The Ledger

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The Ledger

Posted by Sarah Werner

The lease accounting requirements that are setting us apart

Recently we wrote a blog post on some of the signs that may indicate your lease accounting solution doesn’t have what it takes to meet your needs now that IFRS 16 and ASC 842 are in full swing for most organizations.   

As a follow on to that post, we wanted to look at some specific requirements we have encountered in the market that are setting the Aptitude Lease Accounting Solution (ALAE) apart from its peers. 

Supporting the 13-period calendar 

Recently, we worked with a prospect - one of the largest U.S. producers, distributors and marketers of branded food products - who was frustrated that the lease accounting solution they had chosen and implemented was proving unable to handle a 13-period calendar.   

A 13-period calendar, also known as a 4-4-5 calendar, is typical in retail and is used so that organizations can more accurately compare one 4-week period to another. With a 4-4-5 calendar, the standard 52-week year divides into four 13-week quarters, which comprise three periods split into a four-week, four-week, five-week format. While it has certain challenges, it helps eliminate the issue of comparing January, with its 31 days to February with its 28 days. This prospect had tried to implement a lease accounting solution that would work with its established 13-period calendar but ultimately found that it could not support this requirement 

We were able to show them how the Aptitude Lease Accounting Engine addresses multiple calendar requirements by pointing them to one of our existing clients, a global technology provider, that uses mixed calendars across entities, including Gregorian, 455 and custom calendars.  This reassured them that ALAE can flexibly accommodate any required calendar out of the box.  

Supporting subleases 

For one of our most recent clients, it was the approximately 2,500 property subleases that presented the biggest obstacle to the vendors they were evaluating.  During the sales process, they eliminated six vendors on the grounds that they could not support their requirements around subleases. 

The rules around subleases under IFRS 16 and ASC 842 change the accounting significantly for lessors.  This organization had to address several challenging aspects to subleases including: 

  • The fact that the intermediate lessor typically accounts for the head lease and sublease as separate contracts and will need to apply both lessee and lessor accounting models.
  • The sublease classification tests for IFRS 16 differ from the regular lessor classification tests. 
  • Modifications to either the head lease or the sublease must also account for the impact on de-recognition where appropriate. 
  • Multiple subleases can be associated with one head lease

For this company, a privately held operator of numerous restaurants operating under more that 70 brand names, it was critical that any lease accounting solution could handle their complex subleases. However, because many vendors only provide lessee support for the new standards, the lessor required ability to address subleases is often missing or sub-par.

Luckily, we were able to show them how one of our North American clients is currently managing 8,000 leases with ALAE across multiple asset classes – including 800 property leases, many of which have a sublease component. 

If you are interested in more information on how we address the challenges around subleases, you can download this whitepaper 

Supporting tight timelines 

With just six months to go before the IFRS 16 reporting deadline, a large, European facility services company had an extremely tight timeline to select and implement a lease accounting solution.  Data from their portfolio of 10,000 leases – which would increase to 27,000 leases before the project was finished – would need to be fed into a solution to generate IFRS 16 compliant accounting and reporting.  The solution also had to support many different lease types, dozens of currencies, over 150 entities and hundreds of users. 

Since their February 2019 reporting date was not a deadline that could be missed, the organization needed the confidence that any solution they selected could be implemented and up and running.  

During the solution evaluation stage, Aptitude stood out as a vendor who had significant experience handling complex, global projects.  We were able to show them an implementation plan that gave them comfort despite the tight timeline.  

Following the selection of ALAE, the Aptitude and client teams worked tirelessly to integrate lease data and implement the solution.  The solution went live with opening balances in just four months, giving the organization a buffer to ensure they were ready for their reporting deadline of February 7th.   

For more information on our lease accounting compliance solution, visit our resources page. 

You also may be interested in the following blog posts:

Achieving best in class compliance: our CFO's perspective.

How it works - the Aptitude Lease Accounting Engine.

Aptitude Software is the market leader in IFRS / ASC accounting change solutions for IFRS 9, IFRS 15, ASC 606, IFRS 16, ASC 842 and IFRS 17.  Our Aptitude Lease Accounting Engine is implemented at clients worldwide.  

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