VLDI Podcast Episode 15 Part 3: Transcript

Joe:

Welcome to the final installment of our special series of the VLDI Podcast episodes with Ian Cameron, Chief Innovation Officer of OSCRE, a Real Estate Data Industry Data Standards organization alongside Bill Harter, Principal Solution Advisor at VL. In this episode, Ian and Bill talk about the need for real estate owners and occupiers to collaborate when it comes to ESG related data.

Guys, I will say listening to you both speak, it does sound like there’s a mutually beneficial partnership that’s evolving here, which is great to hear. So before I let you go, Ian, one topic that has come up a few times is the need for owners and occupiers to collaborate and share data related to items such as energy usage so that both can report as accurately as practical. Can you elaborate more on that?

Ian:

Picture a situation of a corporate tenant in a building owned by an investment manager, let’s say run by an investment manager. Each of them has reporting responsibilities, but neither of them has 100% of what they need. So, there’s a dependency that’s just a natural dependency that’s not so easy to implement, but it’s necessary between owners and occupiers to exchange the kind of data that each needs to fulfill their own reporting requirements.

But traditionally, that’s very difficult to get both parties, one to agree to do it, and the second as to how to exchange that data. So, we’re breaking some new ground on how that sharing should take place. But I also think that the standards project that we’re working on together has obviously a technical piece and a process piece inside that also has a business case element and a lot of messaging around the way that we announce the standards and explain how it’s going to be used.

A large part of the ability to start to break down the kind of traditional barriers between those two stakeholders is the communications of it. So, vlogs like this are helpful to continue to help break down that barrier. And I hope there are both owners and occupiers online and listening to this. I would really encourage you to start to think about the use of a standard to help bridge that gap.

Thinking about your world at Visual Lease… Very much focused on the lease and therefore lease obligations. We have a sense that lease obligations are going to start to be modified to include data requirements for reporting, and that’s something on both sides because frankly, the occupiers need some information from the landlords because they have the meters, and they have a lot of the building system usage data that a tenant would never have.

And then at the same time, if take a situation like a net lease, then it may be that tenants may be paying for years directly to a power company, let’s say. So, they have information that the owner doesn’t have. So, both could be looking at that data set to say, okay, how do we stack up? And if we want to be able to communicate data in and out, even if it’s just between an owner and occupier, that data set will help.

What it also means then is that that implies that a tenant system and a landlord system would need to be able to either export or import energy data in a way that’s consistent and accurate. You are thinking about accuracy as well. That in part comes from using the same data structure and the same definitions, etc. but that’s also where the likes of an API came in.

And that’s why we’ve also focused on a data exchange mechanism. And I was listening to you, Bill, and there’s something that’s kind of characteristic of the OSCRE industry data model and this particular set of use cases in particular. I think many organizations have been kind of confused about what they have to do internally to manage energy data itself in a consistent way.

And that’s why the energy data set the energy data model that we’re producing gives both sides of that equation a chance to start to get it right. And what that also means that internally in those organizations, it allows the standard to be kind of brought in and incorporated into a data strategy, is also going to be very useful when it comes to things like master data or reference data in those organizations.

And one of the reasons I’m mentioning this is that this is something we do, a lot of which is to try to explain how you can get started with a data standard like this, how it can be incorporated into the things I just mentioned, strategy, you know, schema is a data architecture, those good things. We also published an implementation business case that will help people in both those kinds of organizations sell it internally, meaning selling the adoption of an energy data standard.

So, we’ve definitely tried to think about an owner’s perspective as a stakeholder and an occupiers perspective as a stakeholder, and also to help them both understand the value of picking up the standard, but also how to approach it and so Bill, I really appreciated your comments. It just made me realize that you probably have plenty of conversations going on with your customers about how you interact with their systems.

If you’re in fact pushing anything over or how you then pull data in from other sources. So, it seemed to me that this owner-occupier collaboration, an aspect, is a very important part of your world. And I’ve learned a lot just listening to you. And thank you for that.

Bill:

My pleasure. And I have to say, there’s a technical aspect to the owner occupier collaboration, but there’s also a psychological aspect to it as well. They’ve been adversarial for so long; they really have to learn that we’re all in this together.

Ian:

Yeah, absolutely. And that’s a feature of the way we develop standards. And you mentioned some of the organizations, Bill, who have been participating. It’s deliberately multifaceted because all these various stakeholders do have a significant stake. But you’re absolutely right. There’s a cultural barrier to this. Sometimes standards are not always on the top of people’s minds, but we’re also doing a lot of work to demystify what standards are all about.

And we’ve seen so many projects, data projects, where an internal focus forgets to look externally to what kind of industry standards might be available. And we are very specifically pointing to the OSCRE industry data model as a starting point for that.

Bill:

And I absolutely agree, and that’s why I am very eager to be involved with OSCRE to help develop the standards. Been great work.

Joe:

That will conclude our special series of the VLDI Podcast with Ian Cameron and Bill Harter. Ian, Bill, thank you so much for coming on the show and sharing your wealth of expert insights with us on all things ESG and data management. For those listening, if you enjoyed this episode and want to catch up with other resources from the Visual Lease Data Institute, to be sure to follow our LinkedIn, Twitter, Instagram and Facebook pages @visuallease, as well as our new LinkedIn community page. Links to all our pages will be in the YouTube description box. And don’t forget to tune into the next episode of the Visual Lease Data Institute Podcast, where our focus is on helping you leverage your lease portfolio to stay ahead of what’s next.

VLDI Podcast Episode 15 Part 2: Transcript

Joe:

Welcome to the second episode in a special series of The VLDI Podcast with Ian Cameron, Chief Innovation Officer from OSCRE, a Real Estate Data Industry Data Standards organization alongside Bill Harter, Principal Solution Advisor at VL. In this episode, we dive into the importance of dedicated technology and data management in ESG reporting. Ian, how does having ESG focused technology companies like VL participating on the Standards Project add value to where OSCRE is heading related to ESG?

Ian:

Joe, good question. So, at a minimum, it makes a real difference to us to have a clear idea of what kinds of data requirements fit, let’s say, energy, data management. And you have such a wealth of knowledge about that not only from your own firm, but also from your customers. And from my experience, where the two of you have been participating in this workshop, that comes out loud and clear.

So that’s extraordinarily valuable to us, especially when we’re trying to get the standards right. And the other thing I really like about the way you’ve been participating is that you go beyond just thinking about your own applications and your own technology to be thinking also about what matters the most to your customers. And that’s extraordinarily valuable. The other thing that’s really good about it, and I’m thinking of a couple of conversations, Bill, that you’ve had with us in these workshops recently.

You focus on the detail and the technical aspects of some of the stuff that probably passes by most people’s eyes. You are very much aware of that and you’re sharing that, and again that’s extraordinarily valuable because frankly, the proof is in the pudding at the detail level in these standards. So that’s hugely important. The second thing is with data integration, as we mentioned earlier on in this session, integration calls for a mechanism by which presumably you’re gathering data from other sources.

Bill and Joe, but you’re also providing data to others. So, the movement in and the movement out is one and making that easy and consistent and consistent with standards. That’s a very important feature of how these standards ought to be implemented. But at the same time, possibly the third one, is it really helps to be able to get your views on how to implement the standards.

And you obviously bring the technical expertise to think about that. And that includes how you might, for example, pick up one of the outputs from the current standard we’re working on is an API spec. So, it may also be that the way that the standard is delivered or produced or published, that you have technical things that you can draw upon and the information that comes with the standards which would help you and your customers implement these standards.

So, it’s data requirements, thinking about integration and thinking about implementation. And then finally, as we finish up this energy data standards project, we’re going to conduct two or three pilot projects. And to have you participate in a pilot will be extraordinarily valuable and the intention then is to publish the results of those pilots. And we’d like nothing more than to showcase the critical role that your applications and capability play in that.

So, we’re very much looking forward to that. I’d like to finish this, just answering your question about some of the use cases that we’re actually working on. The first thing is a data set. So, developing a data model standard for energy data as a subset of ESG, that’s the first thing. And that’s intended to include the baseline raw data that can be used for multiple purposes.

That’s the key. Some of the other use cases include, for example, a direct emissions policy. What does a policy require from the standpoint of information needs to be submitted as a result of that policy are tracked or reported, it helps pick up greenhouse gas emissions, what we’re also looking at is how do we collect data from a variety of functions and sources?

In your particular case, I’m sure that Visual Lease is implemented in conjunction with other systems and drawing information from a whole stack of different sources. So, we’re very interested in how that data gets collected and used or picked up by an application like yours. We’re also very interested in submitting data that can be used for reporting to the likes of GRESB or NCREIF or PRIA or some of the other major reporting platforms.

And that data needs to come from wherever the sources might be. And that’s why the data exchanges along the supply chain as part of the standards. So, what we’re focusing on with that use case is how do we draw data from the supply chain to satisfy the requirements of these different reporting platforms? And the direction that we’re taking with that is to focus on the raw data itself, meaning we’ll collect the data in raw form and then into applications such as your own and others.

Then we’ll prepare it for further passing it down the line of our reporting. So that supply chain perspective is very important. And then finally, we have developed the standard in such a way that it’s ready made to then be restarted or massaged, are brought into calculations that can be used for benchmarking and compliance purposes. So, it’s a pretty broad range of use cases, all of which, frankly, in my view, have a role for Visual Lease.

And again, we really appreciate that you’ve been helpful and instrumental in developing the details for each of those use cases. The development stage for that is just about completed. Once done, we’ll go out to the industry to get feedback. Then we will produce some implementation guidance and examples from the pilots. And I think I already mentioned that we’re also going to simultaneously open up some new education and on demand series of ten one-hour sessions specifically focused on improving environmental data management capabilities and specifically implementing the standards for each of those use cases.

Joe:

So, Bill, to flip the script for a minute here, how do you see a platform such as VL ESG Steward leveraging all the work that OSCRE does?

Bill:

Well, I have to say, Joe, we certainly have been leveraging that work, and it’s very interesting to hear and talk about how we’re contributing to the integrations part, because, frankly, OSCRE has been contributing to our view of the integrations. You know, even when we were first developing this ESG Steward platform, we were thinking in terms of the information flowing from meters and energy bills and such into a platform where we do math with it and do all the calculations and the information then flows into reporting.

By working with your teams and working with the various perspectives, we’re really understanding now that this is a data flow, that information is back and forth in all directions. So, information’s pushing out, information’s coming in and all this really is necessary to have the proper metrics and analytics so that the information’s actually useful. You know, Joe, to answer your question further, I’m also finding that this work with OSCRE is informing our plans for future developments.

Again, talking about energy usage, we’ve been thinking in terms of, I should say we started out thinking in terms of rolling the energy up. And it’s important to have the sum-total energy consumption information at the building level really, where understand now from these additional perspectives, it can also be important to take that energy information back down to individual components and be able to understand how HVAC units are contributing to energy consumption versus computers and other office equipment.

To be able to break things down into their components is going to be very helpful to users. We’re looking at various different ways to expand into scope three operations as well. You know, a lot of this is going to be supply chain, which of course is going to have to end up in many parts, requiring some estimation go into a company’s ESG reporting, because not all third party information is necessarily going to be as reliable as the information the company is generating on their own by working with OSCRE or working with GRESB, working with the larger portfolios.

We’ve got a better data source. We’ve got a broader range of information. We’re going to help companies develop more accurate estimations for where there are gaps in scope three information. But finally, if I can pay a compliment back to Ian, the stuff I’ve really been impressed with, he’s developing some process flows, multi swim lane flow charts of showing the process flows of where the information comes from and the standards it applies to and where the reports go out.

That’s fantastic work. That really helps us identify our piece, the part that we can play in the overall ESG reporting standard and that helps us be sure our tool is adapted to the user’s needs.

Joe:

That will conclude part two of our special edition of the VLDI podcast with Ian Cameron from OSCRE alongside Bill Harter, Principal Solutions Advisor at VL. Stay tuned for part three, which will be available on our website and social media platforms @visuallease on August 30th.

VLDI Podcast Episode 15 Transcript

Joe:

Hi, I’m your host, Joe Fitzgerald. Welcome back to the Visual Lease Data Institute Podcast. Here at VL, we provide proven SaaS solutions that empower organizations to leverage their leased portfolio for strategic, financial and operational outcomes. Our solutions enable clients to achieve a clear understanding of their lease records, including associated obligations, risks and responsibilities to address their ever-changing needs.

With VL, organizations have the ability they need to mitigate risk, optimize value and minimize cost. This episode is part one of a special three-part series of the VLDI Podcast. Joining me for this special series is Ian Cameron, Chief Innovation Officer at OSCRE, a Real Estate Data Industry Data Standards Organization, alongside Bill Harter, Principal Solutions Advisor at VL. OSCRE International is a nonprofit corporate member organization focused on the development and implementation of real estate data standards that form the foundation of a powerful strategy for digital transformation.

