ASC842 Compliance – Go Fast or Go Home
Whether you are chasing down ASC842, IFRS16, or GASB87 compliance, you are going to need to increase business speed and agility – which is why subscribing to a subscription-based compliance solution, is quickly becoming the strategic approach the market demands.
As crunch time nears (December 31, 2020), we are advising lease accounting customers in search of compliance who has become stuck in the complexities associated with systems, transactions, and process impact – both upstream and downstream, to take a hard look at outsourcing this highly integrated business process makes the most sense from business agility perspective.
There are several key industries, that are at the forefront of this lease transformation, as their business survival depends on high volume, with a tight alignment with market trends. Taking on the enormity of a fully integrated lease accounting solution would destroy business agility, and these lease transformation pioneers are setting the direction for the lease accounting industry, in how to efficiently become compliant with a subscription. Although every industry is impacted, such as Energy, Hospitality, Medical, Manufacturing, Government, and Entertainment; SF Magaizine point out 3 Key industries:
ASC842 Compliance – Go Fast or Go Home, encapsulates a holistic approach to migrate the support mechanism needed to support the core elements of lease accounting, compliance, and the ongoing maintenance of shared services – required to generate monthly disclosure statements and ensure alignment with shifts in compliance legislation.
We will leverage the Leaseology service funnel, to help explain the convergence of complexities associated with Compliance, Lease Accounting, Disclosure Statements, Negotiations, Portfolio management, and Document Management.
- Immediate Lease Compliance – DIY is not recommended, as the associated cost to fix human error, will cost you in advanced audit fees and lease restructuring, not to mention the added load and agility impact.
- Manually managing critical Date Notifications – There is no bypassing the need for technical accountants and lease subject matter experts (SME’s). These resources are essential to designing the feeds, extracts, maintenance and reporting requirements, but they are not required on a full time basis. These experts remove risk and help ensure proper controls, accurate lease interpretation and automation over care and feeding of the systems. Experts design solutions that are efficient and enable rapid transformation, to respond to market shifts/opportunities.
- Lease Administration – This function requires a system, with controls and defined compliance processes which are automated. You don’t want to figure this out, while staring at a balance sheet, designing process requirements, selecting software or choosing an implementation partner. Nearly impossible to manage all the moving parts while doing a day job.
- Disclosure reporting – print out a bunch of leases on spreadsheets, audit them to discern reporting specificity, then build a template and manually adjust terms. Now do this for every lease, every month. Design is the key to ongoing success and audit protection
- Technical Accounting – this is where the biggest risk lies, EBITDA ingestion and SOC1 reporting. To manually extrapolate these terms out of a lease portfolio, is a deal killer – pure and simple
- Lease negotiations – What market opportunities are there available to your company, right now? Time is ripe to reduce rental costs, sublet – lot’s of opportunities to improve cash position. Do you have a negotiation schedule? Do you have local market experts that know where you can save money, or know where to push for FMV? Not a common internal skill.
- Document Management – add-in workflow, without a proper, formalized document repository, as well as not knowing where all your leases are – will create an ongoing fire drill and slow your ability to responsively support your business needs.
ASC842 Compliance – Go Fast or Go Home, Key measures and ratios:
Not only is putting all the components together, in creating a robust and accurate lease compliance solution a gargantuan effort – it’s also making the correct interpretations on all historical and future lease renewals and terms. This is hard, and impactful to the business – getting it wrong is not an option, so why sign up for this undue stress? Hire the experts and get it right the first time, as fixing poor analysis will be expensive on several fronts.
Below is a diagram from SF Magazine that captures the impact of the new compliance mandate in terms that help elucidate the complexity and subjectiveness of resolving the compliance issue as a whole:
Why impede business agility?
The truth is, we are only going to go faster in corporate America, and the Covid pandemic has been the driver for business transformation, to awaken those that had grown complacent with nostalgic processes and systems. We are headed into the world of predictive and operational analytics, to drive automation and enhance customer experience. Customers that choose to strategically align with where their core value is and offload/outsource what is not core, are going to be the companies that emerge from the pandemic with a competitive advantage, able to respond to market changes. Others that choose to DIY non-core strengths are going to be at a disadvantage from a flexibility and timing perspective and will become acquisition targets of their more nimble competition.
Leaseology understands what internal lease accounting teams are up against, and has built an end-to-end solution that allows customers to divert resources, remove cost, increase accuracy/locate cost savings opportunities – all while achieving compliance via an outsourced lease management process. The aforementioned service funnel is the core of the Leaseology managed services offering, to manage your lease portfolio and we are confident that our combination of industry expertise in lease accounting, compliance, reporting, and automation can help you meet the current and future ASC842 compliance requirements.
Ken Royce * Leaseology Inc * Board of Directors
Leaseology, Inc is a North America-based business advisory services firm committed to accelerated marketplace adoption of digital technology, financial management innovation, and business operations practice excellence. These core competencies apply to real estate and equipment portfolios.
