer a longer, 90-day trial for a modest fee. The benefit of a trial is to quickly gain “hands-on” experience with lease accounting software. As a result, your requirements and selection process can be based on real-world activity rather than a theoretical view of what you think you might need.
7) Get Your Lessors to Help You Collect the Data
Perhaps the most challenging aspect of any project will be collecting the necessary documentation and data for each asset being leased. One way to accelerate your approach to collecting the data is to simply request copies of the documentation from your leasing companies. Send each of your lessors a note requesting copies of master lease agreements and schedules. You can make the request during an upcoming payment cycle as a routine audit request needed for invoice approval. Or you could communicate that you are reconciling different sources of data as part of your lease accounting compliance project.
8) Use Data Abstraction Technologies to Capture the Data
The fastest approach to collecting the needed information is to use “data abstraction” technologies. Using optical character recognition (OCR), data abstraction software can scan an image, then convert it into text format. Natural language processing capabilities are applied to the converted text documents to identify the lease key terms and conditions which need to be captured for accounting. The lease terms are then presented to a human analyst who validates the abstracted data. Then, artificial intelligence algorithms, called “machine learning,” watch and learn the corrections made by the human analyst so the next time the same correction is required, the machine can make the correction itself, saving the analyst time.
9) Take a Non-Linear Approach to the Project
Most companies will go through a normal, linear process of defining requirements and selecting a software vendor first and then begin the effort to collect the data. One way to accelerate your lease accounting project is to take a non-linear approach to the implementation steps instead. Sign up for a trial with an application that you think might end up on your short list of possible providers, then begin the process of collecting your data. You can house the information you gather about lease payments, residual values, and end-of-term options in the trial system for 90 days while you are evaluating software options. By the time you reach a decision on software, you will have gained a three-month head start on the data collection process.
10) Use Software-as-a-Service Models to Reduce IT Workloads
Using a Software-as-a-Service (SaaS) model rather than deploying the lease accounting application in your own data center, may be a way to shave additional time off the project schedule. With an SaaS model, there is no need to procure server hardware, storage devices, and database licenses. There is no need to invest the time required to learn how to install and configure the application and there is no need to spend time setting up security, backup, and monitoring systems to perform the day-to-day administration of the application. In an SaaS model, the software vendor takes on all of these responsibilities as part of the subscription.