Ian is one of the founders of OSCRE. As the Chief Innovation Officer, Ian drives OSCRE standards, development, pipeline and training in how to implement OSCRE standards at global corporations and investment organizations, their service providers and software firms. Bill has been with VL for over six years and represents VL on OSCRE’s data standards committee, delivering insights and facilitating conversation around the current hot topic of ESG.

With that, let’s dive in. So Ian, I know we opened up with a brief introduction for you and OSCRE, but it would be great for our listeners if you could provide a deeper dive into your organization and more specifically, what OSCRE is doing related to ESG.

Ian:

Thank you very much, Joe, and it’s a pleasure to be here. OSCRE has been around for about 20 years at this point, and we’ve hit an amazing stride, in part because the technology has evolved. The understanding of data strategy and data management needs has become much more broadly endorsed and accommodated. Whether you’re a major corporation or investment firm, all these companies from a real estate standpoint, are figuring out how to manage this complex sourcing and aggregating and using and reporting of data.

OSCRE’s primary product is referred to as the OSCRE Industry Data Model which covers a variety of functions, including leasing, space management and currently we’re very focused, as you mentioned, Joe, on environmental data management. I’ll mention a couple of these cases on that in a moment. To develop these standards, we collaborate with industry leaders like Visual Lease, and we’re very happy that both Bill and Joe up in joining us in some of the workshops for that.

But that’s how these standards come about. They start with the main stakeholders on a topic, and that’s exactly what’s happening around an energy data standard we’re working on right now. The kinds of organizations participating in that are typical of those that participate in developing the OSCRE data model to begin with. The other thing that we’re doing is we’re very conscious that there are skills missing and the high demand, low supply of some of the skills around data management and real estate.

One of the reasons we’re providing the education is to help folks who are coming in from other industries understand our industry, understand the data challenges, understand the data strategies and data modeling, for example. So we’re very motivated to continue to help educate and train people about this whole standards discussion and also to improve their ability to implement standards as part of their whole approach to data internally.

But ultimately, what we need to do is to present standards in a way that are implementable. So, while we have a large, diverse and broad industry data model, it’s structured around a set of use cases. And for example, a use case might be sending lease data. And that’s something I know that Joe and Bill, is near to your heart. exchanging lease information, especially when you have one application that might need information from another on behalf of a client.

So, we’ve developed a data standard, the schema associated with that, and we’ve also seen some organizations picking up OSCRE and embedding them in OSCRE based APIs. And the reason I’m mentioning that is this is not just about getting the data right, the right data model, but also being able to handle data integration. And that also comes to the scope of what Visual Lease is able to do.

We’re thrilled, first of all, that you’re participating with us in that Energy Standards Data project, and it means a lot for us to be able to get your perspective, especially focusing on lease implications when it comes to ESG and vice versa. So that’s fairly common for us to seek, which is we want to get your perspective. We need to build that into the way that standards are developed.

We also want to understand your perspective on how to actually implement them. And integration is a key piece of that.

Joe:

No question Ian, OSCRE has a very comprehensive mission, and you referenced a couple of things that I want to turn to Bill and say Bill, I know you represent VL on OSCRE’s Data Standards Committee. Can you tell us how this has been going and how it may be influencing some of what VL is doing related to its newest product offering, VL ESG Steward?

Bill:

Sure, Joe. First off, let me just say it’s been great working with Ian and the rest of the OSCRE crew. It’s great to collaborate with them because to me, the important thing is we’re not just leveraging the work that OSCRE has been doing on ESG and, you know, energy management. But OSCRE’s been at this data management data standardization game for many years, and so they bring a lot of knowledge and wisdom to the table, definitely more inputs from a broad range of people as well as people with a great history and experience at developing these standards, is going to help us lead to a better product.

I appreciate that OSCRE has a broad range of representatives who have very different perspectives. We have owners, we have occupiers, service providers, investors and others, all with varied needs. And these needs are informing us on how all of these various different parties are using the ESG data. This is not just the ESG specific data, but also, we’re looking at the non ESG data that these users need.

They have to provide intensity metrics for reporting purposes, and they also need to see how the ESG information fits in with their other tracking metrics so that they can perform the proper analytics that they need in order to manage their portfolios. And that’s very helpful to us in building out the tool. We’re viewing this, obviously as more than just a mere compliance exercise.

The real goal of ESG is to provide companies with actionable intelligence that they can utilize to enhance their operations and have less of an impact on our planet. This is also allowing us to get out in front of other associated issues. You know, right now, energy and greenhouse gas emissions are getting all the publicity everyone’s talking about that the new ISSB standards are dealing with specifically with these climate issues in the first year.

But we know that there are other e-components that are coming behind it: water, waste management, biodiversity issues, as well as the S and G pillars of ESG. Talking with this larger group is going to allow us to get out in front of these further developments as they are established and become part of the reporting requirements.

Joe:

That will conclude part one of our special series from the VLDI Podcast with Ian Cameron, Chief Innovation Officer from OSCRE, a Real Estate Data Industry Data Standards organization alongside Bill Harter, Principal Solutions Advisor at VL. Stay tuned for Part II, available on our website and social media platforms @visuallease on August 23rd.

VLDI Podcast Episode 14 Transcript

Joe:

Hi. I’m your host, Joe Fitzgerald. Welcome back to the Visual Lease Data Institute Podcast. Here at VL, we empower organizations to leverage their lease portfolio as a strategic asset. Our platform is uniquely designed to meet the needs of every team that interacts with a company’s lease portfolio and associated environmental data to reduce risk, drive confident and sustain lease accounting compliance, and provide the visibility required to make agile business decisions.

Today we are joined by Lee Ebaugh, Director of Real Estate and Business Continuity at Toshiba, America Business Solutions and Toshiba Global Commerce Solutions, both of which are a part of one of the world’s largest conglomerates with a complex global lease portfolio of real estate and equipment, all of which, prior to Visual Lease, was managed through disparate systems and processes.

To Lee, as head of the organization’s leasing team, that was not sustainable even before the new accounting compliance standards came into play. Today, Lee’s team has about 150 real estate leases, including office, industrial and lab spaces, plus an additional 1400 equipment and vehicle leases, all of which are managed in Visual Lease.

So Lee, let’s take a trip down memory lane. What was your experience before implementing Visual Lease and what ultimately led you to consider using Visual Lease?

Lee:

Hi Joe, it’s great to be on here with you. So, when I first joined Toshiba in 2013, all of our leases were being tracked through Excel and even using Lotus Notes as basically an electronic file cabinet. I had experience working on various platforms during my career handling lease administration and both representing landlords and tenants. I knew that there was a better system out there.

Also, at that time I was just a team of one, so I really needed something better so I could focus on negotiating the leases and being able to drive what mattered to the businesses. I started evaluating a number of options to help manage our portfolio and with looking at all the different options that were out there at that time, Visual Lease just really, right off the bat, seemed like it was the best one. It was user-friendly and intuitive. I mean, I don’t want to sound like I’m a sales pitch here, but it was really good for what I was looking for. On top of it, since I was a team of one, it also meant that I had to implement the system all by myself and I had to abstract every lease into the portfolio all throughout my background.

This was probably the easiest abstracting that I’ve ever done in my entire career. Another thing that I liked about the system was that I could provide read-only access to the system, to all our stakeholders out in the field. Because I was starting to get inundated with, with questions on the various leases. And since I was a team of one, I couldn’t focus on what was really important.

So it was great being able to provide all of that lease information in one spot and point them to where they could get all the answers, and once again, it was user friendly. They could easily access all the information that they needed, including a copy of the lease, you know, so when we abstract all the clauses, we point directly to the page on the lease and all they have to do is click on it if they want more information based upon that abstract. So it was extremely helpful with that.

Now it’s a little different. I do have a small team and we still abstract everything in house. In fact, I was just talking to our corporate real estate specialist and she was saying how easy it is, honestly to be able to abstract. And she’s abstracted quite a bit as well. And then, you know, later when we were evaluating different platforms for lease accounting, Visual Lease really remained at the top of our list. So, you know, we’ve remained a customer of Visual Lease all this time.

Joe:

So in listening to you talk, I mean, first off, in your early days, you were clearly wearing a lot of hats, right? A team of one, doing a lot of jobs. You mentioned, you know, Lotus Notes, haven’t heard that in a while, Excel, which we know is a fairly popular tool a lot of folks like to use and other manual approaches before going to Visual Lease.

Is there anything else, particularly as the accounting folks came on, that you’d want to walk us through in terms of how you use Visual Lease day to day? You mentioned read only access versus, you know, the ability to make changes and whatnot. Is there anything else about that that is different now in the process with Visual Lease.

Lee:

We try and control what’s in Visual Lease as much as possible because the less amount of people that have access to change things also helps the integrity of all of that data. And that data is is extremely important not only to us, it’s important to finance. They also control who has that access. And we work really well together. I know I’ve heard some, I guess, horror stories between real estate and finance that they don’t always communicate really well. I think we really collaborate tremendously well with finance. I mean, my wife’s a CPA, so I kind of understand the importance of constant communication with finance teams and what they’re looking for. Our team is really process-oriented, so we don’t miss any critical steps with all the various transactions we’re working on.

You know, as you mentioned, we have 150 real estate leases. We don’t typically enter into leases over a three year term. On top of that, we also start our transactions eighteen months prior to the lease expiration. So we’re basically as soon as a lease has started 18 months later where we’re starting to work on it again. And as of this morning, we have 66 active real estate transactions we’re negotiating, along with 25 relocation projects my team is working on.

With all of the transactions that we have going on, we have to be really process-oriented so we don’t miss any important steps. And one of our important steps that we have is to ensure finance has the information they need to do their jobs. And we look at our relationship as kind of a team effort.

Joe:

Let me pivot to another issue. The International Sustainability Standards Board recently announced a phased approach to ESG reporting allowing organizations to first focus on climate related disclosures. Curious as to your thoughts as to how this will impact how companies manage and track their leased assets?

Lee:

Yeah, that’s a good question. So at this time, there aren’t any formal requirements from our parent company relating to ESG. Now, that being said, me personally, I’m a well accredited professional and our senior leadership, you know, we’ve always been focused on sustainability and how our buildings and offices can help the overall health and wellness of our employees.

Lee:

And that always has been important to us, and it always will continue to be important to us whether or not there’s any sort of ESG reporting requirements.

Joe:

So I’m just curious, as you think about it, do you see Visual Lease playing a role as you find yourselves needing to accumulate this data and provide some carbon calculations and reporting as these standards evolve?

Lee:

We could in the future. On a personal level, I think having ESG is good to force those companies to start thinking about sustainability. Start thinking about all of these things that that they, I think, should have been doing all along anyway. But that being said, whether or not we have to do any sort of formal reporting or anything like that, that’s still one of our priorities.

Joe:

So Lee, as a member of the Customer Advisory Board at Visual Lease, tell us your thoughts about how you feel about being a member.

Lee:

I think this is a great thing that you guys are doing. Visual Lease is seriously the second thing I open every day behind my email. So I usually get emails, questions on leases or whatever negotiations that are going on. I immediately open up Visual Lease to be able to get a lot of the answers.

It’s really important to what we do, and I have to say that the CAB… I think that right there what you guys are doing is a big thing where you’re purposefully listening to us as customers and are doing something about it. You know, because I remember we talked about reporting and I know a lot of us were saying the reporting features aren’t necessarily where we want it to be. Okay, that’s good news. Our to-do is we’re going to help improve some of it and that was great.

Joe:

Is there anything else you’d like to touch on before we wrap up?

Lee:

Honestly, I appreciate this opportunity to discuss these things with you. You know, as I said previously, I don’t want to sound like I’m a sales pitch for Visual Lease, but it really has helped my team to be able to provide good, reliable information. So that’s usually what I tell my team, one of our most important things that we can do is to provide good, reliable information in a timely manner to our decision makers.

Honestly, I believe that Visual Lease helps us do that, and it’s really been transformative honestly, through my career here at Toshiba, being able to use this platform has been really helpful.

Joe:

So that’s going to conclude today’s episode of the VLDI Podcast. Hey, Lee, really appreciate you doing this, thank you so much. If you enjoyed this episode and want to catch up with other resources from the Visual Lease Data Institute, be sure to follow our LinkedIn, Twitter, Instagram and Facebook pages @visuallease, as well as our new LinkedIn community page.

Links to all our pages will be in the YouTube description box. And don’t forget to tune in to the next episode of the Visual Lease Data Institute Podcast, where our focus is on helping you leverage your lease portfolio to stay ahead of what’s next.

VLDI Podcast Episode 13 Transcript

Joe:

Hi. I’m your host, Joe Fitzgerald. Welcome back to the Visual Lease Data Institute podcast. Here at VL, we empower organizations to leverage your lease portfolio as a strategic asset. Our platform is uniquely designed to meet the needs of every team that interacts with a company’s lease portfolio to reduce risk, drive confidence and sustain lease accounting compliance, and provide the visibility required to make agile business decisions.

