Automate The Lease Accounting Close · Portfolio Size (no growth; static) 100 leases Events (changes to a lease) New Terminating Mid-term Corrections Events/Year Events/Month 25 25

www.leaseaccelerator.com

THE LEADER IN LEASE LIFECYCLE

MANAGEMENT SOFTWARE

Automate The Lease Accounting CloseTake Time, Cost, Risk, Effort and Stress Out of the Close

Process

http://www.leaseaccelerator.com/

Page 2© 2020 LeaseAccelerator Inc.

Agenda

Lease accounting journey – where are we now?

How to remove cost, risk, time, effort… and stress

The 4 automation archetypes in the market

How to think about risks and model costs

Manual vs. automated

• close requirements – time and cost by archetype

• subledger requirements – time and cost by archetype

Wrap-up


Today’s Presenters

Len Neuhaus, CPAVice President, Lease Accounting

Michael KeelerChief Executive Officer

Jonathan CrawfordChief Architect


Original objective: compliance with the standard

Where are we now?

• Documents collected

• Data abstracted

• Policies and controls created

• Balances created

• Initial compliance achieved

Ongoing compliance

• Workarounds and manual steps

• Still lots of spreadsheets to augment incomplete software:

• Creates complexity, effort, headcount requirements, time, and risk

• Requires additional layers of supervision and controls: added cost to control added risk

• Detective and corrective controls required

• Teams are fatigued and want automation to help them focus on new, mission-impacting, career-advancing work

• Realization: you can’t eliminate or minimize the complexity — it’s out of your control

• intrinsic complexity in the standards

• intrinsic complexity in the business


Source: PwC 2019 Lease Accounting Survey

PWC: Rate difficulty of post-implementation issues


New objective: remove cost, risk, time, effort, and stress from the monthly lease accounting close

• Simplify process

• Strike balance between decentralized stakeholders and centralized data and accounting management

• Clear, documented process, policies, procedures

• Shared services: centers of excellence

• Deploy preventative controls

• Minimize detective and corrective controls

• Automate and integrate wherever possible

• Management of controls

• Communication, documentation, and reporting around controls and management of controls

• Consistent application of policies

• Where and how can we take out cost, risk, time, effort and stress?

• How to do it quickly, easily, and affordably?


Software options: comparing product archetypes

Spreadsheet Calculator Engine Platform

fully manual (DIY) Semi-manual Semi-automated Fully automated

Automated calculations Automated calculations Automated calculations

No close, no subledger, no

integration

Close with subledger, limited GL

integration

Close with subledger and

integration

Still need manually generated

spreadsheets

Still need manually generated

spreadsheets

Any spreadsheets are

automatically generated

Lifecycle data management

more automatedmore manual


Where to Start: How do auditors audit lease accounting disclosures?

Management assertions

• Completeness

• Accuracy

• Controls

• Cut-off (timeliness)

• Existence

• Occurrence

• Valuation


Getting to the manual costs: key assumptions

Portfolio Size(no growth; static)

100 leases

Events (changes to a lease)

New Terminating Mid-term Corrections Events/Year Events/Month

25 25 25 20 95 8

AVERAGE COST OF A LEASE ACCOUNTANT

$100,000 year accountant costs (loaded)

40 hour week x 52 weeks a year = 2,080 hours x 60 = 124,800 minutes

$100,000 2,080 $48.08 per hour

$100,000 124,800 $0.80 per minute

Manual costs do not scale; so what is true of 100 leases is true for 1000 leases x 10


Close: Capture events from stakeholders

• Monthly notifications with lease details to stakeholders

• Mailback with event (changes) details (new or existing leases)

• Stakeholder performance management (scorecarding)

• Escalation notifications of non-performance

TIMEper month

COSTper month

CLOSE Spreadsheet Calculator Engine Platform mins/lease mins/100 cost/100 cost/1000

capture events from stakeholders M M M Auto 130 12,500 10,016 100,160

monthly notifications with lease details to stakeholders M M Auto Auto 30 3,000 2,404 24,038

mailback with event (changes) details (new or existing leases) M M M Auto 30 3,000 2,404 24,038

stakeholder performance management (scorecarding) M M M Auto 60 6,000 4,808 48,077

escalation notifications of non-performance M M M Auto 10 500 401 4,006

Risk

• Completeness

Cost/100 managing leases

$10k/month


Close: Capture events from stakeholders

Manual approach

Phone tree, tracking by spreadsheet, cross-referencing by spreadsheets, e-mails, telephone call follow-ups, lack of accountability. Plan to do this every month.

