STRATEGY POLICY INVENTORY DATA
SYSTEM PROCESS
CONTROL SUSTAIN
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ROAD TO LEASE COMPLIANCE
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PROCESS
and are often executed and managed at the subsidiary, department, local office
or plant level. 'Embedded' leases, which exists if there's an explicit or implicit
asset in the contract and the customer controls use of the asset, are even more
difficult to identify as they are often buried in agreements and determining their
classification requires deeper interpretation expertise.
To meet the new requirements today, and in the future, companies will need to
establish centralized enterprise-wide processes to assess contracts after they
are executed and classify lease or non-lease contracts, as well as type of lease.
More proactive organizations will assess leases prior to execution to architect
lease conditions that optimize financial impacts by manipulating term, options,
taxes, and other factors.
Lease Negotiation Process
According to a recent CFO Magazine article, "The new accounting rules
may affect how companies approach new leases, and may prompt them
to renegotiate some existing leases. Executives may want to more critically
analyze lease-versus-buy decisions, and perhaps negotiate different terms
and conditions in lease agreements to manage the impact of the new rules."
Moving to a standardized way of negotiating leases will be a difficult task
for most, especially for real estate deal makers who are often more art than
science. Defining the circumstances when lease-vs-buy models are employed,
incorporating more sophisticated discounted cash flow analyses and instituting
strategic checkpoints such as equipment obsolescence risk or alternative
minimum tax considerations are a few best practices.
Procurement Processes
The level to which Procurement Departments are involved in contract
negotiations varies substantially by size of company and type of contract. Larger
organizations tend to have robust procurement functions and processes, while
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