Today we are joined by Zena Thomas, Product Owner at VL. With over 20 years of accounting experience, Zena has worked in corporate accounting and as an auditor within financial institutions and BOEs. Zena has led projects on corporate inter-company automations and developed corporate ERP education for company mergers. As a Lease Accounting Product Owner at Visual Lease, Zena is responsible for creating models for new products, user acceptance testing and research of accounting guidance.

Today, Zena is here to discuss key information regarding the GASB 96 lease accounting standard. Hello Zena. Thanks for joining me today.

Zena:

Hi, Joe. Thank you for having me.

Joe:

Could we open up the conversation with you describing your role at VL in a bit more detail?

Zena:

Sure. I’m the Product Owner of Lease Accounting, which means that I assist in prioritizing our features for development. So I speak with clients to ensure that our software is satisfying their accounting requirements and I assist in developing new accounting products.

Joe:

Very much on the front end. So what exactly is GASB 96?

Zena:

GASB 96 is the accounting treatment for subscription-based information technology arrangements. It’s GASB’s response to questions around accounting treatment for software. Many entities were already capitalizing on these costs, and they were looking for GASB to justify that treatment. Similarly, to GASB 87, it creates a right of use asset and a liability for the lease term of these software arrangements.

Joe:

So many of the government entities that will be complying with GASB 96 are just coming off what sounds like a similar accounting standard, GASB 87. Could you give us a bit more of a compare and contrast between the two standards?

Zena:

Sure. GASB 96 is very similar to GASB 87. Our amortization schedules will almost be identical. The difference comes in when we are in the beginning stages of these software agreements. GASB defined three implementation stages for 96, whereas we won’t have those for 87. The first being a preliminary stage which costs are associated with the conceptual framework of the subscription asset.

These are usually expenses as they incurred. The second is the initial implementation stage, which is all the cost associated in placing the asset into service. These costs, for the most part, are capitalized and the final stage is the operation and additional implementation stage. These are for troubleshooting, maintaining the software and other ongoing activities. In this stage you may have a mix of capitalization and expense cost.

Joe:

Assuming an entity decided to leverage a technology solution for GASB 87, Could that technology also be used to enable adoption of GASB 96?

Zena:

They could, but it would be. They have to be careful around the terminology and around reporting. GASB 96 has to be separate from 87 disclosures. So, currently if you’re using 87 calculations to predict 96 measurements, that’s fine. But you really want to use a specific GASB 96 platform.

Joe:

So VL as its designed, how would it handle it?

Zena:

So currently, if the customers are eager and want to calculate 96 on 87, they would do that, but they would then have to transition over to our 96 module.

Joe:

So it’s a good way to kind of handle both standards almost simultaneously you’re saying.

Zena:

Exactly.

Joe:

With that in mind, any closing thoughts?

Zena:

I would say if an entity is already prepared for GASB 87, they should start thinking about their 96, it’s approaching quickly. If they are just beginning GASB 87, they should gather data for 96 at the same time. Just so it’s a kind of a one shop stop. Currently, a lot of GASB clients are a little delayed in developing their GASB 96 material, so they have time.

Joe:

That will conclude today’s episode of the VLDI podcast. Zena, thank you so much for coming on to the show and sharing your expert knowledge on GASB 96. If you have enjoyed this episode and want to catch up with other resources from the Visual Lease Data Institute, be sure to follow our LinkedIn, Twitter, Instagram and Facebook pages @Visual Lease, as well as our new LinkedIn community page.

Links to all our pages will be in the YouTube description box. And don’t forget to tune in to the next episode of the Visual Lease Data Institute Podcast, where our focus is on helping you leverage your lease portfolio as a strategic asset.

VLDI Podcast Episode 12 Transcript

Joe:

Hi, I’m your host, Joe Fitzgerald, and welcome back to the Visual Data Institute Podcast. Here at VL, we empower organizations to turn their lease portfolio into a strategic asset. Our solutions help companies easily sustain compliance with FASB, IFRS and GASB lease accounting standards and implement proper lease controls to improve the financial and operational performance of their leases.

Today, I’m joined by Jamie Covert, President of Scribcor Global Lease Administration, a valued partner of Visual Lease. Jamie is here today to discuss a very important distinction between two mission critical business functions: lease accounting and lease administration. While the two may sound similar, they’re actually quite different. Utilizing both processes in the right way can really make a big impact when it comes to compliance, maintenance and future lease portfolio optimization.

So let’s dive right in. Welcome, Jamie. Thanks for coming on today.

Jamie:

Thanks, Joe. It’s a pleasure to be with you.

Joe:

Jamie, first question, how do you see lease administrators supporting the Office of the CFO?

Jamie:

So today, lease administration is supporting the Office of the CFO by maintaining the critical lease data and the components that are supporting their ASC 842 and IFRS calculations. Those are anything from amendments to, you know, any changes in the leases, terminations, all that data has to be maintained and and lease administration plays a critical role in making sure that that that data is accurate and that they’re communicating to the accounting teams so that before they go into a month end and quarter end close they know all the leases that have been updated and that need to be amended on the financial statement.

So lease administration really, they’re holding the keys to the data and they need to be pretty seamlessly integrated with the with the Office of the CFO and the controller so that they’re generating those schedules.

Joe:

Some people view leases as a one and done when they are first recorded. Is that really the right way to view leases?

Jamie:

No, leases are dynamic. A lease portfolio changes on a daily, weekly, monthly basis. Leases have variable expenses, one time charges… Leases contain escalation amounts. There’s a lot of leases, especially international leases, are tied to indexation and indexes. And so there is always something changing in the lease portfolio. The larger the portfolio, the more the changes.

So really consistent with everything that we’ll probably cover today. Having a solid and sound process for lease administration is really critical. The process here in the U.S. and Canada is really different than in an international lease administration. So really, having clearly documented processes and playbooks is is something that we advise all of our clients and that when we’re operating and taking over that function, we absolutely have those and it brings benefits, you know, whether you’re using a third party or whether you have a team of internal experts, having qualified lease administrators is going to improve your internal controls. It’s going to improve the speed that you’re able to access data and report. It’s going to be vital for internal and external audit support. So as companies are going through audit processes, having all these things managed in a sound way is going to improve that process and speed up that process.

And then the biggest component, leases contain so much valuable data for organizations that go into strategic planning. They’re supporting, forecasting, impact analysis, lots of various financial data space planning is become huge now with our post-COVID world and a lot of companies moving to, flex and remote work.

So in order to adequately space plan, you need up to the minute lease administration and data and data on and all those lease obligations. So, these are really important components to being able to deliver and execute on all those things.

Joe:

So given all the activities you just described, do you find that companies are underestimating the time it needs they need to administer leases?

Jamie:

Not all companies. I think where there’s a lot of challenges and where companies underestimate, it’s the effort and the time that goes into building those processes, especially for companies that have gone through mergers or have decentralized situations. It takes an enormous amount of time to organize a global portfolio.

And so if there’s anything that’s overlooked, I think it’s the speed and the time and just the manual process and the hours that it takes to get that portfolio organized. But as far as the day to day, I mean, really there’s three real kind of critical components that we manage as lease administrators on a day to day basis.

And you break them down into categories to: changes to the portfolio, your variable expenses and then your risk mitigation. Changes to the portfolio would be any new leases or amendments that are executed. Renewal letters, any terminations and then acquisitions. Companies are always acquiring other companies, so you really need to have the appropriate resources in place to handle an acquisition, whether that’s an internal resource or whether you have a third party that you may lean on during an acquisition.

But it really comes down to handling all of these things. It’s a documented process. The most critical step is you really want to build a lease abstraction, a scope of work. Sometimes people refer to that as data attributes. You want to be as consistent as possible across your portfolio with abstracting the same amount of data in the same fashion for each location.

But the second category I would describe is variable and other expenses. The most common and I think the most important is common area maintenance, also referred to as operating expenses, camera reconciliations, operating expense reconciliations. This is one of the most important functions that the lease administration team performs because it’s a really significant generator of savings.

Unfortunately, errors in these reconciliations can be common. And, you know, having a process and a documented process of exactly what you’re going to cover and what’s called the desktop audit coupled with some type of a formal full audit program, is the best possible solution in terms of making sure you know that your company is maximizing that savings component.

You should really be building on a process where during your desktop audit, you’re flagging and identifying leases that should be moved on to the full audit team. Most of the time it does need to be handled by a different team because it’s a different skill. I guess the last category that I would bring up are your ongoing risks.

And I really think the ongoing risks are most efficiently mitigated and almost completely resolved when you put in a solid process and procedures from the start with the well-documented playbook. But some of those things that can come up or you missed or delayed payments, these are frequent when you have a landlord change or a vendor change or a bank change that isn’t communicated to the lease administration team.

Sometimes that’s from the property manager’s office. Other times that could be, you know, internally if things are decentralized, if invoices are received at the local level, sometimes there’s failures to forward those. So having processes in place to mitigate that makes a lot of sense. As long as you’re using a database, usually you don’t have to deal with any kind of manual errors or formula errors. But, for companies that are still working in Excel spreadsheets, this can be something that can can occur and can present challenges. One of the things that we’re seeing, unfortunately, that is increasing is fraud, cybersecurity and email fraud. I mean, it’s becoming much more common.

So having dual controls in place for certain things, like when you’re changing in information or when you’re changing a vendor, putting something like that in place is going to mitigate any instances of fraud, having callbacks where you’re actually verifying something over the phone with somebody versus just taking their email because we’ve seen some pretty sophisticated spoofs from time to time where it looks like an email is coming from a person you’ve been working with for months or years. But you know, that’s not always the case. So those are really some of the ongoing risks that that companies face, that if they put processes together, you can pretty much mitigate those.

Joe:

So, Jamie, you’ve covered up a lot of topics for us. As we wrap up, any closing thoughts or key takeaways for the listener?

Jamie:

Yeah, just, you know, really, again, hammering home the same point of process, process, process. You know, if you document your processes and you follow through, then I think you’re going to mitigate most of your problems and you’re going to be very proactive and you’re going to be an asset to your the rest of your internal teams on the strategy side, on the transaction side, and in the accounting office. Just having lease administration as a significant collaborator within those other internal departments. There are a few new things coming down the road, and it’ll be interesting to see what role these administration plays. I know everyone’s trying to figure out ESG right now, Europe is obviously a lot further down the road than we are in the US. We’ll know the requirements at some point in the U.S. And once we know what the requirements are and how those calculations are going to work and what exactly we’re going to be calculating and measuring, I think what’s clear is that real estate is going to be a big component.

What’s unclear is who’s going to be responsible for what. But I do think that some of that is going to be within the real estate group and lease administration will probably play a part of that. And then as I mentioned before, everyone’s really trying to figure out, what’s the right size of our portfolio now.

So space planning is critical and lease administration data that lease administration is responsible for is really a critical component so that companies can effectively make proactive decisions as they have leases coming up for renewal.

Joe:

That will conclude today’s episode of the VLDI Podcast. Jamie, thank you so much for coming on the show and providing your expert knowledge and insights. If you enjoyed this episode and want to catch up on other resources from the Visual Lease Data Institute, be sure to follow our LinkedIn, Twitter, Instagram and Facebook pages @visuallease, as well as our new LinkedIn community page, which you can join by using the link in the YouTube description below.

And don’t forget to tune in to the next episode of the Visual Lease Data Institute Podcast, where our focus is on helping you leverage your lease portfolio as a strategic asset.

VLDI Podcast Episode 11 Transcript

Joe:

Hi, I’m your host, Joe Fitzgerald. Welcome back to the Visual Lease Data Institute podcast. Here at VL, we help organizations become compliant with FASB, IFRS and GASB accounting standards while simultaneously improving the financial, legal and operational performance of their leases. Today we have two special guests from one of these Visual Lease’s valued partners Grant Thornton. Please welcome Lisa Kaestle, Director of Accounting Advisory Services and Claire Esten, partner in Audit Services. In 2012, Lisa joined FASB and worked as a project manager on ASC’s implementation project for Topic 842. She currently leads Grant Thornton’s National Leasing Center of Excellence. She has consulted on over 400 ASC 842 adoptions and also joined me in a webinar hosted by VL earlier this year. Clare has over 25 years working with private companies and not for profit organizations serving their audit needs.

She has also assisted many organizations with their lease adoption efforts, overseeing the adoption of the FASB and GASB standard for entities that have between 50 up to 2000 leases. She also leads training for her clients on the lease accounting standards, including sharing best practices and common pitfalls. Hello, Lisa and Claire, thank you both for joining me today.

To get started first, Lisa and then Claire, could you each explain how your service line engages with your clients around lease accounting?

Lisa:

Absolutely. And thanks, Joe, for having us today. Our role within Accounting Advisory services is to really help from a consulting perspective. This will include assisting clients with our adoption process, which can be educating or training our clients on the technical guidance, assisting them with lease extraction and validation procedures, helping them review and identify potential unknown or embedded leases and ultimately documenting their adoption approach in their ongoing policy considerations.

