LEVERTON, a leading Artificial Intelligence company and LeaseSolution with their market leading lease accounting solution, LS2, have signed a partnership agreement. The partnership means that the two companies will provide a comprehensive solution for the new IFRS 16 /ASC 842 accounting standards.
LEVERTON automatically extracts the required data from clients’ lease files and structures it to make sure data records are always kept up to date. The LeaseSolution LS2 platform helps clients to manage their entire lease portfolio, regardless of asset type, in a customized and lean way. The parties are convinced that the partnership is very powerful and a sought-after solution.
Richard Belgrave, Managing Director LEVERTON, says:
Great technology will be a key component to be able to make the transition into the new accounting standards. We’re very excited about the partnership with LeaseSolution as our combined solution makes it possible for our clients to significantly speed up this transition.
Full press release:
With 25 years in asset lease portfolio management, and having designed and developed three specialist software systems, Vince Baczor is widely considered a global thought leader on the subject. He is now four years into running LeaseSolution, his second start-up, marketing the LS2 lease management and accounting system.
A significant recent win for LeaseSolution was with Samsung Electronics the global leader in mobile, semiconductor and display technologies.
Baczor explained that LeaseSolution and “two global software giants” were initially invited to tender for Samsung’s business.
He said: “The requirement was to provide Samsung with an automated lease management system to enable the running of lease agreements from initial contract acceptance through to termination.
“This was to include the management of all in-life events including but not limited to billing, collection, arrears management, accounting and UK GAAP accounting.”
After protracted evaluation and discussion, Samsung decided to move forward with LeaseSolution’s LS2 Software.
Baczor said: “The unique flexibility of LS2 was recognised right from the outset, and considered critical to help meet the inevitable future uncertainty associated with Samsung’s continued success.”
Subsequent demands way exceeded expectation, but have been continually addressed by simple solutions delivered from the LeaseSolution team.
As we start 2017, the implementation date for IFRS16 new lease accounting is rapidly approaching. Baczor has deep concerns about the enormous challenge now facing major corporates.
He explained that, over recent months, a small number of organisations have started to wake up and recognise the amount of preparatory work necessary to ‘get their leasing house in order’ before the January 2019 deadline.
“Just identifying and gathering information on all of their leases will take a great deal of time,” he told Asset Finance International. “In many cases, banks and lessors will need to be approached to provide and/or clarify details and yet many have inadequate internal systems, or sufficient staffing to handle what is likely to be a late surge in demand from their lessees.”
“It is impossible for lessees to really understand the degree of difficulty, or likely hurdles that they will need to overcome. Inevitably, they will underestimate the amount of work involved and associated timescales. There is also the matter of how they are going to contain, manage and report on their data.”
From a software perspective, Baczor explained that there seems to be a lessee focus on lease accounting, even though lease management is a key consideration, particularly for ongoing accuracy and control. Choosing the right system for both aspects is therefore a critical requirement, although many market options are of limited functionality, and in some cases quite misleading, as many are nowhere near developed, even by some of the largest providers.
Baczor believes that there is a very high risk that the wrong systems will be chosen for the wrong reasons, potentially ‘band-aiding’ part of the challenge, using systems with limited capabilities and longer term inflexibility.
“When considering the preparatory work for IFRS16, each lease has to be identified and then assessed individually, with judgment passed on a number of key areas. This is a very time-consuming exercise and requires personnel with a good understanding of leasing. At the moment, there seems to be a focus the accounting reports systems might generate, when this key ‘judgment’ aspect is being underestimated.”
The scale of the challenge is such that LeaseSolution’s LS2 software, now includes a specific Accounting Profile with 30 Fields of measurement, which are then filtered through 15 layers to provide lease classification alone. “Otherwise, imagine the degree of difficulty with large and complex lease portfolios.”
With two years remaining, Baczor stressed that work needs to commence “almost immediately for organisations to be anywhere near ready in time”.
Our founder Vince Baczor was invited as a presenter and panelist at the LeaseEurope Convention in Athens last week. In the session ‘Preparing For IFRS16’, Vince was introduced as having the most lease management experience in Europe and gave a perspective on the current status amongst European lessees.
He explained that “the picture is quite bleak in as much as very few companies have even begun to prepare properly for the pending lease accounting rule changes. Major corporates have underestimated the work in hand and are yet to formulate a viable approach to even collating lease data”.
With regards the availability of suitable lease management and accounting systems for lessees, the message was also quite alarming, in light of limited available options. Vince explained “there are emerging software options with just basic functionality beneath a misleading veneer. Equally, many are a long way off completion and yet there is no easy way for lessees to really know what they might be signing up to.”
With comfort from having launched the production version of LS2 in November 2015, LeaseSolution is in a very strong position with unique, flexible and affordable software, that is years ahead of market alternatives at this time.
Over recent months, we have held back from providing updates on the continued delay in announcement of the lease accounting rule changes. However, this week, the long-awaited announcement finally emerged!
The International Accounting Standards Boards have now issued a new accounting Standard – IFRS 16 Leases. It replaces accounting requirements introduced more than 30 years ago that are no longer considered fit for purpose and is a major revision of the way in which companies account for leases.
Listed companies using IFRS Standards or US GAAP are estimated to have around US$3.3 trillion of lease commitments; over 85 per cent of which do not appear on their balance sheets. That is because leases to date have been categorised as either ‘finance leases’ (which are reported on the balance sheet) or ‘operating leases’ (which are disclosed only in the notes to the financial statements).
This somewhat arbitrary distinction made it difficult for investors to compare companies.It also meant that investors and others had to estimate the effects of a company’s off balance sheet lease obligations, which in practice often led to overestimating the liabilities arising from those obligations. IFRS 16 solves this problem by requiring all leases to be reported on a company’s balance sheet as assets and liabilities.
Hans Hoogervorst, IASB Chairman, commented:
These new accounting requirements bring lease accounting into the 21st century, ending the guesswork involved when calculating a company’s often-substantial lease obligations.
The new Standard will provide much-needed transparency on companies’ lease assets and liabilities, meaning that off balance sheet lease financing is no longer lurking in the shadows. It will also improve comparability between companies that lease and those that borrow to buy.
The new Leases Standard has been subjected to multiple rounds of public consultation and extensive Board-level deliberation, all of which has been conducted in public and webcast.
The IASB has also worked in close collaboration with the US Financial Accounting Standards Board (FASB) on the development of the new Standard. The two Boards are aligned on the central issue of bringing leases onto balance sheets, and on the definition of a lease and how lease liabilities should be measured.