Efficiently and centrally address the lease accounting challenges presented by ASC 842 and IFRS 16
Tackle the new lease accounting standard with ALAE
The Aptitude Lease Accounting Engine (ALAE) provides a route to full compliance with the new ASC 842 and IFRS 16 leasing standard. ALAE fully supports lessee and lessor accounting requirements and works within your existing architecture to address the significant finance complexity around consistency of accounting application, calculations, transitions, Multi-GAAP requirements and more. As the effective compliance date of December 15, 2018 approaches, companies are searching for packaged, built-for-purpose solutions that can fill the gaps in accounting left by traditional lease management systems.
We are currently engaged in several leasing discussions with enterprise organizations around the globe and would love to discuss your leasing standard challenges.
Common challenges around ASC 842 and IFRS 16 adoption
For many organizations, the new standard will move hundreds or thousands of lease contracts onto the books and require a level of data collection, storage and lease accounting scenarios that were not previously required. For lessee accounting, challenges will include:
- Data Collection: The new lease standard will require a level of data collection and storage not previously needed. Many data items may not be captured in current lease management systems or will need to be enriched in order to drive the necessary accounting. With recent surveys showing that over two-thirds of organizations currently use spreadsheets to manage lease accounting today, data integration, standardization and enrichment is likely to be a challenge
- Taking into account other standards: Leasing systems will need to integrate with revenue recognition systems supporting the transition to IFRS 15 / ASC 606. Calculated asset fair values generated in a revenue recognition system will need to be used to support lessor related calculations. Leasing systems must also support lease modifications due to asset impairments (IFRS 9 / CECL.)
- Judgements and Consistency of Treatment: The leasing standard will require considerable judgements to be made at various points during the lease accounting process and once determined, consistency of application will be key. For example, a consistent and auditable approach will be required in the following areas:
- Contract modifications
- The exercise of options
- Adoption of practical expedients
- Lease tests
- Transitions: In moving from IAS 17 to ASC 842 and IFRS 16, global organizations will have to evaluate multiple transition options. Once these decisions are made (full retrospective with restatement versus a modified retrospective) the organization will have to manage the application of accounting policy across the group. The Aptitude Lease Accounting Engine offers full support for both approaches.
- Multi-GAAP accounting for leases: Multi-national companies will have to go from no accounting for leases to maintaining two separate sets of books to address the different standards. For example, a US company with a subsidiary in Germany will need to report under FASB which requires a classification test for leases and a specific form of accounting. For IFRS the accounting for finance leases slightly differs. You will need to track the two stand-alone sets of amounts.
What we’re hearing from our clients, prospects & partners
We’ve had the privilege of discussing the new leasing standard with our clients, prospects and partners at conferences, in boardrooms and over coffee. They are on the front lines of understanding and asking important questions about what the standard means for their accounting and finance processes. Here are some of the things they are asking and saying about the new leasing standard:
“Can we have the ability to provide all our subsidiaries access to their own accounting without implementing multiple instances?” -Large retail organization
“Can we align with IFRS 15 and IFRS 9 compliance deadlines? If we can align we will only need to present a significant restatement of financial results once.” -European telecommunications client
“Only 47% of European companies (IFRS/GAAP) disclose off-balance sheet leases. (62% in NA). That amounts to over $2.86 trillion over 14,000 companies in the IASB’s study. 1,145 companies account for 80% of off-balance sheet leases, each having more than $300M, calculated on a discounted basis.” -IFRS.org
A large telecommunications organization identified that the shift from IAS 17 to IFRS 16 will result in significant increases in required GL lines (appx 66x’s the original amount or a percentage increase of 6,500%.)
“We want to use IFRS 16 as a way to change our lease software environment and align our overall processes and tools around leases in addition to just achieving compliance. We need a solution that will allow us to integrate and manage leases of various types and help us comply with Multi-GAAP requirements.” -Global Bank
“Regarding intracompany transfers, how do you manage the accounting when one lease asset is transferred to a different business entity (for example, a company car.) The revenue bookings don’t change but costs will.” -Large telecommunications client
Why Use the Aptitude Lease Accounting Engine?
The Aptitude Lease Accounting Engine allows users to centrally apply lease accounting, establish audit and linkages between multiple GAAPs, generate lease level trial balances, manage multiple transition options and more. ALAE can provide a range of benefits over other lease accounting solutions:
- Handles data aggregation and standardization across multiple locations and technology platforms including lease management systems, offline data stores and revenue recognition solutions.
- Generates the required daily journal entries for the thousands of business & accounting events that can happen over the life cycle of the lease.
- Allows for multi-GAAP, multi-entity and multi-currency lease accounting of complex lease types like subleases and inter-company leases.
- Provides flexible rule templates addressing various lease accounting topics like lease classification, identification of lease modifications, allocation of contract considerations to lease and non-lease components, accounting for fair market value change and handling sale and leaseback transactions.
- Integrate with General Ledger and management reporting.
- Handle all lease assets from real estate to equipment to complex derivatives with lease elements – all in one central system.
Your challenges and requirements: Arrange a discussion with our team to discuss your finance challenges and learn more about how the Aptitude Lease Accounting Engine can help you achieve compliance