Lease accounting and management have evolved into intricate processes, posing fresh challenges for financial leaders. From grappling with an accountant shortage to seeking enhanced lease flexibility during economic uncertainty and preparing for imminent ESG reporting obligations, the office of finance has never been in more need of a robust system of record and process automation.
Digital transformation necessitates a robust technology-driven framework, underpinned by effective controls, to navigate (and automate) the complexities of lease accounting and meet eventual ESG reporting standards.
To achieve digital transformation in lease accounting, organizations can consider these best practices:
Digitize your leases and centralize them in a dedicated system of record
Leases are complex and dynamic documents – it’s critical that organizations understand and digitize the terms of their lease. Misunderstandings about financial obligations often result in delayed payments, overpayments, and missed opportunities for cost savings. By tracking leases systematically, organizations can optimize their portfolios and even identify opportunities for value creation.
For example: A company has 20 forklifts, split 10 each at 2 warehouses. One warehouse is 50% idle, while the other is overcapacity and oftentimes has forklifts down for service. Reallocating some of the assets to the overcapacity facility (portfolio optimization) saves money from excessive wear and tear and increases capacity.
A lease management system allows organizations to view and track key clauses, obligations and other lease information including master leases, subleases, lease options, critical dates and special scenarios in real estate, equipment, operating or any other leased asset.
Take Preemptive Action on ESG Reporting
With numerous ESG regulations already in place and more on the horizon, organizations must proactively prepare to meet these reporting requirements. Investors, employees, and customers are closely monitoring ESG disclosures, demanding greater transparency. Without the ability to report on environmental aspects of their leased and owned assets, such as water consumption and carbon emissions, property owners risk alienating key stakeholders. They may also find themselves ill-prepared to comply with forthcoming climate change regulations and reporting standards.
Providing organizations with environmental transparency aligns with their internal ESG objectives, making it an attractive proposition. By implementing robust lease controls and leveraging a carbon accounting tool, organizations can position themselves as pioneers in this space.
Lease accounting was never a walk in the park, and its complexities have only deepened with the introduction of ESG reporting standards. As these standards continue to expand, organizations and their accounting teams must adapt. Digitizing and implementing the right technology is the key to successful reporting and upkeep in this evolving landscape, ensuring teams can meet an expanding array of business requirements.
Discover more about the VL ESG Steward here.