Automated approach

System sends e-mails with templates for completion via mailback and follow-up escalations; reporting tracks what's not yet done (and substantiates escalation to make sure negligent behavior isn't recurring).


Close: Make appropriate judgements (automate accounting policies)

• Classification

• Materiality thresholds

• Reasonably Certain Holding Period (RCHP)

• Election of practical expedients

• Application of corporate policies (e.g. useful life, tax rates)

TIMEper month

COSTper month


make appropriate judgementsM M M Auto 30 1,148 920 9,201

classification M M M Auto 10 69 55 554

materiality thresholds M M Auto Auto 10 79 63 634

RCHP M M M Auto 10 1,000 801 8,013

election of practical expedients M Auto Auto Auto 0 - -

application of corporate policies (e.g. useful life, tax rates) M M M Auto 10 58 47 467

Risk

• Accuracy

• Controls


$1k/month


Close: Create and maintain multiple ledgers

• For each standard

• For each geography

TIMEper month

COST per month


create and maintain multiple ledgers M Auto Auto Auto 25 2500 2003 20032

for each standard M Auto Auto Auto 15 1,500 1,202 12,019

for each geography M M Auto Auto 10 1,000 801 8,013

Risk

• Completeness

• Accuracy

• Controls

• Cut-off


$2k/month


Close: Calculate debits and credits

• Incremental Borrowing Rate (IBR) interpolation

• Foreign Exchange (FX)

• Order of operations

• Generate debits and credits

TIMEper month

COST per month


calculate debits and credits M Auto Auto Auto 45 236 189 1895

IBR loading and interpolation M M M Auto 5 21 17 167

FX (assume 50% of leases are international) M Auto Auto Auto 15 59 48 476

order of operations M Auto Auto Auto 10 38 30 300

generate debits and credits and review M Auto Auto Auto 15 119 95 952

Risk

• Accuracy

• Controls


$200/month


Accounting for a typical lease is complicated

Lease booked (initial takedown) GAAP IFRS

Payment adjustment due to contingency resolution → Remeasure Remeasure

Mid-term partial termination → Adjust balance Adjust balance

Payment adjustment due to CPI change →Payment difference

expensedRemeasure

Change reasonably certain holding period → Remeasure Remeasure

Renegotiate lease → Modification Modification


Close: Calculate debits and credits

Manual approach

Need to keep records of what IBR was selected and why. Excel models (per Schedule) must be kept updated with the appropriate IBR. Copying models to use as a template for new deals risks picking up the wrong IBR. IBRs may be for varying terms and varying geographies, all of which must be tracked and managed manually, including typically quarterly updates.

Automated approach

IBRs for various "fencepost" terms by geography are uploaded using a standard template and the system provides automated interpolation for terms between fenceposts as well as an audit trail for IBRs used for each deal.


Close: Book transactions into ledger

• Book original lease transaction

• Asset-level: asset available for use date

• Asset-level: lease start date

• Asset-level: in-service date

• Book changes

TIMEper month

COST per month


book transactions into ledger 25 108 87 868

book original lease transaction M Auto Auto Auto 10 21 17 167

asset-level: asset available date M M M Auto - -

asset-level: lease start date M M M Auto - -

asset-level: in-service date M M M Auto

book changes M Auto Auto Auto 15 88 70 701

Risk

• Completeness

• Accuracy

• Controls


$100/month


Close: Book transactions into ledger

Manual approach

Spreadsheet models that can handle ASC 840 vs. ASC 842, including transition calculations, allowing for advance vs. arrears, monthly vs. quarterly vs. annual payments, mid-month start dates, step payment structures, etc. Lots of Excel formulas that have to be manually validated. Current month journal entries must be extricated from each schedule's workbook and combined manually to produce portfolio-level journal entries for the period. Version control is completely manual (which really means it doesn't exist).

Automated approach

Automatically generated journal entries for current period, historical period, or life-of-lease that can be easily pivoted to demonstrate straight-line expense profiles, PV takedowns, proper amortization, etc., backed by a SOC-1 report that provides already-validated reperformance of accounting for the most common 70% of all leasing structures.


