The 2018 GRC and Financials SAPinsider conferences took place earlier this year in Las Vegas. Protiviti SAP teams presented at several conference sessions, and their observations on what’s trending across the industry are compiled in a five-part series on the Protiviti Technology blog. Here, I’d like to specifically address the new lease accounting standard, one of the key topics at the conference, from a technology perspective. My Protiviti colleagues have addressed other aspects of the new standard in blog posts here, here and here.
To recap, public companies need to comply with the new lease accounting standard for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for calendar-year entities). Non-public companies need to comply one year later.
Even at the simplest level, the new compliance requirements will have a significant impact on how businesses account for their leases, particularly lessees. The graphic below offers a high-level view of the changes:
Technology To-Do’s
People who attended Protiviti’s conference session on the lease accounting compliance journey were eager to learn about automated solutions to manage compliance with this regulation as manual or offline lease maintenance will be extremely difficult given the complexities around lease structures and the new accounting rules. But even the best technology solution cannot do the preparatory work organizations need to perform in advance of deploying any such solution.
Below are some of the key steps to take prior to any lease accounting technology deployment:
- Gather all leases – Identify the inventory of all leases, including where they reside, and gather all important details about the leases. This can be a very time-consuming process for organizations with a large volume of leases and decentralized ownership and maintenance, so they must be proactive to ensure completeness. Most companies underestimate the effort around this step, jeopardizing the timeliness of the project from the get-go.
- Consider data harmonization and consolidation a critical step – Consolidating leases from multiple sources, ensuring data is in a consistent format and the right inputs are captured, and agreeing on the lease calculations are some of the activities that companies need to perform prior to uploading the information to the lease accounting system.
- Assemble integrated project teams and a dedicated steering committee – An effective approach to successfully implementing the new lease accounting standard and the supporting technology is to ensure the project is not performed in silos but is fully integrated between finance, the business, IT and compliance at both the project and steering committee levels.
- Perform an end-to-end solution design … but don’t over-engineer – The lease accounting process used to design the solution should consider all phases, including those that fall outside the system, to ensure key aspects such as reporting requirements and impacts to enterprise systems and business processes are addressed during the solution design phase. This work can add significant time to the implementation, and must be properly managed to maximize use of the solution without creating unintended consequences in other parts of the business.
- Include time for sustainability – There is often a rush to complete the actual implementation due to the vast amount of time spent identifying leases, lease consolidation/upload, data inputs, system configuration, etc. Often, key factors related to sustainability and user enablement, such as training, ensuring proper controls and assigning ownership and responsibility, are not prioritized and, in some cases, are completely overlooked.
Experts recommend budgeting 6 to 10 months to procure and deploy a lease accounting solution depending on the complexity of the lease inventory and the status of the data discovery and harmonization process. With the effective dates looming, the time to begin is now.
For more information on implementing the new lease accounting standard specifically in SAP landscapes, download our white paper. We welcome your questions and comments here and on our website.
Payal Shah, an associate director with Protiviti’s Technology practice, contributed to this content.
