By 1 January 2019, public companies will be expected to comply with ASC 842 and IFRS 16, the two new standards that will impact lease accounting. These rules are changing how firms recognize, measure, and disclose operating leases, and how they report them on corporate balance sheets.
As CFOs prepare their companies for the new standards, one of the biggest operational challenges is understanding how many leases they hold. It seems straightforward, but operational leases have previously only been disclosed in the footnotes of financial statements as off-balance-sheet operating expenses. The information deficit is widespread. Even Fortune 500 companies are substantially underestimating their lease totals, according to research from LeaseAccelerator, a leading provider of lease accounting technology.
Another reason for the imprecise lease numbers: Most companies can’t track their equipment and other leases through their ERPs, so they often rely on error-prone or infrequently updated spreadsheets especially for equipment leases. As a result, executives don’t have the latest leasing details at their fingertips to make informed business decisions or comply with regulations.
The IASB estimates that leases worth $2.8 trillion are due to come on to corporate balance sheets. With expanded definitions of what constitutes a lease and complex leasing portfolios, excel spreadsheets can’t handle asset-level modifications or provide businesses with any visibility of their leases. They’re not a realistic lease management tool. – Vivek Saxena, SVP, Record to Report Practice, Genpact
Leveraging Technology to Manage Leases
With so many companies managing lease accounting with manual processes and spreadsheets, CFOs are looking for a better solution. And they’re turning to web-based workflow automation, document management, transaction processing, and of course lease accounting solutions.
There are multiple benefits from introducing automation and AI to lease accounting that stretch beyond the January 1, 2019 compliance deadline. It improves accuracy, accelerates closing and reporting, provides complete visibility into a firm’s leasing portfolio, and vastly improves decision-making. And there’s also a productivity boost as finance professionals (and the people they have been working with across the business) can turn their attention away from tracking leases in multiple locations and back to higher-value activities.
Companies that are already addressing their ASC 842 & IFRS 16 requirements are looking for more than just compliance. With effective lease portfolio management and automation they can now make better sourcing decisions, enhance the quality of reporting, and cut leasing costs. – Vivek Saxena
Do you know how many leases you have? Does your team understand the expanded definitions of a lease according to the new standards? Do you want to get away from managing leases and compliance on a spreadsheet? For more information on the operational and strategic benefits of automating lease accounting, visit www.genpact.com.