11 Must-Ask Questions for Lease Accounting Vendors
Updated: Mar 26, 2020
If we’ve learned anything from public and international companies implementing the new lease accounting standards, ASC 842 and IFRS 16, it’s that a system is required to effectively comply. In a recent PwC survey of public companies, 60% implemented a new lease management system to handle ASC 842. In fact, 31% are still exploring enhancements or alternatives after initial system implementation. As these companies continue to search for a viable solution, and private companies begin exploring their options, it’s important to know what to look for in a lease accounting solution. Here are eleven key questions to ask lease accounting vendors:
1. How does the solution automate the accounting for my most complex leases?
Leading up to your demonstration, send an example of your most complex lease scenario. During the demonstration, make sure the system can handle functionality like modifications, renewals, escalating payments, impairments, multi-asset portfolios, variable payments, and management of lease & non-lease components.
2. Can the system handle the complexity of my accounting operations?
Some lease solutions were not built with the new lease accounting standards in mind, while others have a particular focus on just one standard. Ensure the system you review accounts for the differences amongst ASC 842, IFRS 16, and GASB 87. Check that the system can handle other complexities like foreign currency, multi-book accounting, and subleasing.
3. How flexible and customizable is the solution?
Every business has unique processes and requirements, so it’s critical that the system is flexible and customizable. For instance, organizations may like to attach information unique to their processes like maintenance information, locations, or important documents to their lease records. Not only is customization important, but keep in mind that errors happen. You may need to update lease information to account for things like changing IBR or data entry mistakes. In that case, make sure the system is flexible, and allows for error correction on lease records and any impacted financials.
4. How robust are the reporting capabilities?
With new accounting standards comes new disclosure reports. Take a look at the pre-built reports (if any) that come with the system and ensure they meet your reporting requirements. If there aren’t any pre-built reports, check if the system has the ability to do customized or ad hoc reports. Reports to look for include Weighted Average IBR, Lease Rollforward, Lease Renewal Option, and Lease Expiration.
5. How does the system integrate with my ERP?
Many systems are built separate from your core ERP system, which requires manual reconciliation to vendor bills and payments, and journal entry uploads or costly integrations. Understand how the lease solution will connect with your ERP system, if at all.
6. How reliable is the underlying architecture?
Is the system newly built from scratch, or is it on a proven platform? Is it truly a cloud solution, or is it on fake or un-proven cloud, or even on-premise? Look out for the ability to segment roles, audit trail capabilities, internal controls (Sarbanes Oxley), and SOC reports. Make sure the proper controls are in place without being overly rigid.
7. How does it help me manage my leases?
Your system should not only handle the accounting for your leases, but also have the ability to capture key details so you can manage leases end to end. Look out for the ability to track the following: maintenance, contracts, key lease terms, insurance, and other critical dates.
8. What’s the cost structure?
Many vendors price solutions based on lease volume, but each vendor will have a different cost structure. Be sure to understand full costs including implementation fees, maintenance, and support costs.
9. What steps and timing are involved in the implementation?
In the same PWC survey mentioned above, 13% of companies admitted to still being involved in lease accounting system implementation. Ask the vendor for their average implementation time, and level of complexity. Some factors that impact implementation time are offshore consulting teams, inexperienced implementors, and systems that require complex configurations (not plug & play).
10. What is your plan for ongoing maintenance and system updates?
Vendors should have a solid plan for their product roadmap. Make sure that core requirements are already pre-baked into the solution, not still listed on their product roadmap.
11. How proven is the company and its leadership team?
Is the leadership and development team at the new company strong in accounting or systems, or are they strong in both? Do they have relationships with reputable CPA firms? Check for customer success stories on their website, or see if they are able to put you in touch with a happy customer.
For more information on how to select the right vendor for lease accounting, check out this guest blog post by Weston Lampe at RSM.
NetLease is a complete lease accounting and management tool developed to operationalize compliance with ASC 842, IFRS 16, and GASB 87 standards. It supports lease reporting throughout the entire lease lifecycle and includes functionality like push-button reporting for FASB, IFRS, and GASB disclosures, full lease automation, integrated AP management, a robust audit trail, lease modification management and lease detail and document storage. Unlike other solutions on the market, NetLease is ready and currently deployed by public, private, and international companies.
About the authors:
Adam Riches, CPA is the Managing Partner at Netgain Solutions
Nathan Smart, CPA is a Partner at Netgain Solutions
For more information on automating your lease accounting, schedule a conversation with one of our CPAs.