One of the biggest obstacles that most companies face as they prepare to meet the new FASB 842 and IFRS 16 lease accounting mandates is that most don’t have a centralized repository for all leasing information. Many have real estate leases in some type of system, but equipment leases and other contracts are a different story. The number one answer we get when we ask clients and prospects how many equipment leases they have is, “I have no idea.”
So, if you are in that boat, you are not alone. We can’t tell you exactly where your leases are (unless you request our lease audit service), but here are a few places you might want to look.
Real Estate Administration Systems
As we said, most companies have some electronic method of tracking real estate lease data, so whether it’s an advanced real estate leasing and accounting system like AMTdirect, or a spreadsheet, that’s probably the best place to start. If you have a system, it likely has some of the data about each lease that you’ll need to classify it for reporting purposes. It might also have the lease documents themselves which will have the additional data you’ll probably need to abstract.
Contract Management System
After visiting the real estate team, you might want to take a trip over to legal. Many companies use a contract management system to create a central location for customer and vendor agreements. Remember, not everything that must be reported under the new standard will have the word “lease” in the title, you need everything that contains a right of use asset, even if it is embedded in a service agreement of another type. The system should be able to produce a report of any pertinent agreements.
Fleet Management Systems
If your company has a large number of vehicles, you probably have some type of management system for fleets. There you may hit the jackpot finding master lease agreements that are often used when fleets are involved. It might not be designed to hold all of the information you’ll need for accounting reporting purposes, under the new FASB and IASB guidelines, but it should prove to be a good source of intel.
Property Management and Commercial Real Estate Service Providers
If you have outsourced real estate management to a business services provider like JLL, Colliers, CBRE, Cushman & Wakefield, or others, they likely have your lease data and documents in a leasing management system. They should be able to provide you access to all of the details you will need.
If your company uses a procurement system like Aribia or others to track purchases above a certain dollar amount, chances are that leases for vehicles, real estate, computers and other costly assets are associated with a purchase order in the system. Your procurement team should be able to provide you with information about every purchase that might be associated with a lease. It might not have all of the data that you need, but it will tell you what you are looking for.
If you’ve got a lease, you are paying for it somehow. Your AP team should be able to produce a list of recurring payments, which will make a good starting point for your sleuthing. Keep in mind that not all leases are paid monthly. Some are billed on a quarterly or annual basis, so look at any recurring payment, regardless of the cadence.
Current Financial Reports
Leases aren’t entirely absent from financial statements today. Capital leases are reported on the balance sheets while operating leases are relegated to the footnotes. There probably isn’t enough data in these documents to account for a lease under the new standard, but it gives you yet another avenue to pursue as you work to identify every lease.
IT Documents and Systems
When most people think of leasing, they think of real estate and vehicle fleets, but a lot of technology equipment is leases as well. Your IT team may be able to provide you with a treasure trove of leases for computers, storage towers, printers, copiers, and who knows what else. If you’ve outsourced your IT function, they may have information about tech equipment leased by your company. Here, once again, be on the lookout for embedded leases that might happen if the IT firm has purchased equipment on your behalf.
The good news about all of this is that you’ll get to know your neighbors! So far we’ve recommended you visit the real estate team, finance, legal, procurement, IT, fleet management, AP and a couple of outside providers. That just gives you a sense of the scope of this challenge.
If you haven’t started your journey to compliance yet, we recommend getting on it soon. If you’d like a partner who’s done it dozens of times, drop us a line.