How to Optimise Lease Accounting

November 30, 2022

The current economic headwinds and the fallout of the global pandemic are forcing organisations to review their business operations and revenues. In the process, many companies are looking at their lease accounting and how they manage their commercial properties. 

Many organisations are searching for ways to optimise their lease accounting and administration process. This means that accounting teams have to monitor and track their business leases carefully and ensure they are getting optimal value from them.

In this article, we will review the 2021 Global Lease Accounting Survey and use the gathered insights to highlight areas organisations can focus on to improve their lease accounting processes.

Key takeaways from the 2021 Global Lease Accounting Survey

There have not been any significant lease accounting changes recently, and standards are now well established. The 2021 Global Lease Accounting Survey – Opportunities to

Optimise conducted by Ernst & Young LLP (EY) and LeaseAccelerator, shows that there is an apparent disconnect between lease accounting practices within organisations and their digital transformation and optimisation strategies. 

There are opportunities for optimisation in the lease accounting and administration processes through technology and improving integration, as we can see from the following findings. 

  • 42% of respondents say they return less than 70% of their leases on time.
  • 58% of respondents say they don’t have a centralised Lease vs Buy process.
  • 49% of respondents say they don’t have lease accounting fully integrated with their ERP systems.

These gaps and others create challenges for finance departments during their audits. In addition, these issues make it more complicated for organisations to benefit from the cash flow and ROI they expect from their investment in and improving their lease accounting processes.

Where Are The Opportunities to Optimise Lease Accounting Technology?

A key barrier that many organisations have to overcome to optimise their lease accounting is integrating new technology. A greater reliance on technology and digital platforms are becoming commonplace in accountancy. However, many organisations struggle to keep up with the pace of change, which leads to a 'digital skills gap' and limits efficiencies. 

Finance departments and accountancy firms should look to bridge this skill gap by finding innovative ways to implement new digital platforms to optimise their processes.

Improve Integration

The 2021 Global Lease Accounting Survey found that 35% of respondents continue to do

their lease accounting on spreadsheets. These outdated practices are inefficient, and manual inputs into spreadsheets consume your team's time. 

While 65% of respondents use a lease management solution, and almost three-quarters (72%) use their software for accounting and compliance, only a shocking 4% have an end-to-end solution. This would be a solution that includes competitive bidding right through to the end-of-life management. By not using an end-to-end solution, accounting firms miss the opportunity to create cost savings and efficiency. 

Get Buy-in From Your Team

Organisations have seen mixed results from standardising and centralising their lease accounting processes with management software. There are often pitfalls in implementation that can be attributed to the digital skills gap and a culture within teams that is resistant to change. 

Only 16% of respondents in the survey said that they are gaining a visible ROI from their lease accounting software. Over half were “not sure” their current lease accounting software is providing the expected ROI, and 36% said they did not see any ROI.

To optimise efficiently, accountancy firms need to get buy-in from their entire organisation and clearly communicate the message and vision behind implementing new software. If not, they will find there is resistance and that new technologies will not be used to their full potential.

Outsource or In-house?

The survey shows that 34% of respondents outsource services to optimise their lease accounting processes. 

As your organisation looks at its optimisation plans, it should consider what resources and skills are already on board. You may want to consider outsourcing or look to improve technology and skills within your organisation. This will often depend on how vital the lease accounting process is to core business operations and whether that knowledge should be retained in-house.

You can also budget costs associated with ongoing compliance with lease accounting and whether that budget could be reduced by outsourcing.  

By using the data gathered from the survey, we can see there are clear opportunities to optimise lease accounting. Many of these opportunities can be achieved by creating efficiency through integrating new technologies and having an end-to-end process for your lease accounting.

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