It also includes helping our clients with ongoing lease considerations and technical questions when they arise, whether it’s a complicated modification, a potential impairment, sale leaseback transactions, you name it. We’ve likely seen that and we can be there to help and ensure that the guidance is applied appropriately. Claire, do you want to provide your typical engagement with clients?

Claire:

Thanks, Lisa. And also thank you, Joe, for having us today. So as an auditor, we support our clients with technical accounting guidance, as well as understanding how the gap rules apply to the unique circumstances of their operations to support them as they work through the adoption process. We work with our clients to anticipate how accounting changes might impact their financial statements and how the new requirements might require changes in processes and internal controls as a result of the new accounting rules such as the lease accounting.

We’ll provide training. We provide advice on how to approach the project, and we provide input along the way. Another important element of our support is sharing examples, whether through disclosure examples, lease evaluation templates, among other tools, to assist our clients. And finally, we also bring in our subject matter experts like my friend here, Lisa. When the rules are very complex and there are complex agreements that require expertise in the technical application of those rules.

Joe:

So, Claire, continuing that theme, let’s talk about some reporting challenges companies currently face. From your experience, what are these types of challenges and how can the client work through them?

Claire:

Great question, Joe. I would say completeness and accuracy in two words is how I would describe the challenges that companies face with lease accounting, the adoption process. So with respect to completeness, you want to make sure that your list of leases is a complete list. And often the leasing process can be decentralized and very time consuming, particularly understanding and getting input from multiple departments.

For example, legal. You know, it’s not just an accounting and finance exercise. This involves Legal, I.T., Supply Chain, Procurement, Facilities, the list goes on. You know, in terms of a solution for that, it’s common for organizations to have check ins, whether it’s quarterly, semiannually, etc., and perform accounts payable sweeps to make sure that it’s not just new agreements, but also includes modifications, renewals, terminations that are all being appropriately considered of whether they need to be accounted for as a lease.

You know, when you miss a contract that has a lease contained in it, it’s possible that the financial statements could be materially misstated. So that’s obviously the first area, again, completeness. The second challenge, I would say, relates to accuracy. Every organization is different with the lease contracts that they have. There’s no vanilla. Most companies don’t have consistent agreements and there are nuances, particularly around subjective aspects of the accounting, such as whether to include option periods that are reasonably certain to be exercised.

And that can all result in different accounting conclusions. So I would say the key solution is attention to detail in reading those lease contracts, making sure that you’re picking up the right information, whether you’re looking at payments to see are they monthly, are they annual, are they semiannual? You know, each lease could be different. And then determining what should be included for lease payments versus items that, you know, expenses that may be are period costs.

All that attention to detail is going to be key to making sure that the accounting is accurate.

Joe:

Lisa, in your role as a subject matter expert, I’m sure you stay current on everything that’s happening. What are some of the emerging topics that companies should keep in mind while adopting the lease accounting standard?

Lisa:

Absolutely. And great point. So first, I’d note that the challenges that Claire just discussed, they’re not going to go away post-adoption. Contracts are going to remain complex. They’re going to remain different. It’s not all the same and cannot be treated the same. So I think attention to detail is key. During adoption, it’s also going to be key going forward.

I’m also finding that a lot of companies are so heavily focused on their adoption data that they’re kind of forgetting about how are they going to remain compliant going into the following year. And so 842 it does significantly reduce complexity in many areas. But there’s still going to be subjectivity in judgment and considerations that management’s going to need to think through on an ongoing basis.

And this can include things like determining your lease term and considering renewal options, whether or not you’re reasonably certain. It also can include thinking about tenant improvement allowances in determining who the asset owner is or thinking about modifications. Again, do you treat it as a new separate contract or do you treat it as a modification to the existing contract?

These and many other areas are going to still involve significant judgment and technical considerations to come to the right and appropriate accounting conclusion. So I think while companies need to ensure that they understand what to do during adoption, I want to make sure that they don’t lose sight of some of these nuances and that they continue to educate their team members on how to handle these facts and circumstances and the facts and circumstances that are coming up in their business.

Joe:

Claire, if you think about the audit as the final exam around this adoption, what are some of the common audit requests that you would make of your clients related to their adoption of 842?

Claire:

Good question, Joe. Hopefully it’s not as painful as a final exam, but you know, in the year of adoption, there’s a big lift from an audit standpoint to help ensure that the reporting is again, complete and accurate. And that’s kind of the theme around where we focus our audit procedures, completeness and accuracy. So, we’ll typically look to understand the procedures that the organization perform to ensure that the population is complete.

And this is really an assessment of what’s the internal control, environment and procedures when adopting a new accounting pronouncement, is did they have a good process in place? So looking at what they did to ensure the population is complete would be a start and we would do testing around that population to ensure that it is complete, which is a challenge because you’re looking for things that aren’t there, frankly, when you’re testing for completeness.

We also would need to test that the data within the population of leases that is identified that that data is accurate. So picking a sample of agreements that have been identified as leases under capacity, you know, 842 or GASB 87 going back to the source document testing that again, things like the payment inputs and the term of the lease are all accurately input into the lease calculation on a sample basis.

We generally would expect that our clients would document their adoption approach that covers the considerations in the assumptions made, as well as the process to transition from the old accounting to the new accounting standard. It’s not only an assessment of the the accounting entry itself, but the process under which the company went through to to get to the end point.

We often focus our attention more on the material or significant changes, you know, whether it’s a lease modification that’s significant or a new lease or potentially terminations in leases. So that’s really what we would that would be what we would typically do in the audit as far as audit requests for adoption of 842 or GASB 87.

Joe:

Lisa, I’m curious. Most companies will have adopted. Are there any opportunities you see in 2023 and beyond coming from these accounting changes?

Lisa:

We don’t get asked that question enough, in my opinion. So I do think that there are there are a lot of opportunities that come from adopting 842. The biggest being you have better data. So first I think that that’s going to benefit external stakeholders, for instance, lenders, investors, boards, etc., individuals that are going to use the financial statements.

I think the data that’s being compiled and presented within the financial statements under 842 is undoubtedly an improvement over what was there under 840 for leasing data, right? It’s more accurate, it’s more complete than it’s ever been. And that’s again, because there wasn’t this historical scrutiny on leasing. It didn’t need to be recognized on the balance sheet, it was spread over time.

This change from 842, we’re now seeing that additional scrutiny and we’re seeing companies go through a very detailed adoption process to make sure that they are truly compiling all of these contracts and reflecting their future obligations accurately and completely. So I think that financial data for external reporters will or external stakeholders will certainly be improved. Equally, or perhaps more importantly, I think it’s going to also benefit management, and that’s because they’re going to have greater insights from an operational decision standpoint, again, resulting from this better dat. In addition to all the data that they used to have before,

What we’ve typically seen as clients is to have that in Excel spreadsheets in a very decentralized process. Most of our clients are utilizing software solutions such as Visual Lease, where they can easily go and track, hey, this is where this lease is, this is how much longer we have on it. these are the payments we have, oh yeah, and we have an option to terminate.

And there’s just a lot of data that’s now being centralized in that really allows them to cut costs, potentially to streamline their operations. This could go in the form of rethinking or revisiting your real estate footprint, consolidating amongst many, you know, a high volume number of individual contracts. And for instance, if you have a number of different individually negotiated copier leases or printers, maybe you go back and you get an MSA set up so you can consolidate them and get a better rate.

The increased transparency that the data is bringing, it will really help management better predict future costs, and it’s going to allow them to remain more agile in this kind of ever changing economic environment that we are seeing.

Joe:

You’ve both really packed some great insights into the last 10 minutes. Any closing thoughts, Claire?

Claire:

Sure. I would say ask your auditors for their help. You know, at this point in the effective date time frame, we’ve seen lease accounting adoption over and over many times. Whereas for you, this might be your first time going through it. We’re here to provide assistance and insights so you can get through to the other side, not only compliant with the standard, but hopefully in a better spot in terms of policies and controls over the lease process.

And like Lisa said, you know, better insight into future expenses and other operating factors that you consider when you’re going into a lease transaction. So just ask your auditors for help. I would be remiss if I didn’t mention that we need to maintain our independence so we can’t do the calculations for you. But there’s a lot that your auditors can do to help you get through this process.

Joe:

Lisa, how about from you?

Lisa:

I think that the closing thought I would have is just don’t underestimate leasing, whether it be during the adoption process, which can be extensive or kind of the ongoing technical considerations. Again, this historically under 840 was one of the most highly consulted areas of gap. I don’t think that’s going to change just because 842 came in.

It increases the level of scrutiny. And so, I continue to think that this is going to be an area where, as Claire pointed out, it’s okay to say, I need some help, I have some questions. We’re here to help and we’ve seen it with a number of different clients. So, you know, we’re happy to always take those calls and try to help as best as we possibly can.

Joe:

That will conclude today’s episode of the Visual Lease Data Institute podcast. Lisa, Claire, thank you so much for being here and sharing your wealth of knowledge in advisory and audit with us. If you enjoyed this episode and want to catch up with all things VLDI, be sure to follow our LinkedIn, Twitter, Instagram and Facebook pages @visuallease.

And don’t forget to tune in to the next episode of the Visual Lease Data Institute podcast, where our focus is on helping you leverage your lease portfolio as a strategic asset.

VLDI Podcast Episode 10 Transcript

Joe

Hi. I’m your host, Joe Fitzgerald. Happy New Year and welcome back to the Visual Lease Data Institute Podcast. Here at VL, we empower organizations to turn their lease portfolio into a strategic asset. Our solutions help companies easily sustain compliance with FASB, IFRS and GASB lease accounting standards, as well as implement proper lease controls to improve the financial and operational performance of their leases.

Today, I’m joined by Visual Lease’s CEO, Robert Michlewicz. With 2022 now pretty much behind us, there are many things we’ve learned when it comes to lease portfolio management and optimization. So, let’s dive right in. Welcome back, Robert, and thanks for joining us.

Robert

Thank you, Joe. Great to be back here with you.

Joe

So let’s talk about what’s on the horizon for 2023. Most companies have now addressed their lease accounting compliance requirements. Is it true that maintaining this compliance is just as important as achieving it in the first place?

Robert

Absolutely. In today’s economic climate, companies can’t afford to neglect one of their largest expense items, which for many is their lease portfolio. Many companies we talked to are stunned to find out that after headcount related expenses, leases are typically the second largest expense. To further complicate matters, leases are very dynamic agreements, and the economic market in recent years means companies are often subject to changes that need to be documented, tracked and reported over time to ensure proper and ongoing compliance with the lease accounting standards.

When considering it from that perspective, you assume companies are keeping close tabs on their leases. But before the introduction of the new lease accounting standards, public and private companies as well as government agencies, tend to neglect their lease agreements. Thankfully, the new lease accounting standards have given businesses a time sensitive reason to maintain strong lease accounting and administration processes.

Joe

With initial compliance in the rearview mirror, what should be top of mind for CFOs this year?

Robert

Well, if they haven’t already, CFOs should focus on ensuring they have the right technology to help their company sustain compliance while implementing proper lease controls. This is critical given the number of teams that are typically involved in these processes. Just to name a few: real estate groups, operations, finance, legal and procurement are typically involved.

By taking these steps, a company can ensure the right people have access to the right information at the right time. Otherwise, they’ll unnecessarily expose their organizations to risks. These can include the inability to respond to changing circumstances, missing deadlines and options, miscalculating lease costs, missing an incentive or reimbursement, or even overpaying and assuming responsibilities that belonged with their lessor. With leases now being represented on the balance sheet, these agreements are priorities to CFOs.

This critical shift has provided businesses with an opportunity to really get a handle on their leases. In fact, when prioritized, are properly managed, an organization’s lease portfolio has the ability to not only reduce substantial risk, but also introduce real business benefits, including cost savings opportunities, stronger internal controls, access to capital via a more transparent evaluation criteria, easier audit prep, and the ability to make more strategic operational decisions in the future.

Joe

So, Robert, when I opened up our conversation, I said that VL can help companies transform their lease portfolios into a strategic asset. What exactly does that mean?

Robert

Yes, Visual Lease is uniquely designed to meet the needs of every team that interacts with a company’s lease portfolio, to reduce risk, drive confident and sustain lease accounting compliance, and provide the visibility required to make agile business decisions. The only way that companies can access the unique insights within a lease portfolio is to first align and implement a robust set of lease controls, which is something Visual Lease is uniquely positioned to do based on over 25 years and helping businesses across all industries get maximum value out of their leases.

We offer control structures that bring finance, administrative and operational stakeholders, the ability to work together in a way that they’ve never been able to before by empowering finance and their counterparts across the business to better understand their leases and access the insights within. We empower them to bring even more strategic value to their companies.

Joe

So Robert, I don’t know if you get your crystal ball sitting next to you… But any predictions for the fintech world in 2023?