Close: User controls for each step of the close process

• Role-based access controls

• Authorization required for users to perform specific tasks

• Separation of duties

TIMEper month

COST per month


user controls for each step of the close process M M Auto Auto 10 79 63 634

role-based access controls M M Auto Auto 5 40 32 317

authorization required for users to perform specific tasks M M M Auto 0 - -

separation of duties (oversight/supervision) M M Auto Auto 5 40 32 317

Risk

• Controls


$100/month


Close: Audit trail

• Time-stamp access and discrete activities of every user

• Include each event in audit trail

TIMEper month

COST per month


audit-trail M M M Auto 90 713 571 5709

time-stamp the access and discrete activities of every userM M Auto Auto 60 475 381 3,806

include each event in audit trail for each lease contract (report)M M M Auto 30 238 190 1,903

Risk

• Controls


$600/month


Deal History

Document Repository

Asset Level TrackingAsset Change Report

“As At” Reporting

Reconciliation ReportingWho did what and when?Classification Changes

Invoice Payments

Accounting Judgments

End User Attestations

All Supporting DocumentsMaster Lease Agreements

Purchase Orders

Lease Classification Analysis

Data tracked for each Asset on LeaseEconomic Life

Residual Value

Lease Rate Factor

Between Two PeriodsNew Leases

Leases Terminated or Purchased

Rent and Foreign Exchange Changes

Visibility for a Certain DateBalance Sheet Liabilities

Lease Portfolio

Compares Reports for Tie-OutAsset details

Ordered items

Payment schedule

Leasing summary

Types of audit support


Close: Lock ledgers

• System prevents you from posting with dates prior to a close

• Access controls limit access

• Historical future obligations reporting

TIMEper month

COST per month


lock ledgers M M Auto Auto 10 1000 801 8013

system prevents you from posting with dates prior to a close M M Auto Auto impossible manually

access controls limit access M M Auto Auto difficult manually

historical future obligations reporting M M M Auto 10 1,000 801 8,013

Risk

• Accuracy

• Controls


$800/month


Lease Accounting Subledger is the Control Hub

Incremental Borrowing Rate

Resolving Uncertainties

Accounting &

Tax Depreciation Methods

General Ledger Accounts, Cost

Centers and Segment Codes

Foreign Exchange Rates

Asset Economic Life

Equity/ WACC Rates

Debt and Equity Weights

Federal & State Tax Rates

LEASE

ACCOUNTING

SUBLEDGER

Reports


Subledger: Multiverse management

• Lock, store, and index today’s history (retrospective perspective)

• Lock, store and index today's future for each lease (prospective perspective)

• “As at” reporting

• Big data managementTIMEper month

COST per month

SUBLEDGER Spreadsheet Calculator Engine Platform mins/lease mins/100 cost/100 cost/1000

multiverse management M M M Auto 76 6679 5352 53519

lock, store, and index today’s history M M Auto Auto impossible manually

lock, store, and index today's future for each lease M M M Auto impossible manually

"as at" reporting M M M Auto 60 6,000 4,808 48,077

document management M M M Auto 10 79 63 634

big data management M M Auto Auto 6 600 481 4,808

Risk

• Accuracy

• Controls


$5k/month


The View Changes, But It Never Goes Away

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $ $$ $ $ $ $ $ $ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $ $$ $ $ $ $ $ $ $

D D D

D D D

D


Subledger: Multiverse management

Manual approach

Proof that nothing has changed consists of keeping archives of spreadsheets, ideally password-protected or signed, for each schedule in each closed period. These spreadsheets must be reconciled to the GL, which typically includes tons of manual consolidation and manipulation, all of which must be reviewed by the auditor.

Automated approach

With a properly closed ledger, reports can be regenerated for any prior period and produce the same results. This includes future-looking reports like obligations disclosures, which must reflect only those events known when the books were closed, irrespective of backdated events recorded subsequent tothe close. Reports should reconcile to the GL for both transactional and functional currencies with little or no manipulation.


