ERP’s are too complicated and expensive to manage ASC842/IFRS16/GASB87
The new lease accounting standards ASC842/IFRS16/GASB87 have shed the light on legacy ERP vendors, such as SAP and Oracle as these nostalgic platforms begin their descent into business obscurity. Customers want a service, not another ERP compliance project, is because of the following factors:
- Time – The time factor is prohibitive for post-Covid compliance initiatives, as the end of 2021 is just ten months away – which does not provide enough runway for companies to go through the ERP requirements gathering, implementation partner (SI) selection bake-off, software price negotiations, infrastructure procurement, network workload modification and implementation time frame. I’m tired of just thinking about how much effort and business disruption a project of this magnitude creates. Keep in mind, on the business side – all of the resources required to give input, create requirements, validate application configurations and workflow, extract, scrub, normalize corporate data, and then do iterative testing cycles are all fully burdened. Adding this additional workload to these resources will be unpopular at best, but will also create attrition, while creating a significant PMO effort, as it will be a battle between ‘day job’ and the project, for the life of the implementation project. A professional cat herder will be required to ensure that the project milestones are being adhered to, as delays are expensive from a consultant perspective, and add undue stress to an already tense situation.
- Cost – The ERP price tag for supporting compliance modules is significant, in many cases, a Tier One solution (SAP/Oracle) can run a customer 100-300k just for the software, with an implementation cost of 2-3X the cost of the application. Then add in the ongoing 22% annual software maintenance cost, plus the Human Capital costs associated with FTE’s being diverted onto a project team and you have a million-dollar commitment, in solving your corporate compliance initiative (ASC842/IFRS16/GASB87). Although both SAP and Oracle provide an API, to get data from the lease accounting platform to the financial suite of applications, it still needs to be defined, coded, and tested – which all require high-end resources and additional FTE labor.
- Solution – Both SAP and Oracle offer an approach that is nostalgic, like a 1978 Cadillac El Dorado – it’s big, expensive, cumbersome, and inefficient – but it gets the job done. SAP has an ASC842/IFRS16/GASB87 compliance module, named RE-FX (Real Estate Management) – which is basically a patch that is applied to integrate into the CLM (Contract Lifecycle Management) to provide lease accounting functionality and to achieve compliance. This solution requires an investment of a minimum of 400k to purchase the software, implement the applications and test the data/results. It is also a time killer, with a solution time commitment of at least a year to go from solution decision to production capability. Oracle has the Oracle Property Manager module, which provides this functionality – but it also is not without its challenges. Oracle has committed to sunsetting the Oracle Property Manager application for On-Premise customers, running a 15 years old version of Oracle ERP (EBS). Oracle is pushing customers to the Oracle Cloud suite for applications but does not as yet have a product on the cloud that provides lease compliance functionality. Multiple problems here – first, the investment in a product that is no longer being supported carries with it a risk that is unacceptable on many levels, and would inevitably cost you your job. The second is that the software is 15 + years old, so its functionality is keystroke intensive and requires significant infrastructure to support. Add in the cost, impact on business agility, and time to implement, and you quickly come to a conclusion that this solution is not relevant. For a deeper dive into the complexities click here: Oracle Property Manager.
Customers want a service, not another ERP compliance project
Customers still have a significant workload, once the legacy ERP solution is deployed. This problem is resolved by a lease management provider with a single subscription into a Lease Accounting, Lease Administration, and Lease Management community that provides all compliance services, plus all the fringe resources that round out a compliance offering. The system is just a component of the overall solution, as there is still a business need for subject matter experts (SME’s), from a technical accounting, Legal, Renegotiation, Audit, Reporting, and Data Quality perspective. Firms such as Leaseology, have figured this out and created a supporting service so our customers can focus on growing their businesses and extending business capabilities. Below is a brief description of these ancillary services, with a visual diagram beneath – to help with understanding the complexities of this service:
- Immediate Lease Compliance: We implement our lease platform (certified deployment partner) and provide Senior-level Technical Accountants, to audit lease data, to ensure there are no data discrepancies, post go-live. We also help your team to understand the EBITDA impact, so that your compliance program yields the best financial/taxation results as part of your migration.
- Critical Date Notifications: We audit your critical dates, and on the majority of customers, uncover money in the form of evergreen leases, as having auditors discover these leases may cause collateral damage.
- Lease Administration: We optimize the lease accounting solution and controls as part of our service offering, so that you are receiving all legislative and guidance updates in real-time, as well as ensure that these details are reflected in the downstream reporting.
- Disclosures Reporting: We share our best practices and templates that we have built previously so that you don’t lose any time designing, testing, or configuring reporting dashboards. We automate the running of these reports, to ensure compliance and that critical dates are proactively communicated.
- Technical Accounting: Experts to help you with understanding the latest guidance, to provide best practices on reporting, Tax advice on any interpretation of an asset or regulation.
- Lease Negotiation: We have experts that help customers to calculate the market value, then represent our customers on their behalf to negotiate the best possible terms on new or modifying an existing lease.
- Document Management: We work with you to configure a lease repository, based on categorization, geography, duration, and value of a lease – so that you never have to worry about lease status.
What is the greatest benefit ASC842 Compliance as a service:
Our customers are actively looking to simplify their workloads and to be able to respond without disruption, to activities that help grow the business. Working on value-less projects that are sporadic and tedious, is a major factor in the compliance as a service trend.
Let the experts help you, Leaseology has a subscription model that achieves compliance and removes risk, schedule a free assessment of your most complex leases now – clock ticking.
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.
