WHAT DO WE LEASE?€¦ · There is a leasing company on the other end of every contract. These might include commercial banks, captive finance organizations,or independent leasing

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CONDUCTING AN ENTERPRISE-WIDE CENSUS

THE TEN PLACES TO LOOK TOFIND ALL OF YOUR LEASES

WHAT DO WE LEASE?

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How to Conduct an Enterprise-Wide Lease Census 2

WHAT DO WE LEASE?Since the publication of the new lease accounting rules, one of themost common questions asked is - How do I find out what we lease? In most cases, your real estate team knows what buildings you lease. But what about all the other things you lease -photocopiers, office furniture, laptops, servers, forklifts,trucks, cars, or even aircraft?

It might sound surprising that big companies would not know whatthey are leasing, but it is understandable when you consider thatmost large organizations have highly decentralized leasingprocesses.

Of course, it is inaccurate to say that any company doesn’t knowwhat they lease. Various people within the organization knowexactly what is leased and what is owned. But the leasing data isnot centralized into a single database. And in fact, until lease accounting changes, there was little accounting motivation to track all leases in a single enterprise-wide application.

But creating a master list of your leases is actually not that hard. Itis simply a matter of identifying the individual people within theorganization that know what buildings, vehicles, furniture, laptops, and other equipment is being leased. To find the people simplyfollow the lifecycle of a lease as it moves through your organization. Start by asking the five questions on Page 4.

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Aircraft

MaterialHandling

RealEstate

WHAT DO YOULEASE?

IT & DataCenter

Office Furniture

Vehicle Fleet

MedicalEquipment

RetailStore

Equipment

ManufacturingEquipment



Every lease has a contract that is likely negotiated by procurement, legal counsel, and perhaps your treasury organization. These groups should have a good idea what is being leased and where the contracts reside.

There is a leasing company on the other end of every contract. These might includecommercial banks, captive finance organizations, or independent leasing companies. These lessors definitely know what you are leasing, because they bill you for each lease on a periodic basis.

Someone in the organization is accountable for managing the things you lease(assets). For example, IT probably manages your leased laptops and data centergear. The corporate real estate group probably manages the leases for yourbuildings, warehouses, stores, and manufacturing plants. The logistics teamsprobably manage the leased forklifts and trucks. These “asset owners” should havea handle on what is being leased.

Various finance groups are responsible for ensuring that property taxes are paid,insurance coverage is obtained, and the assets are properly reported for under the accounting rules. As a result, organizations such as financial reporting,Tax, and treasury should have records on what you are leasing.

Accounts Payable is responsible for ensuring that the invoices for leases are paidmonthly (quarterly or other periodic basis). As a result, the A/P department shouldknow what purchase orders and recurring payments are being made that could beleases.

Who negotiatesthe leases?

FIVE QUESTIONS TO ASK

Who providesthe lease?

Who manages theleased assets?

Who reports onthe leases?

Who pays for theleases?

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Procurement

AccountsPayable

FinancialReporting

RealEstate

TEN PLACES TO LOOKLessors

Brokers

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IT

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Fleet

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Treasury

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ACCOUNTS PAYABLEIn our experience, the A/P team is the most reliable source forgetting a comprehensive, enterprise-wide list of what you lease.Ask your A/P team for a report of all invoices that are paid on aregular basis. Don’t just use last month’s data, because someleases are only invoiced on a quarterly, semi-annual or annualbasis. The list of recurring payments will include not only those contracts that have the word "lease" in the title, but also FASB’s expanded definition of a lease, which includes some outsourcing and service contracts.

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You can search through the Payablesreport to identify payees andpayments that might be leases. MostA/P departments have access tolease PO data, such as total, allocated, and unallocated funds along with A/Pinformation. Also, if you havemultiple A/P systems in differentregions or entities, be sure you areanalyzing all of them.



FINANCIAL REPORTING

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Under the legacy lease accounting standards,there was a need to report capital leases on thebalance sheet and operating leases in the notesdisclosure. Drill down from the note disclosure tothe individual leases making up those totals, andfind out who in your organization is responsiblefor collecting the lease data today and how it isbeing tracked.

Don’t be surprised if you end up following a daisy-chain of spreadsheets across various groups inthe organization. The Excel files may not tell youexactly what assets are being leased, but theymay provide important clues as to who to ask (orwhere to go) for additional information.

If the note disclosure has survived previousaudits, then there has to be support for thefigures disclosed. If necessary, reach out tointernal audit for their assistance.



IT ORGANIZATION

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Are you leasing laptops, desktops,printers, servers, routers, switches,software, storage devices, or other datacenter equipment? These are among themost widely leased categories of assetsdue to the short lifecycles andobsolescence associated with thesetechnologies. At most companies, theaccounting, procurement, and treasuryorganizations lack strong visibility into ITleases.

Ask your IT organization team for a list ofall the assets that you are leasing. Mostlarge IT organizations have an IT assetmanagement system that tracks the serialnumbers, hardware configurations,software applications, and vendor contractdata for each piece of technology youown. IT asset management systems alsotrack which assets are owned versuswhich are leased.


How to Conduct an Enterprise-Wide LeaseCensus 9

Many organizations lease the vehicles used to perform field service, product transportation,or customer deliveries. Insome cases these vehicles are managed by a centralized group. In other organizations the ownership is decentralized. Find outwho manages your vehicles then ask themfor a list of all the trucks, vans, automobiles,and other vehicles they are leasing.

FLEETMANAGEMENT

If you are leasing a fleet of morethan 1000 automobiles then youprobably have a fleetmanagement application. Thesesystems typically have a databaseof all the vehicle identificationnumbers, service histories, driverassignments, and leasing detailsfor each asset.



