With the demands of quarterly financial statement reporting, some public companies may find that the systems they chose are unable to produce all the needed accounting entries, disclosures, or management reporting. If your team is booking entries manually or patching interfaces, further integration and optimization of your lease accounting system and the processes around it will greatly facilitate a more efficient and well controlled compliance process going forward.
Accounts payable system integration
In the race to implement, many companies may have postponed integration of their accounts payable system with the new enterprise lease accounting system. Now that compliance is achieved, efficiency gains such as enabling seamless data transfer from leasing invoices and disbursements between systems should be reviewed.
Companies will need to examine their processes for generating payment schedules and facilitate an interface between any outsourced accounts payable functions and the new lease system. Consider how this will work operationally — through a centrally managed function or more of a distributed model. Some organizations have also gone a step further to consider how they want their lease management processes to integrate with overall contract management (see “Contract management improvements,” at left).
Software updates and regression testing
Enhancing enterprise lease accounting systems is proving challenging. With a wide-ranging new standard and a pressured adoption time frame, many systems are still evolving and may require frequent updates. Keeping up with system patches while remaining in compliance may require a combined business and IT strategy that balances frequent patch releases, extensive testing, and business operations.
For many, the laser focus on adoption relegated controls to the back burner. But effective risk management requires the right controls and processes in areas such as:
- Product documentation
- System access
- Accuracy and completeness of data extraction and testing
- Systematic controls / configurable controls
Organizations that have not already discussed the new leasing standard with their auditors will want to address any questions about controls early, especially with regard to new systems. Companies may also want to undertake a controls assessment of the entire leasing environment, including a close look at automated versus manual controls (see “automating processes,” below) and system implementation controls.
Extraction of key data from lease agreements needed for ASC 842 reporting remains a challenge as companies sign new leases and modify current agreements. Many companies lack the in-house resources to design and implement ongoing processes for loading new leasing data into their systems. Companies will want to assess whether this resource-intensive effort is best performed in-house or with outside expertise, leveraging technology tools to help accelerate and automate the process.
Lease management improvements
In general, the new standard has ushered in more centralization, including greater collaboration among real estate, procurement, and accounting functions. Increased visibility into lease portfolios is helping many companies renegotiate embedded interest rates for equipment leases and more accurately determine whether a lease even makes sense, among other savings.
With lease liabilities now on the balance sheet, visibility has extended to the external markets, increasing the stakes for better lease management. For more on this topic, see “Improvement opportunities,” below.
Contract management improvements
Looking beyond leases, the adoption effort revealed that for many companies, centralized access to all sorts of contracts—leases, revenue contracts, vendor contracts, and many more—is typically rare. These siloes can lead to missed opportunities to leverage customer incentives or vendor rebates. For example, evergreen contracts that automatically renew could result in overpaying if no one is monitoring the terms closely enough. One of the important lessons learned from lease accounting implementation is that systemized contract management can reveal important business opportunities that had previously been overlooked.