Robert

Oh, it’s going to be an amazing year! In our current economic climate, you know, companies are going to just continue to be hard pressed to do more with less and really focus in on their overall cash. This year, businesses are more likely to prioritize financial technology that can really address the multiple business needs to create an even greater return on investment as they continue to evolve with their virtual teams.

Joe

Would you care to leave our audience with a parting thought?

Robert

Well, you know, I’m really excited to say that we’re going to have a new survey report coming out from the Visual Lease Data Institute that’s currently in the works right now. It’s going to dive into hot topics like lease management, lease optimization, ESG and several other things that are impacting organizations. We had this report in 2022, and it provided a tremendous amount of value to not only our customers, but our partners.

So be on the lookout for this as we go into 2023.

Joe

That will conclude today’s episode of the VLDI Podcast. Robert, thank you so much for joining us again and sharing your valuable knowledge. If you enjoyed this episode and want to catch up with other resources from the Visual Lease Data Institute, be sure to follow our LinkedIn, Twitter, Instagram and Facebook pages @visuallease, as well as our new LinkedIn community page, which you can join by using the link in the YouTube description below.

And don’t forget to tune in to the next episode of the Visual Lease Data Institute Podcast, where our focus is on helping you leverage your lease portfolio as a strategic asset.

VLDI Podcast Episode 9 Transcript

Joe:

Hello and welcome to the next episode of the Visual Lease Data Institute Podcast. Here at VL, we help organizations become compliant with FASB, IFRS and GASB lease accounting standards while simultaneously improving the financial, legal and operational performance of their leases. I’m your host, Joe Fitzgerald. Today’s special guest is Jim Cross, co-CEO at Blue Sky Capital Strategies, a valued partner of Visual Lease.

Over the past 20 years, Jim has been instrumental in developing managed lease advisory programs, best practices and leasing strategies that deliver significant savings for clients ranging from Fortune 50 to Fortune 500 to several smaller public and private companies with credit profiles ranging from Double-A to early venture backed startups. Jim is trained and certified in lease versus purchase analysis, as well as various linear pricing optimization methodologies, which has enabled him to provide boardroom level after tax cash flow analysis and decision support for lease versus purchase decisions on all kinds of assets.

Jim has been responsible for advising corporate clientele as well as debt and equity investors in structured lease transactions for variety of assets. Jim’s specialties lie in lease negotiations, lease versus purchase analysis and lease syndications. In today’s episode, we’ll focus on what you need to know about equipment leases. Welcome, Jim. Thanks for joining us. We’re very happy to have you on the show today.

Jim:

Thanks, Joe. Looking forward to this.

Joe:

So, Jim, in your bio, I introduced you as being trained and certified in lease versus purchase analysis, as well as various linear pricing optimization methodologies. Now, I know that’s a mouthful. Would you mind explaining what each of these are?

Jim:

Sure. Thanks for the introduction, Joe. We really appreciate our partnership with Visual Lease and it’s great to have the opportunity to talk through a few of these leasing topics that procurement professionals, treasurers, controllers and CFOs are looking for guidance on. This is a really good question to start today’s conversation with, because an accurate lease versus purchase analysis should be the foundation for decision support on what to lease, how to structure and negotiate the contracts, as well as how to model the timing of the lease payments and the buyout options.

The most accurate form of lease versus purchase analysis really is the net present value of the after tax cash flows when it’s combined with the correct residual assumptions, using the correct discount rates for an equipment financing versus the borrowing rate for the company’s most secured over collateralized credit agreements. We review and provide feedback on lease versus purchase analysis really on a weekly basis.

Most often these models are built in Microsoft Excel and several of the input variables for the analysis are flawed. For about 25 years now, we’ve been using the most sophisticated software available for lease versus purchase analysis. We use a combination of credit markets data collected from our Bloomberg Terminal to feed software from every consulting for the lease versus purchase.

We frequently update our training. We participate in workshops for using these software tools for the lease versus purchase models that we produce for our clients, so they’re technically accurate for board level decision support and auditing. As far as the linear pricing optimization, this is really just an optional structuring and pricing approach that’s typically reserved for big ticket complex transactions.

The linear pricing optimization creates an uneven payment stream for the timing of the lease payments, as well as the timing for multiple early buyout options. This pricing optimization calculation, it delivers the absolute lowest net present value of after tax cash flows for the borrowers. The lease versus purchase models really need to be updated on a regular basis so that they can produce an accurate analysis that helps companies to realize the many benefits of leasing and to optimize the savings.

Joe:

Jim, let me ask in what ways has the pandemic followed on closely by the current economy affected equipment leasing?

Jim:

Even with the headwinds of the Labor market, the ongoing supply chain issues, inflationary pressures and big swings in monetary policy, 2022 has been a record year for equipment financing. A recent study from the Equipment Lease Financing Association shows over a 5% increase in year to date compared to 2021. Equipment financing is being used now more than ever. The market is expected to grow from 1.1 trillion in 2020 to 1.8 trillion in 2025.

The equipment financing market is then expected to grow at a record pace to reach two and a half trillion by 2030. So anytime we have a bear market and a downturn in the economy, every treasurer and CFO wants to preserve cash. So in addition to a record year of new equipment financing volumes, we’re looking at a lot of sale leaseback opportunities to bring cash back onto the balance sheet while the banks are still getting the full advantage of the bonus depreciation that starts sunsetting this year.

As the Fed has been tightening credit, there’s huge swings in how credit committees are approving and pricing these transactions. The regulated banks are the very first lenders that get alligator arms on extending credit during difficult times, especially for the middle market credits. So these specialties and independent lessors that are not regulated and they’re quick to step in and fill this gap.

There are so many companies that have been recently declined on credit approvals, so they’re quick to accept these term sheets from the specialty and the independent lessors that are filling these gaps. We’re now seeing rates, terms and conditions similar to what we saw when the financial markets imploded in 2008. So this is when you could really use an advisor to help you navigate through these cleverly written term sheets and use some real time market intelligence, as well as leverage to negotiate with these lessors for immediate and long term savings.

Another significant change that we’ve seen are the residual positions that the lessors are taking in the different equipment categories. Since the pandemic, we’re seeing record swings in residuals in several different categories, ranging from materials handling to multifunction copier devices. I can’t stress enough how important it is to understand where the residuals have been, where they are today, and where they’ll be next year.

Then most importantly is how to use that market intelligence that develops strategies to save money on your equipment lease contracts.

Joe:

So, Jim, next question. Given the numbers in terms of the growth that you just mentioned over the next several years, it sounds like you expect these trends that you’ve been talking about and we’ve been experiencing to last well into next year and beyond. Is that true?

Jim:

Yeah, it really is. You know, the number one trend that we’ve seen is preservation of cash. Without a doubt, we’re seeing more companies than ever convert from buying their CapEx assets to some form of equipment leasing. In parallel with this desire to preserve cash, there’s really an unprecedented interest in the development of best practices and strategies for managing the life cycle of the leasing contracts to deliver savings.

Another trend that we’re seeing is a focus on the lease accounting reporting. The new lease accounting standards have put a spotlight on how these leases are executed, the terms and conditions in the contracts, as well as how the contracts are managed. So we’re very fortunate to have this partnership alliance in place with Visual Lease to deliver this data for our clients.

Another trend is companies have always negotiated for savings. There seems to be a heightened sense of urgency for significant savings and these equipment lease contracts. There’s really never been a better time to be at the forefront of lease accounting and lease advisory services because the financial planning and analysis that feeds the strategy as well as the reporting that we produce for our clients typically delivers savings of about 20%.

Joe:

Jim, For the next one, I’m going to go off script a little bit here just based upon some of the stuff you’ve been saying. So where we sit in Visual Lease, when we find that we brought customers on for the lease accounting standard, it was interesting that a lot of companies really didn’t do much to manage the end of term around their non-real estate assets, their equipment leases.

And so I’m just curious, given where things are headed, do you see an increase in the need for outsourced managed services, the administration of equipment lease portfolios, particularly as it relates to the end of term?

Jim:

Yeah, for sure. The the new lease accounting standards have been extremely helpful in pushing the topic of lease administration to the top of the priority list for CFO and controllers. Over the past 25 years that we’ve provided lease advisory services. I’ve never seen so much attention and resources allocated to the oversight of the equipment lease portfolio as we’ve seen today.

I’m not suggesting that there’s been a complete void of oversight for the last 25 years. I’m just saying we’re now seeing a level of senior management involvement that we’ve never seen in the past. The new lease accounting standards have been beneficial in so many ways. One, for instance, it has forced the coordination and the consolidation of the business units, leasing activities that often went unnoticed and not properly reported.

It has also forced those responsible for lease administration to expose and improve upon the terms and conditions such as interim rents, mandatory extensions and the end of term options that have historically been used as some of the most significant yield enhancers for these leasing companies. Lease administration has really evolved simply from negotiating, managing and controlling the contract terms and conditions to the development of portfolio strategies that deliver millions of dollars in savings.

From our perspective, lease administration is finally viewed as a strategic role that has a positive influence on the company’s bottom line.

Joe:

So, Jim, let me get one final question here. Kind of your closing thoughts on how a company can best set themselves up for success and properly evaluating lease transactions as they go out into the future.

Jim:

To successfully evaluate your leasing transactions… It’s not just about the contracts. I would suggest that properly evaluating these transactions include an evaluation of things like Are your lessors capable of supporting your internal processes for purchase orders to the vendors and even understanding the lessors invoicing capabilities. You really need to focus on every detail, including the term sheet proposal in every word in the contracts.

You need to understand what goes in to your lease rate factor. You might not ever know exactly for sure how the lender priced the debt and the equity for the transaction, but there are several ways that you can get really close. And this will help for the better understanding the lessors residual position on the equipment and their overall yield expectations.

You don’t agree to move forward on any of your leasing transactions until you’ve had a chance to review all of the terms and conditions in the master lease agreement, the schedule, the equipment, return writer provisions, even the step loss tables. All of these are open for negotiation. That lease rate factor is really just the tip of the iceberg for the total cost of ownership on these contracts.

And third, make certain that you have complete clarity on the lessors verbage for how things like base rate commencement and firm term commencement are executed to really ensure that you aren’t paying any unnecessary interim rents. And if you do have fair market value contracts for your equipment, make absolutely certain that you aren’t limited to things like 12 month extension options.

Make certain that you also have any or all versus all or none extensions or return provisions. The last thing that I can think of is evaluating your equipment leasing at a portfolio level by developing baselines for your current pricing terms and conditions, and then using those baselines to measure improvements in savings on an annual basis.

Joe:

That will conclude today’s episode of The Visual Lease Data Institute Podcast. Jim, thanks so much for being here and sharing your perspective on all things equipment leases. If you enjoyed this episode and want to catch up with other resources from The Visual Lease Data Institute, be sure to follow our LinkedIn, Twitter, Instagram and Facebook pages at Visual Lease, as well as our new LinkedIn community page.

Join using the link at the YouTube description below. And don’t forget to tune in to the next episode of The Visual Lease Data Institute Podcast, where our focus is on helping you leverage your lease portfolio as a strategic asset.

VLDI Podcast Episode 8 Transcript

Joe: 

Hi, I’m your host, Joe Fitzgerald. Welcome back to the Visual Lease Data Institute podcast. Today’s guest is none other than Rosemary Courtney, Manager of Technical Accounting on the Product team at Visual Lease. For those of you who missed Rosemary’s previous episode with us when we discussed GASB 96. Rosemary has extensive experience in the financial space, particularly general accounting, financial close and reporting. She brings financial insight, strategic focus and business sense to all aspects of operations within the business. So let’s jump right in. Hello and welcome back, Rosemary. Thanks for joining us. 

Rosemary: 

Thanks, Joe. Happy to be here. 

Joe: 

So to start off, Rosemary, can you tell us about how you and your team support the development of Visual Lease? 

Rosemary: 

Sure. My team and I work closely with the rest of the product team and the developers. We help them to design and model new product features. And whenever there’s a new regulatory standard or a change in a previous standard or just in general, the platform needs some enhancement in some way, we’ll help test accounting scenarios before the output is given to the customers. And that’s called user acceptance testing. So we step in and act like the customers react when using the platform. With the outside world, we also meet with third parties like technical accounting consultants and our alliance partners and even the folks at the Accounting Standards Boards. We like to check in once in a while just to make sure we’re interpreting things correctly. 

Joe: 

So, Rosemary, with all the government customers, that Visual Lease has been onboarding of late. A concept that keeps coming up is fund accounting. Could you explain kind of broadly what fund accounting is? 

Rosemary: 

So fund accountings been around for a very long time. And fund accounting is the way accountants in non-profits like universities, hospitals and then all governments use fund accounting. It helps literally track the amount of cash assigned to different purposes. And the usage of that cash, the accountant is trying to make sure that money is not misappropriated for the wrong type of expenditure. 