CORPORATE REAL ESTATETEAMS AND BROKERS

A growing number of mid-size and largeorganizations have centralized real estatemanagement into a single organization. Othershave outsourced their real estate administrationto a specialized provider such as Jones LangLaSalle or CBRE.

Ask your real estate group (or broker) for a list ofthe leased properties they are managing. Thiswill probably be the easiest category of leases toaccount for given that a centralized organizationand system exists.

If you are leasing more than 50 buildings thenyour company (or broker) may have a leaseadministration application (or integratedworkplace management system). Thesesystems typically track detailed records for eachlease including landlords, termination dates,expansion clauses, and contractual terms.



OTHER ASSET OWNERS

The other asset owners in yourbusiness will vary by industry.

If you operate in the supplychain, you may lease forklifts,conveyors, pallet jacks, or otherwarehouse equipment. Ask yourlogistics team for a list of leasedassets.

If you are in the retail industry, youmay lease point of sale systems,refrigeration units, or display shelves.Ask your store operations team for alist of the equipment you are leasing.

If you are in the health care industry,you might lease MRI machines, hospital beds, or medicine carts. Ask your hospital administration team toprovide a list of leased assets.



EQUIPMENT LESSORSThe lessors themselves have a vested interest in maintaining accurate data about each individual lease andunderlying asset. Equipment lessors such as commercial banks, vendor captives, and independent lessorseach use sophisticated leasing software for pricing and credit analysis, servicing, and billing. As a result, mostreputable lessors can easily pull the details of all leases for any particular customer. Use your accountspayable application to identify the leasing companies you are paying regularly. Then contact the lessorsdirectly for a list of your current leases. Even if you are able to obtain all required data independent of yourlessor, it is good practice to periodically reconcile your internal data against a third party.



PROCUREMENTAlthough requests for leases may originatefrom various departments (real estate, IT,logistics, store operations), all leasesultimately need to flow through theprocurement and legal organizations. Thesetwo groups negotiate the pricing andcontractual terms for most leases.

Ask the procurement and legal organizationsto provide a list of relevant contracts. Don’tjust ask for contracts that have the word“lease” in the title; you will need to examineoutsourcing and service contracts as well forpossible embedded leases.



CORPORATE TREASURYAt some companies, the treasury organizationhas taken ownership of the leasing process. Asa result, treasury may be integrally involved withprocurement in negotiating and renewingleases. Ask your treasury group if they maintaina list of known real estate and equipmentleases.

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How to Conduct an Enterprise-Wide Lease Census

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NEXT STEPSConducting an enterprise-wide lease census is just the first step in a longer journey towards complying with thenew lease accounting standards. The most time-consuming aspect of the project will be actually collecting all thedata needed to classify and account for the leases. It will take 2-4 hours per lease to collect the data. If youhavehundreds or thousands of leases you will need to staff a small team of contract analysts to manage the process,which could take 3-6 months.

To start the process you will need to create a comprehensive list of all the leasing data needed to comply with thenew standards. Then you will need to collect the data from the lessors, asset owners, and other stakeholders(think treasury, procurement, accounts payable). Some data will be easily uploaded into a lease accountingapplication, while others will be in PDF or paper format requiring an abstraction process. In many cases, the datayou collect will be incomplete or inaccurate, resulting in a data cleansing and reconciliation process. Additionally,you will need stakeholders to attest to the accuracy of the data. Finally, you will need to append tax rate,depreciation, and other corporate variables to each lease. The result will be a complete set of accurate, up-to-datedata that can be uploaded into your lease accounting application.

If this sounds like a complex, time-consuming process – well, that’s because it is. Many companies will struggle tofind available resources and the expertise to collect all the necessary lease accounting data in a timely manner.Considering enlisting the professional services division of a lease accounting software vendor or the consultingresources of a Big Four firm to assist you.



LeaseCensus

RequiredData

ComparingStandards

DataCensus

What skills and resources are needed?

What fields doesthe new standard require?

What is differencebetween the new and old standard?

What data do wecollect today insystems?

Aggregate datafrom varioussystems & groups• AP• Lessors• Asset Owners• Accounting• Procurement

Fix data (asnecessary)• Doesn’t

reconcile• Missing fields• Incorrect values

Gather additionalfields:• EOT plans• Actual location• Cost center• Asset owner• Bundled service

costs

COLLECTING YOUR LEASE ACCOUNTING DATA

PLANNING AND ANALYSIS

DATA AGGREGATION AND UPLOAD

AggregateData

AbstractData

CleanseData

PopulateDatabase

AttestData

FinancialVariables

Capture leasingdata from• Spreadsheets• Files• PDFs• Images• Paper Docs

Upload to leaseaccounting app• Normalize data• Bulk upload• Test samples

For each lease:• Economic Life• IBR• Debt Rates• Equity Rates• Tax Rates• GL Codes• Depreciation

ResourcesNeeded

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What typesof assets dowe lease?


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LeaseAccelerator offers the market-leading SaaS solution for Enterprise Lease Accounting,enablingcompliance with current and new FASB and IASB standards. Using LeaseAccelerator’s proprietaryasset-based Global Lease Accounting Engine, customers can account for all categories of leases

including real estate, fleet, IT, material handling and other equipment at theasset level.On average, LeaseAccelerator’s lease Sourcing and Management applications generate savings of

17% on equipment leasing costs with smarter procurement and end-of-term management.

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Documents

WHAT DO WE LEASE?€¦ · There is a leasing company on the other end of every contract. These might include commercial banks, captive finance organizations,or independent leasing