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7 Reasons ERP Platforms Are A Bad Choice For Lease Accounting

7 Reasons ERP Platforms are a Bad Choice for Lease Accounting

Corporations have a lot invested in their ERPs, particularly in SAP and Oracle. All ERPs market a Lease Accounting “solution” for compliance with ASC 842 and IFRS 16. It is logical to assume your ERP is a good choice for Lease Accounting. However, having easily replaced lease accounting solutions originally deployed on ERP platforms, there are 7 major reasons why ERPs are a bad choice for this specialized solution space: 

  1. It’s new and specialized: Lease accounting is new as of 2016, and most ERPs are mature platforms, never designed considering the operating lease accounting calculation requirements of ASC 842. The fundamental architecture does not integrate lease administration and accounting calculations (beyond payments), and there is no connection between real estate leases and the concept of amortizing equipment leased assets. The architecture is counter-intuitive for what should be single solution for lease accounting, resulting in #2. 
  2. Complex, modular approach: All ERPs, particularly SAP and Oracle, solve for lease accounting with extensive configuration and three to four separate modules. The complex SAP solution is an example. ERPs manage real estate in their contract and lease management modules and separately manage equipment leases in the fixed asset module.  The amortization schedules and lease accounting calculations are run in the accounting module. A separate Lease Accounting Reporting package is used for Disclosures and related Lease Accounting reports. This leads to the next (5) items. 
  3. Expensive and time-consuming implementations: We all know what ERP projects are like. Even if your ERP supplier includes required modules in an ERP license at no cost, it has to be implemented by internal or external consultants.  Few ERP consultants have the expertise required, driving premium consulting rates, and this time and substantial investment could be better leveraged on ERP projects. Further, it takes months to configure the various modules to end up with the next (4) items. 
  4. Configuration and Adapting to the Lease Accounting Business Processes: The expensive and complex configuration is very difficult to configure to current and unique processes, and even costly and slow to adopt to changing Lease Accounting business processes. It’s impossible to change rapidly to match the on-going needs of accounting. 
  5. Lack of functionality and automation: Since the lease accounting standard was released in 2016, there have been dramatic functional gains by CoStar, enabling continuous automation, saving hundreds of accounting hours; automated remeasurements, discount rate management, advanced reporting, performance, functional currency support and more. ERPs face three functionality hurdles, leaving solutions perpetually less functional:
  • ERP providers entered the market late, only providing first basic solutions more than two years after the accounting standard was issued, catching up functionality ever since. 
  • The market is not large enough for ERPs to prioritize material development investments, versus companies like CoStar, committed to advancing this accounting discipline with high investments and pace. 
  • The slow, under-invested functionality can only be released to customers at the pace of the underlying.
  1. Expensive to maintain and retest: The underlying modules change irrespective of lease accounting, and releases/patches must be applied and tested even when there is no benefit for lease accounting use cases. IT and accounting end users have to invest time on upgrades and testing for no lease accounting functional benefit. When there is lease accounting functionality delivered, all affected components need to be tested with IT deeply involved. 
  1. Poor internal customer satisfaction: Ultimately, the accounting teams that use the ERP solutions for lease accounting have an unproductive experience, performing time consuming and audit prone work-arounds in Excel, and find they could have much more automation from a dedicated solution, easily integrated with their ERP, saving both IT and accounting hundreds of hours. 

Companies that choose their ERP for Lease accounting end up with an expensive and less functional solution, in exchange for an implied benefit of using one (ERP) platform. The most functional, dedicated lease accounting product (from CoStar) is routinely integrated with any ERP and reconciliation module or product. Companies should use their limited IT resources on other ERP projects, and choose CoStar, integrated with their ERP, for the best outcome.  Companies already deployed on their ERP can easily migrate to a better solution. 

ERP systems are hard enough without adding Lease Accounting: 16 Recent and Famous ERP disasters.

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