The money that comes in and out of that fund is restricted to be only for that specific purpose in non-profits. A good example is an endowment. So someone passes away and then donates as part of their will. Then within governments they’re given money or they raise money through taxes or municipal bonds, and that money gets budgeted for a specific purpose. 

So the government fund accounting really have to keep a close eye on the cash balances and also the liabilities for that fund and also the vendor payments. The fund is a standalone organizational structure. It’s kind of like a department. 

Joe: 

How is Visual Lease helping companies tackle fund accounting for their leases? 

Rosemary: 

So what Visual Lease is doing is we’re giving the customer all of those journal entries that align with the government wide reporting. But then we’re also slicing and dicing those journal entries into the fund information that they need so they can satisfy what’s called their Annual Comprehensive Financial Report, which is the big government wide report that they do. 

But at any given time, they can also explain to management or outsiders what the balances are in each of the funds, including lease related transactions. As the customer can take these fund journal entries, these additional fund journal entries, and they can automatically put them into their ERP if that’s where they belong. Or we leave them available in the event that they have a separate ledger for their fund transfer actions. 

So we give them the flexibility there. 

Joe: 

Can you walk us through the differences between modified accrual and full accrual for us accountants? 

Rosemary: 

Sure. So we probably should start with what I think everybody recognizes, which is cash basis accounting. The cash comes and goes into the funds. But when we graduate to this full accrual accounting, which is what GASB 87 is based on, the expenses and the revenues are recognized when incurred, meaning that although the entity may not have received the income, the cash in or pay the vendors as of yet, the services have been contracted. 

So there’s a liability. Somebody owes somebody else money. So when those services are rendered, there’s these obligations. And under full accrual, the entity has to record either a receivable money coming in in the future or a payable money going out in the future. Its saying at some point in the future, I owe this amount based on the services that happened today. 

So funds in government exist on what’s called a modified accrual basis where the cash is there, but also government funds modify that a bit to show short term assets and liabilities. Things that you know or they know will be coming due. They focus on the cash available and the short term obligations because they need to know kind of the financial health of that fund, what they’ve been given in the way of cash in and what they know that project will owe. 

So that’s what’s modified about it. So the government entity has to do both this GASB 87 full blown, full accrual reporting and simultaneously it has to do modified accrual. So that’s why it needs the two different sets of journal entries. And in between they cross walk one to the other in a reconciliation that they do. 

So it’s pretty complicated. 

Joe: 

Any closing thoughts and how organizations you know, can successfully set up for their fund accounting? 

Rosemary: 

I guess you can tell there’s so many moving parts. And what we’ve experienced in helping the implementations organizations, those that are going on to 87 is just really a precursor, is just making sure that you really understand those different buckets that full accrual and then again what’s on the horizon on a short term basis from the liabilities and the assets. 

And then they also need to have granularity on that cash because that cash has to be split in many ways. So it’s up front, you knowing how your organization flows is what I would advise because all of those will in the future move in various directions. So it’s having a really clearly drawn organizational map in the beginning so that things can be moved and allocated in the future cleanly. 

Joe:

That will conclude today’s episode of the VLDI Podcast. Rosemary, thank you so much for being here and sharing your expert knowledge with us. If you enjoyed this episode and want to catch up on all things VLDI, be sure to follow our LinkedIn, Twitter, Instagram and Facebook pages @visuallease. And don’t forget to tune in to the next episode of the Visual Lease Data Institute podcast, where our focus is on helping you and your company transform your lease accounting compliance requirements into financial opportunities. 

VLDI Podcast Episode 7 Transcript

Joe: 

Welcome back to the Visual Lease Data Institute podcast. I’m your host, Joe Fitzgerald. Today’s guest is Christian Wood, a Principal at RSM, one of Visual Lease’s valued partners. Christian leads RSM National Tax Practice in Washington for accounting credits, incentives and methods. He specializes in helping clients navigate complex tax environments to make informed business decisions, while championing cross communication and collaboration to achieve the best possible outcomes. 

Welcome, Christian. It’s great to have you on the podcast. 

Christian: 

Thank you. I’m excited to be here. 

Joe: 

Now, several months ago, Christian and I collaborated on an article for Reuters Tax Journals. And in that article, we discussed tax lessons that retail tenants and landlords learned following the pandemic. You know, it’s been our perspective here at VL that as companies grappled with the pandemic, they may have benefitted from an unforeseen advantage of having to comply with the new lease accounting standards, which is that maybe for the first time, companies had all of their leases in a central location with ready access to the terms and lease clauses that companies would need readily available if they plan to engage with their landlords as they sought certain financial accommodations and or concessions brought on by the pandemic. With that said, many tenants then went into those conversations without necessarily considering the less obvious tax and cash implications of those negotiations. So with that thought in mind, let’s dive in and get your thoughts on the matter. So first question for you, Christian. What were some of the main lessons that retailers learned about how they could utilize their lease agreements to combat the challenges they experienced during the early days of COVID 19? 

Christian: 

So a lot of our clients are rental markets, and they’re good at what they do, but they may not be tax experts. So a lot of the sort of lessons learned in the first step is educating the client on what are the tax implications of some of the decisions. There’s a code section 467 that when it applies, it can either make things really easy or really difficult to account for leases under a federal tax principle. 

And so a lot of it was just sort of educating them on how a 467 lease works and what are the implications of changes. One of the basic premises behind 467 is that income and expenses inside of a transaction occur at the same time between lessor and lessee. So when a lessee has to pay income and has an expense, I mean not income, but rent and it has an expense, then the lessor has income in the same time. 

And so there’s sort of that matching principle that not everybody realizes. And then 467 leases also apply equally to those people. And the cash method of accounting and the accrual method of accounting like I got sometimes with Well, what do you mean I have income I didn’t receive any cash? Well, that’s when it was due and the other side got an expense. 

So you’re going to have income without the cash. And that was one of the problems that presented. 

Joe: 

Christian, one thing, you know, we’re talking about retailers. And early on, we also saw retailers that tried turning to e-commerce to drive additional revenue. Is it true that this pivot to e-commerce didn’t necessarily help keep a number of companies from going out of business? 

Christian: 

True. Now, while some companies were innovative and succeeded online, a lot of companies weren’t necessarily prepared for it. And so online wasn’t the savior. And so they were kind of hemorrhaging cash. And that’s where we tried to come in and sort of help them sort of staunch the hemorrhages and not have to sort of go through all of their resources when they had certain things, they could have done to somewhat reduce the strain on the resources. 

Joe: 

So, you know, we did see a lot of landlords forgo rent for a period of time. What are the potential tax consequences when they did things like that? 

Christian: 

Sure. So, sort of one of three things happens, right? First is the rent was still due. We just said, you know, pay it a month, a year, whatever. The lessee would still have a rental expense under 467 if it applied. And the landlord would still have income even though they didn’t have cash. And so can you imagine having to pay taxes without the cash necessary to pay the taxes because you had to pick something up that you weren’t anticipating. 

There’s another example where you had a renegotiation of the lease and changed the economic terms, and so that there was perhaps a rent abatement in the first few months or year, and then you had an increase in rent over time, and that would have sort of changed the recognition in of income and expense on both side as it was sort of in essence a new 467 lease. 

So those are kind of some of the examples of without the proper knowledge and how it sort of was treated and the tax implications that we sort of struggled with with some of our clients. 

Joe: 

So, if I was going to turn what I’m hearing from you into a statement, I’d be curious whether you agree or disagree. If businesses had a stronger understanding of the lease accounting and tax implications of the pandemic, could they have mitigated some of the negative impacts they experienced? 

Christian: 

Yes, I think so. And the example where, hey, rent is still due, we’ll just defer you paying rent, right? Landlords had to pick up income, whereas if they knew if we restructured the lease and had a rent abatement in the earlier years and then sort of had a rent increase in the latter years, they could match the cash with the income pickup. 

And then on the lessee side, right, if they needed a deduction, they say, okay, I’ll pay you back. They still get a deduction, but they wouldn’t have to do part with the cash necessarily. While there were some extensions of allowing in also not to be limited to 80% of revenue. If you had an annual income in the following year, you may not get the full benefit of that deduction until a year or two down the road. 

So, sort of planning out where you were at tax wise and whether a deduction would be good in the current year or in the future year. So, for example, let’s say it’s not going to do me any good this year. We’re going to have a loss. But next year it’s going to be giving me good because I expect to come out of it and start making money then. 

So, I would be better off renegotiating the lease then simply deferring payments under the lease. 

Joe: 

You know, we were focusing on retailers, but I’m assuming there had to be issues that extend to other types of businesses and any unique issues for other industries that you want to call out. 

Christian: 

Yeah, I don’t know about unique, but for like retailers, even manufacturers that own their own property with the pandemic hitting, they kind of blew through and had to use up their assets to sort of survive. And so often some of our clients were left with the only asset that was worth any money was the land with which their manufacturing plant was on. 

And so, they didn’t really want to necessarily get rid of it because they still need to manufacture their products. And so, what they do is they sell the land and lease it back. And depending upon if there was gain built in or where people’s positions were, you know, whether you had needed income or not, there were ways to structure a sale and leaseback under 467 that allowed you to sort of better plan the income and the expense side of those transactions. 

Joe: 

That could see them needing to monetize what they could to get through. Any closing thoughts? 

Christian: 

Yes. So one of the reasons I got into tax was when I was in undergrad, I was in a tax class and they were telling me that, hey, someone made this business decision that made sense at the time, but they didn’t really talk to the tax person. And so all these horrible implications of what happened that they didn’t intend. 

I’m a firm believer that tax should never drive business decisions, that you shouldn’t make decisions simply based on tax results, but that once you make a business decision, I’m a big believer, and once you sort of decide what you want to do business wise, bring a tax person and let them sort of tell you what traps to avoid so that you don’t end up with any surprises 

Because tax could end up being a significant chunk of a transaction. And if that goes wrong, it could really change the economics. So again, I’m just a big proponent of why don’t you make the business decision, bring someone in who knows tax so they can make sure it’s structured in an efficient way. 

Joe: 

I would agree. Christian, thanks so much for being here and sharing your expert knowledge on taxes in the retail space and beyond. As we talked about, impacts maybe on other industries. So folks, that concludes today’s episode of the VLDI podcast. If you enjoyed this episode and want to catch up with all things VLDI, be sure to follow our LinkedIn, Twitter, Instagram and Facebook pages @VisualLease. 

And don’t forget to tune into our next episode of The Visual Lease Data Institute Podcast, where our focus is on helping you and your company transform your lease accounting compliance requirements into financial opportunities. 

VLDI Podcast Episode 6 Transcript

Joe: 

Hi. Welcome back to the Visual Lease Data Institute podcast. I’m your host, Joe Fitzgerald. We have a very special guest with us today. Please welcome none other than Visual Lease’s newly appointed CEO, Robert Michlewicz. As CEO of Visual Lease, Robert is responsible for ensuring operational excellence and sustained company growth. He oversees our corporate strategy, product engineering, marketing, sales, customer service and G.A. functions. 

Robert brings over two decades of experience in the financial technology sector to Visual Lease. I’ve asked Robert to join us here today to discuss the newest research from the Visual Lease Data Institute, which was published in July 2022. So let’s jump right in. Hello and welcome, Robert. Thanks for joining us. So, Robert, can you first explain what the Visual Lease Data institute is? 

Robert: 

Sure, Joe. The Visual Lease Data Institute is a collection of market leading data trends and insights on lease accounting, management and optimization, created and curated by our team. It was created to arm the business with the knowledge required to achieve and maintain lease accounting compliance and leverage their leases at strategic business assets. Given this level of expertise, it’s been cited in some of your favorite publications, including The Wall Street Journal, Forbes, Reuters, Accounting Today, Globe Street and others. 

Joe: 

That’s great. Now, tell me about the newest report from the VLDI. 

Robert: 

Sure. To compile the findings of the report, we surveyed 200 senior finance and accounting professionals at companies with more than 1000 employees, as well as 100 financial management professionals at local, state and federal government entities. Within the research, industry leaders from Visual Lease and other organizations such as RSM, On Q Financial and Indeed, breakdown common challenges and roadblocks experienced by the private company and government markets. 

As well as the many benefits of strong lease controls in accounting and how organizations can leverage lease accounting to make faster, smarter decisions. 

Joe: 

That’s interesting. What are some of the common lease accounting challenges that were highlighted in the findings? 

Robert: 

There is actually several competing business concerns that are impacting the adoption of the lease accounting standards for both private companies and government entities, including talent shortages and retention issues. In fact, 93% of private companies say their team is already stretched thin, making the transition to compliance with ASC 842 even more overwhelming. Also, nearly 40% cite concerns over employee burnout as they face the work required to achieve proper lease controls and accounting across the portfolio. 

Similarly, 86% of government entities say their team is already stretched thin, making the transition to compliance with GASB 87 even more overwhelming. Once compliant, there’s the issue of keeping up with sustained compliance. 33% of private companies ranked knowledge maintenance as a top obstacle to overcome throughout their lease accounting process. Similarly, 31% of government entities ranked knowledge maintenance as a top obstacle that they, too had to overcome throughout their lease accounting process. 

