How to Implement Lease Accounting Software

Adopting a new enterprise software tool can pose significant challenges. A successful implementation requires careful planning around your technology, existing systems, lease data, stakeholders, and business processes.

As lease accounting technology continues to evolve, organizations should also consider how capabilities such as AI lease abstraction fit into the implementation process. AI can help reduce the manual work required to extract information from lease documents, but organizations still need a clear process for collecting, validating, migrating, and managing their lease data.

There are several lease accounting tools on the market, with more popping up all the time. Quick demos may give you the impression that they are all quite similar, but that can be misleading. One of the most critical factors is how well the system can adjust to the way you work and how it will fit into your technical infrastructure.

Your technology should conform to the way you work

Your lease accounting technology should adapt to the way you do things, rather than the other way around. It should be able to track different kinds of assets and group them the way you group them for operational purposes (e.g, by business unit, region, asset class, property or equipment type, rent type, master contract type, among others). You should be able to run reports in whatever order you want so that you can validate your work.

When focusing on lease accounting standards, you should ensure that your system can accommodate things like different interest rates for varying asset types and lengths of terms. And whether you have a consultant helping you or not, the system should be flexible and easy enough to allow you to do this yourself, without having to involve the vendor or hire consultants every time you need something.

 

It should seamlessly integrate with your existing systems

Every company has a unique technology infrastructure and there are many places that consume lease data, such as communication platforms, business intelligence tools, and ERP and AP systems. To minimize the complexity and implementation time, you’ll want your lease accounting system to plug into these systems without gaps.

When a vendor says its software can integrate with your SAP, Oracle, or other enterprise systems, investigate the depth of the integration. Determine whether the system provides flexible APIs, data export and import capabilities, and whether it can create journal entries. Determine if it can integrate with multiple general ledgers. These features are needed for many integrations.

It should facilitate data migration and updating

Collecting and validating the data you’ll need for lease accounting calculations is a challenging part of FASB/IASB; getting it into your lease accounting database shouldn’t be. Check to see that the system vendor can migrate the data for you for a reasonable cost and within a reasonable time.

Also, as you live with your data, you undoubtedly will need to bulk update it from time to time. Check to see that the system has embedded import tools that are easy enough for you to use so that you don’t have to call on the vendor each time. Also check the scope of these import tools. Many only allow you to import limited data.

It should have built-in audit functions

The system you select should have features that ensure you end up with valid data in the system and accurate journal entries on your balance sheet. Look for data auditing features and alerts that let you know you may have data integrity issues. Check whether the system vendor can migrate your existing data within a reasonable timeframe and cost.

As you continue managing your lease portfolio, you will also need to update data in bulk from time to time. Check whether the system has embedded import tools that your team can use without calling the vendor for every update. You should also understand the scope of these tools because some systems may limit the types of information you can import.

You will need to make policy decisions that impact how data will be collected and used for calculations. Since your organization’s leases may vary significantly in their structure and terms, you will need rules that determine how different elements should be treated in accounting calculations. Those decisions can also guide the qualitative and quantitative disclosures included in your financial statements.

Documenting these policies before implementation can also make it easier to establish consistent rules for reviewing and validating lease data extracted with AI.

As you begin to understand everything you’ll need to collect, the next step is to determine where that data currently lives.

Property lease data may be the easiest to locate, since your real estate group is already tracking at least some of the data in spreadsheets or some form of lease administration tool. However, you’ll probably find that the data being tracked is not complete, and you’ll need to go back to the physical copies to get more details. Those documents are likely to be found in drawers and file cabinets throughout your organization. This is where you’ll need the help of your real estate team to track it all down.

Other types of asset leases may be more difficult. Chances are, you won’t find it in any central location. You’ll need to extract it from various systems as well as hard copies.

Once you find the data you need, you must get it into a common format that can be migrated into your lease accounting system. This involves abstracting details from lease documents and centralizing the information you collect.

