April 11, 2019 By qiado

Lease Accounting as a Service (LAaaS) – Fast track to compliance

The new Lease Accounting standard requires companies to evaluate their leasing contracts and bring them onto their Balance Sheet. Especially for companies with a limited number of leased assets the effort to implement new calculation engines and lease accounting processes can be disproportionately high.

For these companies Lease Accounting as a Service (LAaaS) is the most efficient way to get fully IFRS 16 / ASC 842 compliant and gain complete transparency over their lease portfolio at any time.

IFRS 16 – Who takes the hardest hit?

The new Lease Accounting standard promises to bring more transparency to a company’s annual statements, as it reveals the extent to which an organization is exposed to liabilities from leasing contracts.

For some clients, however, this transparency comes at a very high price. To correctly reflect leasing according to IFRS 16, accountants need to interpret the leasing contracts, extract terms and conditions, and correctly calculate the Right of Use (RoU) of each asset. This requires a respective in-depth-training.

As most existing ERP solutions are not capable of performing the necessary calculations to be compliant with the lease accounting standard, a new lease engine might need to be selected, implemented, and maintained. And new internal processes need to be set up to make accountants aware of any relevant adjustments to leased assets in the course of the leasing lifecycle.

Who was LAaaS made for?

The central dilemma in IFRS 16 is that the overall effort to set up this new process and IT infrastructure does not vary significantly depending on the number of leasing contracts. It is very hard to implement a “slim tool” and “lean processes”, as even with a small number of leased assets, these assets might still show a variety of characteristics that make their interpretation difficult.

Thus, the new lease accounting standards are most problematic and sometimes cause unjustifiable efforts for companies that:

  • Need to report under IFRS or US GAAP;
  • Only have a small number of leasing contracts;
  • Have a small and efficient, but also well-utilized accounting team;
  • Cannot afford to engage separate lease administrators or accountants for IFRS 16;
  • Don’t have the budget and/or knowledge to implement a new tool for this standard.

Just calculating the project costs per leased asset can sometimes bring surprising results and shows clearly that a different solution is required. LAaaS is the most efficient alternative.

Lease Accounting as a Service – LAaaS in a nutshell

A LAaaS customer does not have to implement its own lease accounting specific processes. Instead, it consumes a cloud-based service that takes care of all required contract interpretations, calculations, notifications, and the generation of all required journal entries and disclosure numbers.

  • No need to select, implement or maintain a new IT tool;
  • IFRS 16 experts guarantee that leasing contracts are 100% correctly reflected in the balance sheet and P&L entries;
  • In the background, the client’s leasing contracts are maintained in a market-leading lease engine that is used by major international organizations in various industries. Any complexity in leasing can be handled here;
  • The client’s accounting department will regularly receive straightforward journal entries as well as transparent reports of the own lease portfolio;
  • A full audit trail is available at any point in time;
  • Pay-what-you-consume: LAaaS is charged purely on a volume basis without any fixed fee;
  • No risk: LAaaS will start with a free trial phase.

Lease Accounting as a Service – Breaking down the process

For a LAaaS customer a new leasing contract, from an IFRS 16 perspective, starts by uploading the contract with some basic information into a special ticket tool (1). Every leasing contract will receive a unique ticket number and can, therefore, be tracked and reported at any time.

Qiado experts interpret the contract’s terms and conditions along with the IFRS 16 and US GAAP guidelines and maintain it correctly in one of the market-leading lease engines (2).

On a regular basis, the client will receive all required journal entries to correctly account for the leasing contracts in P&L and Balance Sheet (3). In addition, transparent reports will be prepared that gives a comprehensive overview of the company’s lease portfolio. As a further service, our team will send notifications in case of approaching notice periods, extension options, purchase options, automatic renewals, etc. The client will never miss an important and costly deadline.

The client’s accounting team will use the received journal entries to update the local ERP system and/or disclosure reports either manually or via an upload (4).

Can LAaaS be tested?

An ideal way to discover more about LAaaS is to join one of our Webinars or test it.

Testing LAaaS is very straightforward. Qiado offers a non-binding trial period. In this period, we receive a contract sample and provide the according to output files.

Only if a client is convinced about this proof of concept, a service agreement is formally signed. This agreement will guarantee a defined service level and provide access to dedicated customer personnel to the LAaaS ticket tool.