Excel Purgatory for Lease Accounting
Have you ended up in “Excel Hell” attempting to meet ASC842 / IFRS16 / GASB87 lease compliance? Welcome to the “almost compliant & high-risk club”! You along with 70% of the industry continue to use excel for lease accounting. Why? We at Leaseology Inc have simplified lease accounting and lease administration as a service. Let us take the “thorn out of your ribs”, or remain in “lease accounting purgatory” with…
Ridiculous Calculations
The complexity for achieving ASC842/IFRS16/GASB87 compliance is an enterprise challenge, that starts with the modernization of your lease accounting portfolio. Many firms leverage excel based CSV files to upload data, or even worse – to manage their lease portfolio. The complexity of the compliance mandate: ASC842/IFRS16/GASB87 is not solvable with excel as a lease accounting, lease administration or lease management solution, simply due to the upstream and downstream consumers of this enterprise data.
Enforcement of Audit Trails Is Impossible
Excel as a Compliance Solution: An Auditors Best Friend has been written to clearly and concisely educate those that are still ‘open’ to the concept of excel being an intermediate or partial solution for achieving and supporting a compliance initiative, impacting EBITDA reporting, SOC1, and Compliance reporting, while creating an ongoing challenge with maintaining compliance. This is much more than an accounting issue, it is a business issue – which requires collaboration with experts to solve.
Stop shooting yourself in the foot!
Moving from manual compliance to an automated subscription-based service is the best method for achieving compliance, minimizing risk, and still having the business agility to quickly respond to lease portfolio needs, such as negotiations/renegotiations to capitalize on Covid market impact, or to sublet a new rooftop for socializing, post-Covid.
Now is the time for business process transformation and lease accounting is a prime candidate for process and provider transformation, as it provides zero competitive advantage, does not contribute to bottom-line profit, and is a lot of work for lease accounting teams, that are overburdened, to begin with.
Wouldn’t you rather contribute towards the bottom line, than spend nights and weekends REWORKING excel formulas?
Lease Accounting/Lease Administration and Lease Management can be bundled together by an innovative solution from Leaseology, that has all the complementary resources and skills so that you can get this off your plate – Outsource this! It’s a lot like changing your own oil – you can do it, but what are you really achieving? Trading hours for dollars, is not scalable |Leaseology
What is the COVID impact on Lease Accounting Transformation?
Virtualization is a by-product of COVID, which has manifested itself in reducing office space requirements, increased home office uses/challenges as well as created a new set of accounting challenges around deferred rent, rent compliance EBITDA impact, Disclosure statement and SOC1 reporting for operating leases.
Achieving ASC842/IFRS167/GASB87 compliance is a subset of projects that cumulatively make up a lot of disciplines spread across multiple departments, requiring executive visibility, technology, accounting, real estate and legal expertise. Although the effort is significant, the comprehensive enterprise cost, distraction and effort are hard to scope, because the overall impact is both upstream and downstream.
Achieving compliance, which is why our customers are moving to Leaseology’s managed services to help align their lease accounting and lease administration needs to what’s required by the Compliance mandates, as well as the business itself.
The diagram below is the Leaseology service funnel, and we will use this model to help identify areas of excel induced risk, for customers looking to achieve compliance without a subscription – using excel and manual effort:
- Immediate Lease Compliance – using Excel to achieve compliance is like painting a house with a Q-Tip, you can do it – but it will take 10x the effort.
- Using Excel to manage critical Date Notifications – There are no triggers, no calendaring function, no intelligence to scan spreadsheets, and alert accounting.
- Lease Administration – Excel lacks Artificial Intelligence (AI) or any intelligence needed to automate or make business decisions, at the end of the day, it’s still a manual process.
- 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 before month-end close.
- 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 asking for a future audit bill that will attract your CFO’s attention
- 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. You’ll never see them all in excel.
- Document Management – add-in workflow, without a proper, formalized document repository, as well as knowing where all your leases are – you will be left hanging in the wind, and every lease inquiry will be a full-on fire drill – trying to cobble together remnants of historic leases – don’t do this to your self. We refer to this as Excel Hell, when your manager asks for a lease, buried in a spreadsheet, which is located in a file cabinet in storage, in Des Moines.
Compliance Risk Overview:
The majority of firms are leveraging excel as a platform for building their lease abstractions, generating journal entries, creating lease payment schedules, and transmitting disclosures. Although excel is capable of supporting these lease accounting activities, it is an intensely manual process that is punishing from a lease accounting, lease management, and reporting perspective.
What is not understood about the excel platform is the risk associated with this highly manual process, as excel is not a commercial real estate lease management software and using it as such creates the following procedural vulnerabilities:
- Spreadsheet management and controls – risk issues include: human entry errors, lack of data parameters on inputs, inability to validate data, insufficient data validation accuracy controls
- The volume of transactions increases exponentially – whether it’s a capital lease or operating lease accounting portfolio that you are tasked with, achieving ASC842 compliance thresholds, requires significant re-work on how you have built your amortization schedules.
- IBR calculations are complex – FASB lease accounting guidance requires data accuracy. Without proper controls, you will be generating significant audit expense as well as introduce potential lease management issues
- SOX controls – Proper signoffs, segregation of duties, and approval processes around HR and Financial payment processes are key challenges around achieving GAAP compliance.
- The audit procedure is long and tedious – the more manual the lease management process, the longer and more expensive the supporting audit process will be. It is imperative that customers look to providers that have the sophistication in their software, as well as the expertise needed to remove risk from its customers. Auditors are expensive and auditing improper controls, systems, and resources – creates an expensive proposition for lease accounting leadership.
- SOC1 reporting – Manual system processes create manual system reports, which expose risk in two areas: Data Accuracy and Compliance reporting. To help lease accounting practitioners, a reliable and automated system is required as the alternative is hourly auditors – who are expensive.
- Disclosure reporting – Probably the biggest challenge in achieving ASC842 compliance is with the creation of disclosure statements, to capture and report on monthly amortization and interest calculations. This 2019 change to lease accounting processes, is a significant modification to the previous lease accounting and management process and is a poor fit for manual, excel based processes.
- Additional headcount and payroll expenses – the aforementioned components provide insight into the workload impact on lease accounting teams, in achieving ASC842 compliance. Whether it be equipment or commercial real estate lease management, the teams supporting these processes are not set up to provide the reporting, controls, or data integrity required to meet compliance requirements. The challenge is exacerbated by the additional process burden, so not only do teams not have the tools for success, they are being inundated by the extensive manual processes that are new to the new lease accounting standards.
Excel as a Compliance solution: An Auditors best friend
Key Takeaways
- Manual Lease Accounting guarantees risk– outsource
- Auditors will set up camp if they believe you are running your lease portfolio/accounting on or with excel – and they will find risk items
- Lease Accounting subscriptions enable customers to avoid death by audit fees while providing a comprehensive service, experts to advise and a solution that is void of any peripheral IT support or maintenance costs.
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 Leaseologymanaged 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.