Subledger: Adjusting entries

• Record events that happened in prior periods in current period

• Adjusting entries on adjusting entries (multiple modifications or corrections)

TIMEper month

COST per month


adjusting entries M M Auto Auto 150 300 240 2404

record events that happened in prior periods in current period M M Auto Auto 60 120 96 962

adjusting entries on adjusting entries (multiple modifications

or corrections) M M Auto Auto 90 180 144 1,442

Risk

• Accuracy

• Controls


$200/month


“As At” + Closed Periods = Complexity

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $ $ $ $$ $ $ $ $ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $ $ $ $$ $ $ $ $ $

D D D D

D

D D

-$

-$


Subledger: Adjusting entries

Manual approach

Good luck! Your Excel spreadsheets just turned into a nightmare. Either you are breaching MEC (typically cloning the workbook and modifying the new copy) or you are changing formulae manually to accommodate adjustments. Both scenarios provide a fast track to audit hell. Calculators can help calculate the corrected entries, but you're still on the hook for tracking those adjustments. And many systems struggle with compounding of adjustments.

Automated approach

Adjustments are automatically calculated with attribution to the cause of the adjusting/catch-up entry. Where multiple backdated changes compound, the adjustments reflect the aggregate impact of the changes. A strong system/platform can handle a mixture of backdated "discoveries" as well as correction of human errors.


Subledger: GL coding

• GL strings from heterogeneous ERPs

• Rule-based account routing

TIMEper month

COST per month


GL coding M M M Auto 5 500 401 4006

GL strings from heterogeneous ERPs M M M Auto 5 500 401 4,006

rule based account routing M M M Auto impossible manually

Risk

• Accuracy

• Controls


$400/month


Responsibility Center Accounting

Cost Centers Entities Locations Departments Projects Business Units

ENTERPRISE LEASE

ACCOUNTING SOFTWARE

Real Estate Data Center Vehicle Fleet Office Equipment Corporate Aircraft Material Handling Transportation

Assign expenses from

leased assets to different

responsibility centers

Enables reporting and

analysis at multiple levels

within the organization


Subledger: Integration to ERP and other apps

• One-directional

• Bi-directional

• Batch

• Real-time

Cost/100 managing leases = $200/monthTIMEper month

COST per month

INTEGRATION Spreadsheet Calculator Engine Platform mins/lease mins/100 cost/100 cost/1000

M M Auto Auto 2 200 160 1603

one-directional (manual = extract, transform, upload) M M Auto Auto 1 100 80 801

bi-directional M M M Auto 1 100 80 801

batch M M Auto Auto impossible manually

real-time M M M Auto impossible manually

Risk

• Accuracy

• Controls


$160/month


Subledger: Corporate hierarchy - multi-dimensional

• Parent-child roll-up

• Attribute-based access control

TIMEper month

COST per month


corporate hierarchy - multi-dimensional M M M Auto 5 10 8 83

parent-child roll-up M M M Auto 5 10 8 83

attribute-based access control M M M Auto impossible manually

Risk

• Controls


$10/month


Subledger: Reporting

• Accounting reports

• Disclosure reports

• Compliance and control reports

• Operational reports

• Management reports

• Build your own reporting

TIMEper month

COST per month


reporting M M Auto Auto 6 600 481 4,808

accounting reports M Auto Auto Auto - -

disclosure reports M Auto Auto Auto - -

compliance and control reports M M Auto Auto - -

operational reports M M M Auto - -

management reports M M M Auto - -

Risk

• Accuracy

• Controls


$500/month


Software

Costs

Headcount

Costs

Software

Costs

Headcount

Costs

Engine Platform

Manual Tasks = More PeopleAutomated Tasks = More Software

Platform = Lower Cost

of Ownership & Risk

More Expensive. Higher Risk. Less Expensive. Lower Risk.Headcount

Costs

Software

Costs

Headcount

Costs

CalculatorSpreadsheets

+ $128,000

+ $119,274

+ $89,304

Engine & Platform are

approximately the same price;

Platform is best value

Annual cost of manual work with each archetype

$ Lowest cost


Conclusion

• For every 100 leases, the estimated annual cost to manage a manual close is over $128,000.

• Automation takes the time, cost, risk effort and stress out of the close process

• Platform delivers best value:

• Fully automated, audit-ready, monthly close

• Subledger designed to simplify leasing process

• Remain in compliance through rapid changes, while meeting audit requirements


Questions?

Len Neuhaus, CPAVice President, Lease Accounting

Michael KeelerChief Executive Officer

Jonathan CrawfordChief Architect

THANK YOUQUESTIONS?

LeaseAccelerator LeaseAccelerator @LeaseAccelerate LeaseAccelerator

www.leaseaccelerator.com