4th May 2017
We've had the opportunity to speak with partners, clients and prospects about the leasing change that is around the corner. Over the course of those meetings, several questions kept coming up so we sat down with Aptitude Software finance expert, Alan Berkley to gather answers to some of the most commonly asked questions about the new IFRS 16 / ASC 842 standard and our Aptitude Lease Accounting Engine.
Q: Can we use manual workarounds to address the new standard?
A: While a manual workaround may be possible for a company with a very low volume of leases, the complexities required by IFRS 16 / ASC 842, (notably around components, options, modifications, variable payments, exemptions and disclosure requirements) mean that firms with a large number of leases will be unable to manage the basic accounting requirements in an auditable, consistent, efficient and compliant manner using a manual workaround.
In addition, given the impact on the financial statements and key ratios that each leasing decision will now have, the ability of a CFO to understand the impact of each individual lease on the balance sheet and the income statement over the entire life of the contract will be invaluable.
Q: What’s the difference between a Lease Management System and the Aptitude Lease Accounting Engine?
A: Lease management systems typically do well at things like managing lease renewals, lease payment reconciliations, environmental performance management and facilities management. However, lease management systems do not tend to have robust accounting capabilities and may not be able to handle the financial & accounting complexity and data volumes triggered by the new standard.
The Aptitude Lease Accounting Engine (ALAE) is purpose-built to apply accounting and finance expertise and facilitate compliance with the new standard. It can work with a lease management system(s) or integrate leases from disparate systems or excel files across your organization. The ALAE specifically addresses the finance and accounting complexity around areas like accounting judgements, multi-GAAP accounting, calculations, transitions and finance workflows. Read more about how we differ from Lease Management systems here.
Q: How do you support the topic of impairment in relation to IFRS 16/ASC 842 and have you considered the interplay between IFRS 9/CECL and the leasing standard?
A: The IFRS 9/CECL requirement to impair assets applies to assets generated under the IFRS 16/ASC 842 standards. As such, one of the features of the ALAE is that it accounts for the impairment events and the necessary changes to future calculations. The ALAE does not calculate impairment of the assets directly as we believe that, from a financial control and consistency of treatment perspective, companies will want to perform the impairment of all their assets in one place, on a consistent basis.
Q: We are a complex, global organization with multiple entities, currencies, languages and leasing systems. Does your solution support multiple hierarchical entities? And if so, how do you support inter-company eliminations?
A: While the new standard is certainly posing challenges for large organizations, companies are also using it as a change to put processes and solutions in place to centralize and streamline lease management and accounting going forward. Part of accomplishing this goal is using a solution that is flexible enough to allow complex, global organizations to create hierarchical entities that can then facilitate reporting at the lease level as well as at different levels up and down the company (i.e. – by subsidiary, region, company, etc.) Multi-GAAP, multi-currency and multi-language capabilities also help bring together and manage leases in one tool the entire organization can leverage. We fully support all inter-company eliminations. Inter-company eliminations are generated at a granular level on a daily basis in the same manner as the primary calculations are generated.
Q: Does ALAE handle both lessee and lessor aspects of the standard?
A: Yes, the Aptitude Lease Accounting Engine provides support for both lessee and lessor lease types.
Q: Our leases are spread between multiple systems and some of our leases are only available in excel or word files. How can I integrate these so that I have one central view of my lease portfolio?
A: The Aptitude Lease Accounting Engine can interface and support any number of lease management systems utilizing standardized input hoppers. Excel or other file types can be imported into ALAE as well. Likewise, ALAE supports any number of GL instances or reporting tools via standardized output tables.
Q: When considering the different transition options, can you decide which assets could be subjected to a modified retrospective versus the full retrospective option? What is the benefit of using different treatments for different leases?
A: Yes, ALAE allows you to select the transition treatment on a lease by lease basis.
Q: What level of testing and certification have you done to ensure that the system is compliant with US GAAP and IFRS?
A: All our solutions go through a validation process with some or all of the big 4 accounting firms. To date the ALAE models have been validated by 2 of the big 4.
Have additional questions? Learn more about our Aptitude Lease Accounting Engine or email us directly at email@example.com to schedule a preliminary discussion about your IFRS 16 / ASC 842 project.