This post is a review of the AptConnect21 session: “When regulations collide: why T-Mobile selected Aptitude for lease accounting and the value of integrated finance solutions” hosted by Alan Berkley, Senior Finance Specialist Aptitude Software, Product Strategy and Innovation Team and Lora Tarabeih, Director of Accounting, Asset &Lease Accounting T–Mobile.
The starting point: T – Mobile leasing landscape
· The number of subscribers in total is 104M; they have been acquired both by organic growth and merge with Sprint in 2020. This exponential growth has put a lot of pressure on finance systems in terms of new business and new contracts coming in.
· A diverse lease portfolio. Out of approx. 120k leases T–Mobile possessed, 110k of them were cell and network sites. But in addition, there were numerous equipment leases (small, but requiring different accounting rules) on commercial and critical sites e.g. CC centres, data centres, switch locations and retail stores.
· Various infrastructure/teams allocation: all the leases mentioned above are managed with different teams and have different admin systems with different processes.
· Extended processes: normally, if you have a lease, once it’s executed and it’s in the system, it stays there. For T-Mobile, a typical case is to have 2-3k amendments with cells.
The challenges and need for change
Back in 2016, the accounting team was into IFRS16 standard and ASC842 was issued. There was a potential for interference. The senior leadership team considered following 2 standards at the same time. When T-Mobile talked to the Wall Street representatives it made sense for them.
The early question though was: which system is going to handle all of these leases?
The standard that came through from vendors did not have a chance to have a head start. Luckily for this large telecom, they did not start early thus some major challenges appeared in their sight.
1. Typically vendors tried to come up with complete package functionality and T-Mobile was looking for a lease engine solution only. The main reason for that was that their business had just made a migration to the leasing admin system and users simply did not want to go through the similar or same process again. So, a question was raised: which vendor will allow us to take data and put it into the lease engine? But most of them wanted to implement end–to–end products.
2. T – Mobile needed both IFRS16 and US GAAP standards (bearing in mind that their parent company is Deutsche Telekom).
3. The leasing team had a lot of use cases – started with 200, came down to 140 – but covering the vast majority and complexity was an issue.
4. Another great obstacle was that many changes were happening at the same time i.e. new activations and modifications. Most of the presented systems needed some kind of decision process, somebody would look at the lease and then decide on the process.
T-Mobile did not have that many professionals to do that job.
As a result, T-Mobile decided to reevaluate and started a new selection process. The long list was shortened to the final 4 and ultimately Aptitude Software Lease Accounting Engine was selected.
The implemented solution has significantly impacted our processes – their quality and speed. The table below compares our 2016 state vs. 2020 solution.
Reflection: how do leasing engines allow for better forecasting and insight-led discussions?
We’ve all been affected by the plethora of new regulations in leasing, insurance accounting and it’s not in one jurisdiction, sometimes it’s repeated. Looking at those accounting standards, there is a clear theme that has come up throughout the last 12 years since IFRS9. The theme is that all standards require more complex reporting and granularity of data. It obviously improves the clarity for users and shareholders but it puts enormous pressure on accounting teams. The increased granularity means more data, more calculations and more journals or bringing contracts up by measuring different aspects.
Alongside increased granularity, we have focused on detailed analytics and FP&A. What businesses want from their departments are insights. In theory, finance should be in an ideal position to do it but, how can finance have the time to control and report all of that data and analyse the forecast and plan on the back of that data?
Fortunately, technology has come a long way in the last few years and we’re able to leverage specialised accounting engines with cloud computing. The Aptitude Software’s approach is to provide specialist accounting engines – same as we have specialized accountants: revenue, asset, lease accountants. And they need to be combined with cloud computing abilities.
Very often you have multiple engines in different places, but you want the data to be in one place and avoid storing this redundantly. We should be coming to a sweet spot if finance teams can harness the power of finance technology and the power of data to carry businesses forward.
The trap of intertwining regulations
A particular challenge occurs when different parts of individual contracts need to be broken down into portions, accounted for revenue recognition and other portion of lease accounting.
For example, within financial services, there are investment products that can be accounted for financial instruments or insurance products so they can be classified both under CECL and LDTI. Then, the insurer has to decide which one is it AND be able to do both types of accounting. This puts more pressure and duties onto the accounting teams and most probably it’s not a one-time situation.
Therefore, a major challenge emerges: how to have the correct type of tools for different types of accounting? How to be responsive to the additional complexity? One possible answer is specialized accounting engines.
There are 3 aspects of designing Accounting IT architecture for the future.
· Finance dept. designed for not compliance only, but what you want to give to the business
· Choose the right tool for the right job – specialist engine
· Embrace the data and leverage the benefits that you can take from that data
How effective are your leasing accounting solutions? Would you like to learn how Aptitude’s Engine can boost your finance performance? Feel free to reach out to us and have a chat through: https://fiit-consulting.com/free-consultation/