Dedicated Software For New Lease Standards: Most Finance Leaders Unprepared

Olivia Berkman

Organizations are challenged to assess needs, design specifications, and oversee the implementation of new IT solutions for compliance with new lease standards (IFRS 16 and ASC 842), and time is running out. According to recent research by Deloitte, most finance and accounting leaders planned to finalize the design of required changes by mid-year 2018 and complete implementation by December 31, 2018. Despite this, over 70% of finance and accounting leaders do not yet have a dedicated software system able to handle the required changes.

Fifty-seven percent of respondents plan to opt for externally developed leasing systems that can be managed internally, while 20% see no need to change their current leasing software or lease contract management system. Only 26% say they’re already equipped with the necessary software systems.

A broader scope compared to revenue standards

Deloitte lead partner on the survey, Laurence Rivat, explained that, though the lease standards may represent less of a challenge than revenue recognition, the software systems that worked for that implementation may not be sufficient for this one. “I would say the lease standards are less complex [than revenue recognition] to implement, but for many companies, they do require a new IT solution. Perhaps for the revenue standard, some may just have been adapting their IT solution to an extent. From what I can see from the field, it’s different for the leases. The scope of this change is broader for the lease standards compared to the other standards.”

How many contracts are too many?

Almost 50% of respondents indicated they will have more than 1,000 lease contracts, with many having more than 5,000 lease contracts at hand. On whether clients were considering taking on interim “offline” (i.e., Excel-based) solutions, Rivat shared, “As soon as you get over more than 1,000 contracts or so, Excel is just very difficult … it doesn’t work. The calculations are too complex. You have too much of a concern with the quality of the data and in the controls.” Many companies thought Excel could be a solution, and the more they progress and make their impact assessments, the more they realize that Excel will not be the solution. “Maybe for the smaller entities or the ones who don’t have so many contracts,” he noted, “but as soon as the population gets numerous, you need to have a dedicated software solution.”

Providers are working diligently on developing their solutions to be ready on time. “Companies and providers are working extremely hard to implement the systems and ensure that the systems are capable of providing the data by the end of the year,” said Rivat. “Adjustments are still being made. The test runs are still in progress.”

Considering the human effort required

Though companies are understandably concerned with the readiness of systems providers, Rivat pointed out that the effort required by workers should not be ignored. “There is a huge effort, and technology has not always helped to collect the data or scan the data, and sometimes it has to be manual. Human resources in this task should not be underestimated.”

For more on the implications of Deloitte’s study, read Dealing With The Complications Of New Lease Regulations.

This article originally appeared in FEI Daily and is republished by permission.

Olivia Berkman

About Olivia Berkman

Olivia Berkman is the managing editor of FEI Daily, Financial Executives International’s daily newsletter delivering financial, business, and management news, trends, and strategies.