AI lease abstraction can help reduce the amount of manual work required during this stage by extracting relevant information from lease documents. However, organizations still need processes for reviewing, validating, and supplementing that information before migration.

As you develop your implementation timeline and choose lease accounting technology, you must have a realistic plan for extracting the data from your lease documents.

Lease data categories

There are several buckets of data that are contained in your leases. Consider these questions in your analysis:

• General information – usually includes lease type, business unit to which it belongs, region, location, dates, parties. Do you know how else you would want to group records?
• Parties – this would normally include lessor, lessee, payor and payee. Should you include additional contacts such as brokers, operational contacts, accounting contacts?
• Documents – should you upload all legal and billing documents or just legal ones?
• Financial – you will need to track lease payments, of course. But you also have to manage your assumptions for capital lease testing, option period testing, FMV values, useful lives, etc. Keep all of this in mind when defining the scope of your abstracts.
• Legal clauses – your operational team (real estate, equipment) will want to track many more fields to support their work. These include things like facilities and maintenance obligations, legal rights, property attributes, option details, etc. Decide what you need and why, and then figure out how to get the answers.

Explore Visual Lease can support your goals.

Abstract once or abstract twice?

Manually reading and summarizing the financial and real estate terms of a complex lease can require significant time. Depending on your implementation schedule, you may consider abstracting only the information needed for lease accounting first and returning for additional operational information later.

However, you can receive the full benefits of your lease technology sooner when you establish a single source of truth containing your validated lease information. Going back to fill in missing information can also create additional work. Before deciding on an approach, work with your stakeholders to determine what information should be captured during the initial implementation.

Using AI for lease abstraction

AI lease abstraction has changed how organizations can approach this stage of implementation. Instead of relying entirely on teams to manually read lease documents and enter information field by field, AI-powered lease abstraction can help identify and extract relevant lease data. This can reduce the manual effort required to process large lease portfolios and help organizations move information into their lease management and accounting workflows more efficiently.

However, implementing AI lease abstraction should involve more than uploading documents and accepting the extracted information without review.

Organizations should establish a process that includes:

• Document onboarding: Determine which lease documents will be processed and how they will be uploaded or connected to the system.
• Data requirements: Define which fields and lease terms need to be extracted based on accounting and operational requirements.
• Validation and testing: Test extracted information against known lease data and establish a process for reviewing results before they become part of the organization’s lease records.
• Workflow integration: Determine how extracted and validated information will move into existing lease accounting and administration processes.
• Change management: Make sure the employees who previously handled manual abstraction understand how their responsibilities change when AI becomes part of the process.

AI can accelerate lease abstraction, but accuracy and validation remain critical. The objective should not simply be to extract lease information faster. Organizations need a process that produces reliable data that can support lease accounting, administration, and business decisions.

Learn more about Visual Lease’s AI lease abstraction solution.

6. Validate your data

After you gather data from many different repositories, especially for large organizations with multiple subsidiaries, you’ll need a process for validating that the data is correct. For example, you might find the same information in multiple places, and need to figure out which to use as the source of record. You may need to consolidate and convert information in different languages and currencies. And you will certainly have holes where the information you’re looking for was never tracked. For example, for real estate leases you may need to find out the likelihood of lease options being exercised.

To validate and complete your database, you’ll need to turn to the SMEs in your organization who obtain and/or manage the leases. Make sure you build this process into your implementation timeline.

The Right Platform and Smart Preparation Can Simplify Implementation

There are several important considerations when choosing lease accounting software, including integration capabilities, data security, data migration, reporting, AI lease abstraction, and how well the platform fits your existing business processes.

Technology alone will not solve every implementation challenge. Your organization also needs clear policies, the right stakeholders, complete lease data, and a defined process for validating information.

AI lease abstraction can make one of the most time-consuming parts of implementation more efficient by reducing the manual work involved in extracting information from lease documents. When combined with careful preparation and validation, it can help organizations create a more efficient process for bringing lease data into their accounting and administration systems.