Among other concerns and obstacles are the ongoing effects of the pandemic, facilitating interdepartmental collaboration and coordination and the development of new processes, policies and controls. 

Joe: 

So how can organizations overcome these challenges? 

Robert: 

Well, because there’s so many moving parts and pieces when it comes to proper lease accounting and administration, having a centralized system of record greatly changes the way a firm organizes and maintains control over their leases while creating many efficiencies along the way. In fact, both private companies and government entities have reported that third party lease accounting software has helped them do several things, including the following first, replace and streamline essential manual tasks and improve accuracy through automation. 

Also keeping employees aware of rules and regulations. And introducing a new level of customer service and support available to their internal teams while reducing the risk of misreporting company lease information. Because of these many advantages, private companies were able to save an average of 600 hours. And public sector entities were able to save 765 hours by using third party lease accounting software. 

It’s important to note that when picking a solution, you should prioritize one that has strong customer support. Because we also found that 30% of private companies and nearly 40% of government entities reported adopting new technologies as a leading obstacle in their lease accounting projects. This is why at Visual Lease we’re dedicated to helping our customers throughout the entire implementation process and beyond to ensure they’re getting the maximum value out of our software and services. 

Joe: 

Robert, these are great insights. Any closing thoughts? 

Robert: 

Yes, really appreciate you having me today, Joe. It was great to share just a few snippets from our newest report. And if you’re interested in checking out all that Visual Lease Data Institute has to offer, you can find it under the Insights tab on the Visual Lease website. 

Joe: 

That will conclude today’s episode of the VLDI podcast. If you enjoyed this episode, be sure to follow our LinkedIn, Twitter, Instagram and Facebook pages @visuallease. And don’t forget to tune into the next episode of the Visual Lease Data Institute podcast, where our focus is on helping you and your company transform your lease accounting compliance requirements into financial opportunities. 

VLDI Podcast Episode 5 Transcript

JOE:

Hi everyone, Joe Fitzgerald here, your host of the Visual Lease Data Institute Podcast. I’m the SVP of Lease Market Strategy at Visual Lease and we have an exciting topic to cover in this episode.

This time we’ll be discussing GASB 96 with my colleague Rosemary Courtney, our Technical Accounting Director here at Visual Lease. I’ll also be welcoming back Mike Vanscoy, Managing Director at Solomon Edwards Group.

Rosemary is a CPA with over 30 years of experience in financial leadership roles. She has worked as both a senior executive and CFO at public, private and not-for-profit companies, with a proven track record in growth strategies and profit margin improvements.

She also has extensive global experience in general accounting policy, financial closing and reporting under US GAAP, IFRS and SEC, along with technical expertise in complex non-recurring transactions and SOC controls.

Mike has more than 25 years of national and international experience in various aspects of technical accounting and financial reporting, financial accounting management, audit compliance, financial management standards and international policies, controls and procedures in IFRS, FASB and GASB environments. He has extensive experience in accounting and reporting for public offerings, mergers and acquisitions, debt and equity transactions and complex consolidation topics.

I’ve asked both Rosemary and Mike to join us here today to address a recent GASB standard that organizations will need to adopt: GASB 96.

So, let’s jump right in. What exactly is GASB 96 and why is it so important? Give us the 101 breakdown.

ROSEMARY:

GASB 96 has to do with subscription-based information technology arrangements. It’s about going through your contracts and identifying, as a government entity, SaaS agreements and putting them on balance sheet for the first time. Essentially, they’re trying to make consistent treatment of these types of contracts for state and local governments.

JOE:

With that background, last time I spoke with Mike, we discussed GASB 87. I’m curious – what do organizations need to do to prepare for GASB 96? And how does it compare to how they’re preparing for GASB 87?

MIKE:

The good news is if your organization has gone through GASB 87, GASB 96 is going to look a lot like GASB 87. What GASB 96 is doing, like what GASB 87 was doing, is providing some uniformity to reporting over a specific area.

What GASB 87 did for leases and putting all of the leases on the balance sheet and providing a solid set of guidelines for entities to follow, GASB 96 is doing the same thing for these subscription-based technology arrangements.

Just like under the lease standards, you’re going to now have an asset and a corresponding liability related to all of these agreements that you didn’t have before. If you haven’t gone through the adoption process on the new lease standard, you’re going to have to do a lot of digging through your agreements.

You’ll be reading agreements and understanding what qualifies under the guidelines of GASB 96 for these subscription-based agreements that need to be put on the balance sheets. Once you pull those all together and consolidate them, you can then start doing the same work that you did for GASB 87.

So, there are a lot of similarities and there are a lot of leveraging efficiencies, if you will, from what you’ve done or will do for GASB 87.

JOE:

With that in mind, I know a lot of public entities are adopting GASB 87 right now. What’s the timing on GASB 96, and why do you think it is that entities are not doing both at the same time?

ROSEMARY:

The consensus is that folks are still really kind of wrestling with their GASB 87 implementation, so they just really don’t have the people power right now to pivot. However, GASB 96 follows on the heels of GASB 87 and GASB 96 is effective after June 15, 2022, and for all reporting periods thereafter. Basically, it’s just (an issue of) capacity to get it implemented.

JOE:

Are there other groups that are going to be more prominent in the cross-functional activities around GASB 96 that maybe not as involved in the GASB 87 transition?

MIKE:

I think so. GASB 96 is going to be mostly an IT function because we’re talking about subscription-based information technology agreements. For the folks who work in IT and in governmental entities, they’re getting a double whammy, if you will, because under GASB 87, part of the work to adopt GASB 87 was looking for embedded leases and looking through all theircontracts to find elements of a lease.

We’ve asked that group, along with other groups, to go through all of their contracts and try to scope in or scope out leases. Now, that same group is going to have to go through even more work and go through all of their contracts to determine whether their arrangements with software providers meet the guidelines under GASB 96.

So, it’s the IT group in particular, along with accounting, because accounting has been involved in both of these in terms of collecting data, consolidating it and coming up with new mechanisms for reporting. That can refer to new accounts, reconciliations and all the things that come with financial reporting. I would say that IT and accounting are going to take the brunt of GASB 96, and IT will feel it more than they did with GASB 87.

JOE:

I was looking through the GASB 96 standard and noticed there’s discussion about certain costs and implementation costs around these contracts both before, during and after implementation. What do those costs entail?

ROSEMARY:

As Mike was describing, digging through contracts to look for embedded leases, with these SBITA agreements, there’s a deep dive required to find the different cost stages of a contract. There are preliminary project stage costs and then there are initial implementation stage and then operation and additional implementation stage.

Those are the three buckets, and each of those has to be identified because some are expenses incurred and some are capitalized. There’s a nuance and I think you were with me, Joe, a while ago, when we called GASB to walk through some of that.

Our initial instinct was that these are going to be hard to find. Often when you’re negotiating, they’re not always carved out. For example, sometimes your training costs are buried in the same contract. It goes to accounts payable, it’s all one.

It’s hard to identify the discrete cost items for the different accounting treatments. So, there’s a complexity there in finding the costs.

JOE:

As we know, these are not leases, but there’s obviously similarities.

Many entities have implemented some form of lease accounting technology for GASB 87. How do you see them leveraging that technology as they move into adopting GASB 96?

MIKE:

I think the technology needs are just as great as they were under GASB 87. What people have found is that, just like anyone who’s adopted the lease accounting standards, whether in the private or the governmental area, is that Day 1, you can calculate everything. However, with Day 2, software does all the necessary work, from reporting to consolidation, that makes your life easier.

Luckily, GASB 87 and GASB 96 are similar. In fact, many of the terms are similar: we have a right-to-use asset under both, we have a lease liability under GASB 87 and we have a subscription liability under GASB 96.

We’re talking about, conceptually, two standards that are very much alike, one’s for leases and one’s very specific for information technology agreements. If you’re using software and you’ve gotten used to the software that you use for GASB 87, stick with that for GASB 96. If you’re looking at software for GASB 87, I would recommend that while you’re looking at software for GASB 87, consider that same software provider for GASB 96.

I’m sure providers, such as Visual Lease, have options for GASB 96. Once you’ve gotten used to the GASB 87 accounting and the GASB 87 reporting, GASB 96 is going to be so much easier. You’ll be able to leverage everything that you’ve learned from using the software for GASB 87.

JOE:

That certainly makes a lot of sense. You might as well leverage existing software rather than go out and get another solution. Rosemary and Mike, do you have any closing thoughts on GASB 96?

ROSEMARY:

My hunch is, and you might be able to clarify this for me, but observing with the GASB 87 implementation is a little bit more of a difficult transition, whereas GASB 96 should be more discrete because it’s new.

There’s not as much of a look back and find for an opening balance restatement. I think it won’t be as heavy of a lift, that’s my hunch.

MIKE:

Agreed. I think what the heavy lift is, or the issue for most entities, is the same record you hear played over and over again everywhere. There’s just not enough bandwidth for most of these organizations to do their current day jobs and turn around and adopt a couple of significant standards, like GASB 87 and GASB 96.

I also agree with Rosemary that GASB 96, in theory, should be easier because it’s very much focused on information technology agreements, whereas GASB 87 was broad. It was about looking at all your agreements, particularly service agreements of any type, and try to make sure that there’s not a lease in there, or if there is a lease, that you account for it properly.

I think bandwidth is going to be the biggest issue. The other big issue, in terms of both standards, represents a significant change in the way we approach recording these items. Leases were always one of those things that were always off balance sheet, and were mainly an operating expense, unless they were capital leases.

These subscription agreements with technology, we’re using software, we’re using assets and we’re paying a monthly fee. Those have been viewed as mainly expenses because we didn’t think we bought anything, we weren’t buying assets that we were using.

Both standards represent a wholesale change in the way we think and approach these items. I think that’s the biggest lift: asking people to turn around their reporting processes and the way they use their internal controls, over these items.

JOE:

Rosemary, Mike, great insights. Thanks again, I really enjoyed chatting with you both and taking the time to discuss GASB 96.

VLDI Podcast Episode 4 Transcript

Joe: 

Hi there, Joe Fitzgerald here, your host of The VLDI Podcast – welcome back!

Today, I wanted to discuss the management letter you receive as part of your annual audit. 

For companies that report on a calendar year and have completed their 2021 audit, the CFO should have received a management letter from their auditors.  

The management letter highlights key financial findings and provides recommendations for improvements to internal controls. It also raises awareness of new accounting pronouncements that the company will need to adopt. 

One topic we have seen in annual management letters for a couple of years now is regarding the need to comply with the new lease accounting standards – ASC 842, GASB 87 and IRFS 16. With that in mind, it’s time to take action – if your company hasn’t already – to avoid being flagged for not meeting these standards in your next annual audit. 

Here’s four steps you should take to successfully achieve and maintain lease accounting compliance, and reduce the risk to your business:

1. Familiarize yourself with key deadlinesTypically, this is a heavier lift than many companies expect, so ensure you have enough time to gather all your lease documents, and develop and execute a strategy to extract, transform and load all the necessary data elements before getting started.
2. Create a plan and identify the principal stakeholders who will be involved in the process
   Once aware of major milestones, it’s important to map key players/teams to each initiative to get a handle on what resources will be needed. 
   This also creates an opportunity to generate awareness around the lease accounting deadlines so that all parties understand the importance and their role within the process.
3. Gather all relevant documents in one centralized system This will ensure that you have all the information you need in one place and it can be easily accessed, analyzed and updated on an ongoing basis. This is also where investing in technology comes into play to ensure your process is efficient.
4. Develop business requirementsIf you decide to move forward with investing in supporting technology or partners, consult with all internal stakeholders and factor their feedback in before selecting a provider. This pre-work will translate into easy adoption, which can greatly impact your ability to remain compliant.   

I hope this information helps you in your lease accounting journey! See you next time. 

VLDI Podcast Episode 3 Transcript

Joe: 

Hi there, Joe Fitzgerald here, your host of The VLDI Podcast.  

For this episode, I will discuss the importance of automation in lease accounting. Let me provide you with a bit of context. 

According to a recent Gartner survey, finance professionals anticipate audit fees will increase this year due to the impact of inflation, ongoing COVID-19 effects, as well as acquisition and divestiture activities.  

In fact, 62% of the companies polled expected their audit fees to increase. Why the connection to lease accounting? 

Finding the right solution to automate your lease accounting process to achieve and sustain compliance with ASC 842, GASB 87 and/or IFRS 16 can ultimately save your company a lot of money in audit fees. 

The same Gartner survey found that organizations that automate at least 25% of their internal controls paid on average almost 30% less for their audit fees. 

That’s significant! In fact, for some companies, this level of savings clearly outweighs the annual cost of lease accounting software solution subscription(s). 

