The Lease Accounting Manifesto
Moving Leases Onto the Balance Sheet
Moving Leases onto the Balance Sheet
Our mission at LeaseAccelerator is to help organizations adopt one of the biggest accounting changes in history. Lease accounting will result in more than $2 trillion worth of real estate, technology, transportation, and equipment leases moving onto corporate balance sheets in the coming years. These new standards along with other accounting changes are so significant that many are calling it “New GAAP.”
The Most Challenging Accounting Change Ever
Although these new leasing standards were well publicized in accounting circles for almost a decade, few organizations were prepared for the change. Both large and small companies have struggled with adoption, investing far more time and budget into implementation projects than anticipated. Even large-cap, publicly traded companies whose advanced financial systems can produce earnings reports just days after quarter-end, are struggling to automate their record-to-report processes.
There are a number of reasons why adoption of the new lease accounting standards is more complex than anticipated:
- Accounting – Guides from the Big Four audit firms number over 1000 pages in length. In addition to the balance sheet changes, there are lots of additional disclosures that have resulted in 3-4 new pages of footnotes being added to most annual reports.
- Data – To perform the accounting calculations between 50 and 150 data fields need to be collected from each lease contract. Rent, term, payment timing, and frequency are just a few. Analysts must spend 2-4 hours per lease to manually abstract these data attributes.
- Systems – Leasing touches 15 different GL accounts. Some leases have terms of 20, 50, or even 100 years. The accounting calculations produce millions of journal entries, far too complex to manage in a spreadsheet, so IT teams are having to implement new specialized systems.
- Testing – There are so many variables used in the accounting calculations that over 100 billion use cases are possible. While one organization may only encounter 0.1% of these scenarios, that would still amount to 1 million combinations they could encounter.
- Controls – Almost every function in the business touches leases. Procurement, Accounting, Treasury, Real estate, Operations, and IT each play a role. Dozens of new business processes, policies, and controls will need to be rolled out across the organization.
- Processes – Each lease has five or more events during its lifecycle that could impact the accounting – rent changes, upgrades, renewals, buyouts, and terminations. Finance teams must track all of these changes to ensure accuracy and completeness of the accounting for their audit.
In 2019, the challenges became so overwhelming that the Financial Accounting Standards Board (FASB) extended the deadlines for privately held companies to allow them more time to prepare.
ENTERPRISE LEASE ACCOUNTING SOFTWARE
Taming Complexity with Technology
Does this sound complex? It is. But it isn’t impossible. With modern technology, much of the administrative burden associated with these changes can be automated. That’s the vision behind LeaseAccelerator.
Our goal was to build the world’s most advanced lease accounting software and make it affordable to a wide variety of organizations from publicly-traded and privately-held companies to government agencies and educational institutions. We aspire to make the lease accounting transition as fast, easy, and simple as possible.
Our design principles were:
1. Let Software Do the Heavy Lifting
Computers are better than people at performing high volume accounting tasks.
Most organizations adopting these new standards are already burdened with high compliance costs for other financial reporting and regulatory requirements. We believe that organizations should not have to hire a lot of new staff just to adopt the new leasing standards. Our vision is that enterprise software applications perform as much as possible of the record-to-report process.
Systems are much better than people at enforcing corporate policies, calculating journal entries, and reconciling account balances. So we focused on building the industry’s most feature-rich, high-performance accounting engine in the market. It not only increases the accuracy of your lease accounting program, it minimizes the cost of it.
2. The Hard Work Starts on Day Two
If you don’t keep up with what you lease you can’t account for it.
Although most companies start out focusing on the Herculean challenge of implementing the new standards by the deadline — or “Day One” — they quickly discover that the hard work starts after the deadlines on “Day Two” and beyond. Lease portfolios experience both a high velocity and volume of changes. On average, 70% of an organization’s portfolio will experience a change in any given year. Rents change. New leases are signed while others are renewed or expire. Assets on lease may be added to or removed. You cannot have accurate and complete lease accounting without strong business processes for lease administration. So we built our application to not just perform lease accounting, but lease administration as well. We bundle them together into a single integrated application that automates the lease lifecycle end-to-end. From the initial asset requisition to the final security deposit refund, you will have complete visibility to your lease population.
3. The System Should be Self-Funding
Investors shouldn’t have to sacrifice profits to gain more transparency.
The benefit of the new leasing standards is greater transparency for investors looking at financial reporting around lease liabilities. However, the ability to provide the new information has come with significant administrative costs. We do not think that shareholders should have to suffer lower profits to get access to new information. So we built features into LeaseAccelerator that enable organizations to recover the costs of their investment in 18 months or less. In addition to complying with the accounting rules, CFOs can tap into our spend analytics to identify the waste and inefficiency in their lease portfolios — things like maverick leasing, ghost assets, and evergreen rents.
Using our lease administration technology, organizations can realize enough savings to effectively self-fund the subscription to our software.
No One is More Passionate about Optimizing Your Leasing Program
We love lease accounting! We eat, sleep, and breathe this stuff. And we would love to be your vendor of choice for lease accounting software.
We’ve staffed our organization with a rock-star team of leasing experts, each with decades of experience working at multinational corporations, Big Four firms, financial software vendors, and/or leasing companies. These include leaders that built and managed billion-dollar leasing programs at some of the world’s largest companies, including Dell, ExxonMobil, AT&T, Nestle, and Bombardier.
We make these experts available for consultation starting with the initial sales and solution design process and continuing throughout implementation and the life of your journey with us. We also make their ideas available 24×7 in our Expert Guide series. The library includes over 50 different guides, checklists, and templates that offer best practices on topics ranging from how to inventory your leases to optimizing your month-end close.