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LeaseAccelerator Publishes Study on Lease Accounting Centers of Excellence

February 07, 2020, 07:10 AM
Filed Under: Industry News

LeaseAccelerator announced the results of a research study on the use of lease accounting centers of excellence by public companies that have adopted ASC 842. Over 100 finance and accounting professionals from U.S.-based publicly traded companies were surveyed about staffing levels, desired benefits and the scope responsibilities of leasing centers. The goal of the study is to help public companies benchmark their investments and compare staffing approaches to their peer group.

The new lease accounting standard was adopted by public companies throughout 2019. Called by some experts, “the biggest accounting change ever,” the new leasing standards are moving trillions of dollars of leases onto corporate balance sheets and require significant changes to accounting systems, business processes and financial controls. A deep level of technical accounting expertise is required to apply the standards, which are documented in guides numbering over 1,000 pages in length and result in over 100 billion different possible use cases. As a result, many companies with large, distributed leasing portfolios have centralized the staff performing record-to-report functions in a leasing center of excellence.

Key findings of the survey include:

  • Adoption – Leasing centers of excellence are the preferred operational model for public companies. More than half (55 percent) of all public companies surveyed have built a center of excellence. Another 14 percent have plans to build one leading to a projected 70 percent adoption rate by the end of 2020.
  • Benefits – Unlike with shared service centers for accounts payable and collections, the primary benefits sought by public companies are not cost savings. Instead, controllers are centralizing to obtain deeper expertise (75 percent) and stronger controls (65 percent).
  • Staffing – Companies are not outsourcing lease accounting to third parties yet. Eighty percent of respondents report that leasing centers are staffed with only employees. Most teams are small with two-thirds of centers staffed with just one to five employees.
  • Activities – Staff are heavily involved with the month-end close, performing activities such as posting journal entries to the general ledger (70 percent) and account maintenance (67 percent). More complex tasks such as embedded leases and reassessments are escalated to headquarters staff.
  • Challenges – The most challenging tasks are tracking changes to the lease portfolio such as new leases (50 percent); rent increases; contract changes (65 percent); and end of lease buyouts, returns and terminations (37 percent).

“After the implementation of ASC 842, controllerships face the challenging task of transferring the day-to-day responsibility for lease accounting to newly formed teams in a center of excellence. The ability to enable, train and optimize these centers is a make-or-break factor in the ability to provide complete and accurate reporting,” said Michael Keeler, CEO at LeaseAccelerator. “That is the key reason why we have invested in automating the most challenging aspects of lease accounting in order to take cost, risk and time out of the monthly close process. It’s also why we have built an industry leading training application and an expert team of customer success managers.”

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