Lease accounting involves complex calculations that, if done manually, are prone to human error. As an expert in the industry, it’s my opinion that using a spreadsheet such as Excel puts you at risk for inaccurate lease accounting. 

The reality is – errors come at a significant cost. In fact, just last year, we surveyed senior finance and accounting professionals from private companies and a staggering 99% acknowledged real fears of potentially misreporting company lease information. And here were some of their top concerns: 

• 51% noted increased audit fees and fines 
• 49% said there’s potential damage to a company’s reputation 
• 48% pointed out the risk of legal action 
• 44% were concerned about damage to their own professional reputation 

To avoid risks, automation is crucial to that success. Trust me, your auditors will thank you for implementing the right technology. And when you do, you can reduce risk, improve operational efficiencies and save money on your audit. That’s a winning combination.  

I hope this information serves you well. Hope you tune in for the next episode! 

VLDI Podcast Episode 2 Transcript

Joe: 

Hi there, Joe Fitzgerald here, your host of Tthe VLDI Podcast.  

I have been in the accounting profession for many years, both as a CPA at a global accounting firm, as well as a senior finance executive in industry. During my career, one of the most impactful changes to accounting that I have experienced firsthand is adopting the new lease accounting standard, ASC 842. 

Most publicly traded companies transitioned to the new lease accounting standard back in 2019 so while they have effectively had three years of reporting under their belts, it is still very much here and now for private companies.  

Having had a front– row seat when public companies adopted the standard, we thought it might be helpful to those companies that have yet to adopt it to share insights of lessons learned and best practices. 

ASC 842 is not just another end– of– the– year footnote disclosure.  

This is an entirely new approach to accounting for leases, and companies need to realize that much of the work that goes into compliance happens outside of the technology implementation — namely, centralizing your lease contracts and abstracting the data they contain, as well as establishing the proper accounting policies and procedures. 

So, you’re probably thinking: what’s the most efficient way for a business to get up to speed on ASC 842? 

Well, I’ve found that the folks who are responsible for the standard, namely the finance folks, need to do a really good job at socializing and educating across the organization to all the other cross-functional people who are going to be involved in helping them implement the standard.  

Most companies don’t have a good handle on how many leases they have because there is not really a single owner or system of record to store them. 

Yes, achieving lease accounting compliance starts with Day 1, by bringing all your leases onto the balance sheet in the form of a right of use asset and related lease liability, but it doesn’t end there. 

It’s also about tracking and accounting for every change made to each lease throughout the period you are reporting on. 

If you don’t have the tools in place to record adjustments to your leases, you will face significant challenges when it comes time to produce the journal entries to record those changes and the relevant disclosures. 

Some of the potential risks include, quite honestly, the simple one is, the lack of accuracy. Or just getting the journal entries wrong because you didn’t have the proper process and systems in place to make sure you got your calculations correct.  

If your organization only has a few leases, that’s one thing. But what if you have dozens, or hundreds, or even thousands like many of our customers do? That becomes another problem entirely. 

For example, if your company has a December 31st year– end, you need to be able to book an opening journal entry on January 1, 2022, for all of your company’s leases that are active as of December 31, 2021. 

You heard me right. Now that we are well into 2022, you still need to be able to record an opening balance Right-of-Use Lease Asset and related Lease Liability as of January 1, 2022. 

The longer you wait, the trickier this can become, as you may find yourself having to recast many of your lease accounting entries that have occurred so far this year to get back to that opening balance. 

So don’t delay and risk being flagged for a deficiency during your next audit. I hope these insights were helpful, see you on the next episode! 

VLDI Podcast Episode 1 Transcript
Joe: 

Hi everyone, and welcome to the first official episode of the Visual Lease Data Institute Podcast. My name is Joe Fitzgerald, I’m the SVP of Lease Market Strategy here at Visual Lease, and I’m your host.

So, without further ado, allow me to introduce our guest, Michael Vanscoy. Michael is a Managing Director at the Solomon Edwards Group, with more than 25 years of experience in various aspects of technical accounting and financial reporting. His knowledge spans both FASB and IFRS, as well as GASB. Michael has extensive experience supporting his clients with accounting and reporting for public offerings, mergers and acquisitions, debt and equity transactions and complex consolidation topics.

He also brings deep, hands-on experience in all aspects of public reporting for SEC registrants, from registration statements to the preparation of periodic filings. I’ve invited Michael to join us here today to address two big questions that are top of mind for our customers, and that’s:

• What’s on the horizon for public sector entities with respect to the new GASB lease accounting standard, and…
• How can companies ease into their annual audit stress through the lease accounting process?

So, let’s jump right in. Hello, and welcome, Michael. Thanks for joining us.

Mike:

Thank you. Thanks for inviting me today.

Joe:

So, now that we’ve set the stage, what exactly is GASB 87? And what does it entail? I’d love to get your thoughts on what’s just around the corner for those impacted public sector organizations.

Mike: 

Right, so GASB 87 follows the same sort of projects that the FASB and IFRS have followed. Leases that used to be off the balance sheet – what we refer to as operating leases – are now going to be on the balance sheet. So, what’s on the horizon for all governmental entities is a lot of contracts they had previously reported through their income statement or through disclosures in the financial statements, are now going to be on their balance sheet in the form of assets and liabilities. Before, they didn’t have to record them.

So, now you’re going to see balance sheets become a bit more bloated with assets and liabilities. And there’s going to be a lot more rigor around that and some expanded disclosures that come with that. So, it really is a huge structural change in terms of how you report leases.

Joe:

And I’ve got to imagine the stakeholders are going to provide a lot more scrutiny around that as well, right?

Mike:

Yeah, and that’s what we’ve seen in the private sector. So, with FASB and IFRS, sort of as a precedent to this, what you’veseen is how everything is more transparent than it had been in the past, where financial statement users, whether they’re looking at private or public sector financial statements, often had to guess what level of assets were being leased by any organization.

I mean, sure, you could look at the disclosures, and you could see the minimum lease payments – you could see all those things – but it was hard to quantify, in your mind, without guessing and making a lot of assumptions about how much that represented in the form of a liability on a statement of net position, for instance, and a governmental entity.

Joe: 

So, Mike, let me ask a question around that for government entities : this concept of reporting on a fund basis… can you talk a little bit about the impact the reconciliation of fund balances has on government wide financial statements?

Mike:

Yeah, so anyone who’s worked in governmental accounting is familiar. There are a few types of funds: governmental funds, proprietary funds and fiduciary funds. For instance, governmental funds are a special category where everything is reported as a fund balance, and it’s not on an accrual basis. So, what’s required in sort of a comprehensive annual financial report that governmental entities have to prepare every year is a reconciliation between those fund balances and the full accrual balances that you see on the government-wide financial statements.

For instance, if we use GASB 87 as an example here for fund balance accounting, under governmental funds, the accounting is not really going to change. If they’re going to have cash outflows on a regular basis, say on a monthly basis for lease payment, but they’re not going to be recording assets and liabilities at the fund level.

And so, at the government-wide level, in the Annual Financial Report, you’re going to see all these new lease assets and new lease liabilities. In addition to doing all the new accounting and disclosure work, preparers of government financial statements are now going to have additional items to add to this reconciliation that shows financial statement users how you get from these individual governmental finance fund balances to the government-wide financial statements on an accrual basis.

Joe:

Michael, that sounds burdensome and complex. Can lease accounting technology help in this area?

Mike:

Oh, absolutely. We’ve recommended every client that we’ve worked with –  whether it’s private or public sector – if you have leases of any substance, you’re not doing yourself a favor if you don’t find a lease accounting software solution that works for you, for a multitude of reasons. At a very tactical level, being able to throw all your lease data into a software that’s been built by professionals and experts it can do all the recording, all the reporting, all the calculations for you and can generate all the disclosures that you need for financial statements.

If you try to go without software, and you have any lease population of any substance, you may be able to get to Day One, do all the valuation and come up with what your quote opening balances are for right to use assets and lease liabilities. But all that subsequent remeasurement – when you have lease modifications (adjustments, the addition of new leases), and the reporting is difficult; you’re going to end up spending a lot more resources and time just doing something that’s basically a compliance issue.

Joe:

So, Mike, let’s get under the covers a little bit. What can an organization do to ensure that the system that they’ve set up is properly configured so they can accurately report – and what’s the required data that you’d recommend?

Mike:

So, if you’re considering whether to go with lease software or if you’re trying to do it in Excel (but we recommend lease software, obviously), what you’re looking for are tools that will help you get the right values for the right to use assets and lease liabilities. There are a lot of assumptions, a lot of judgment that goes into determining these that we won’t get into today, but with discount rate assumptions, with lease term assumptions, all these sorts of things that you can build into, that you can put into the tool to help you evaluate, the impact is going to be on the balance sheet.

But beyond that, every month, or whatever your recording requirements may be – processing all of the payments, the interest calculations, the amortization of these new lease assets and all the disclosure requirements that are going to be required – every time you issue financial statements, what you’re looking for is a tool that can do all of these things, essentially, so you can push a button every reporting period, rather than stopping and starting.

If you’re trying to use an Excel-based model, or something other than a piece of software, you’re going to run into all sorts of version control and accuracy issues. So, we do recommend looking for the tool that fits you and your organization, given the population of leases that you have.

Joe:

So, Michael, you know, we’re talking about the tool, and a lot of folks that are going into the project, think of it as a one and done, right? They think, “I’m going to transition from the current standard to GASB 87, and then we’re kind of done.” But that’s not the case, right? I mean, that’s what I call Day 2. What are some of the things they need to think about in terms of managing the data? For instance, the integrity of the data going forward or that they need to put in place so that when they get to their annual audit that the auditors are happy with what they see?

Mike:

Right. What we find is that if we’re looking at, for instance, what Visual Lease will do… if you have this software tool, not only does it do all the calculating, all the reporting, and spitting out the disclosures that you need, because these are things that the auditor is going to review and go through each year. These are things that are required to be a part of your financial statements, but you can also use the tool to manage your lease portfolio.

And what I mean by that is the tool allows you to generate the kind of data and reports that you need to do cash flow forecasting, for budgetary reasons, to do expense projections, all those sorts of things.

And it also provides another tool for you to use as part of your internal controls to control that data integrity that you talked about. To adopt GASB 87, you can get to Day One doing calculations in Excel if you want to. But Day 2-forward is where the problem and the work lies. Using a tool is a critical part of your internal control procedures to act as a gateway for approvals, for signing off on leases…

And not only that, the lease software tool itself also serves as the document repository because one of the most frustrating things during an audit, for auditors and clients alike, is when the auditors want to review copies of agreements or documents. If you’re decentralized or if you haven’t paid enough attention to this or done enough rigor around it, trying to find all the original documents to support what you put in your financial statements can prove to be difficult and time consuming and lead to internal control deficiencies being identified.

Joe:

Michael, in terms of the control environment, one other thing I want to ask you is… think of Visual Lease, as we call it: a point solution. What do you want to have to say that, like integrating with the ERP environment, what are some of your recommendations there?

Mike:

So, we have clients that I’ve worked with that have multiple preferences. Some of them prefer to have a standalone lease system. They say, “this is something that generates what I need for this particular item”. They don’t want to integrate with their general ledger because maybe they don’t have the controls built in, or they don’t want something that feeds into their system that’s not already part of their current system. You can do that if you want to, but it just adds an extra step to it.

What’s great about a tool like Visual Lease is – once you’ve established all the parameters and all the controls around what gets input into Visual Lease, including how those controls are managed, who’s doing the approvals, that you’re comfortable with the data and particularly, if you’ve gotten comfortable with the data… also, after your auditors have been through it a time or two, and they’re comfortable with the outputs from the lease software – entering that into a system takes another manual step out of the equation, and every manual step that you can take out the equation is one less chance for error.

Joe:

Mike – great insights. Any parting thoughts?

Mike:

What I would say to those who haven’t adopted it yet, is that you have a lot of work to do in front of you. You brought up the point earlier that there’s a tendency to think this is a one-time transaction. – I just have to get to adoption date, and then I’m fine. – Adoption is the easy part of it. It’s Day 2 and beyond where there’s a lot of work. And so, if you haven’t gotten that far – haven’t done the planning – get out and start doing that now. Start looking at lease software, start talking to people like Visual Lease and determining what do you need to do to get ready for the standard.

And, although it’s not the topic of discussion today, you know that GASB 96 is coming down the road – and GASB 96 looks a lot like GASB 87, except for software contracts, not leases. But if you can get leases (GASB 87) right, you’re setting yourself up for success with GASB 96. And this is not going to be the end as we know of standards that are coming out to increase transparency and disclosure of these sorts of items. So, get started if you haven’t gotten started yet. If you’ve gotten started, you’re running out of time to adopt the standard. I would just suggest moving as quickly as possible.

Joe:

Great call out on GASB 96, Mike! I have a sense that you and I will be back on the line in the not-too-distant future talking about 96. I really appreciate your time today, Mike, and thanks so much.

Mike:

Thank you.