Summary

1. battle with audit firms: identification and measurement of leases

The first hurdle in complying with the new lease accounting standards is the discussion with the audit firm. What is the battle between the companies' desire to "off-balance sheet as much as possible" and the strict standards?

Realities in the field

Many companies are seeking to go off-balance sheet by taking advantage of the "small amount short term exception" or "immateriality. Some are considering whether they can adjust the terms of the contract and claim "this is not a lease." ...... This is a key point to be aware of!

Q4: "Auditors are very strict in their checks, and looking for easy loopholes carries a high risk of being rejected."

It is good to try, but it is very difficult to revert if you get screwed up later. The trick is to proceed with a conservative (strict) estimate to some extent, so as not to delay the project.

Is AI "all-purpose"? Viewpoint of "discernment" that determines business efficiency

The sound of "AI reading and automatically identifying contracts" is appealing, but to what extent can it be used in actual business operations?

Realities in the field

Many companies are interested in AI capabilities as part of their DX. However, there are cases where companies easily decide to introduce AI, thinking that "the latest AI functions should make business easier. ...... This is a major pitfall!

"To sum up, it is dangerous to choose a system based on AI.

For example, if 90% of contracts are routine real estate contracts, it will be much easier to work with an "easy-to-enter screen" than to have an AI read it. On the other hand, if there are "stray contracts" scattered all over the site, AI can be a powerful weapon. If you do not select the functions that match the "state of your company's contract management," you may end up with a treasure trove of information.

Where are the early adopters now?

The main production date is April 2027 (in the case of a March 31 year-end), but what is the schedule of "leading companies" that aim for early application from April 2026?

Realities in the field

Let's look at an example of a company with just under 10,000 contracts (about 10 companies in a group) that is actually working on the project. Surprisingly, the schedule is a speedy six months, from "October start to March completion the following year. The process runs through "requirements definition (current/ideal organization) → configuration → verification → group deployment" in one fell swoop.

However, it is dangerous to think that "we can get by with just six months".

This case study is a speedy process made possible by the "six months of professional support" from a vendor with expertise. There is a lot of work to be done, such as journal linkage and preparation of transition data. It is correct to think of it not as "we can do it in six months," but as "we need to be prepared to complete it in six months.

Q&A] "Concerns of the front line" question and answer

In the seminar, we took the problems of customers we deal with in the field and asked them questions in a question-and-answer format, and talked about them without discovery.

Q1. Can I change the terms of the contract to avoid being considered a lease?

Discussions with the auditing firm have been difficult. For example, is it possible to exclude the lease accounting from application (off-balance sheet) by adjusting the description of "non-cancelable period" in the contract or devising clauses?

A. Frankly speaking, such a small technique is no longer effective these days.
A common argument is, "If we write 'no right to direct the use of the leased asset' in the contract, can we exclude the leased asset from the lease?" Some companies actually try this. Some companies actually try to do so, but auditors often take a serious look at this point. In many cases, the auditor will reject the lease based on the actual situation, saying, "Even if it looks like the lessee does not have the right to direct the use of the asset, if the lessee actually controls the use of the asset, then it is a lease.
In the seminars on the street, there are also many tips on how to do off-balance sheet. However, if you believe these tips and go too aggressive, you will be upset later when the audit overturns the decision and you will say, "This is not how it was supposed to be.

When we talk with CPAs, they conclude, "You are free to try, but you should consider the risk of not being able to go back. Rather than being worn out by dealing with audits, it would be better to switch to a more efficient way of handling leases based on the assumption that they will be accounted for as leases from the beginning, which would result in lower costs.

Q2: The world is full of "AI," but is it essential for new lease accounting?

Recently, we often hear about "AI-based contract reading" as a feature of lease management systems. It seems like a very attractive feature, but what points should we pay attention to when incorporating it into the actual workflow? We would like to hear your realistic view from the field, whether the introduction of AI will really make your work easier, or whether it will cause other difficulties in terms of confirmation work and costs.

A. In conclusion, it is not necessary for all companies. If you think "there is AI," you will fail.
I see quite a bit more "AI for contract reading and lease identification." But think about it dispassionately. For example, let's say that 90% of your company's leases are identified as "real estate lease contracts. Most of the real estate contracts are basically on-balance sheet, except for a small amount of short-term contracts. You go to the trouble of putting in a system to have an AI read them, and then have a human check for any misconceptions. Is that really an efficiency improvement? I would say that it is.

I think that AI will really show its power when you want to do something about the chaotic situation where "the field has entered into various contracts on its own, and neither the general affairs nor the accounting department can grasp the situation" or "the number of actual leases is so large". If the objective is to strengthen control, AI is a powerful weapon. However, in cases where most of the leases are real estate contracts and the departments to be managed are organized, it may be more appropriate to spend money on "easy-to-use screens" and "Excel importing functions" rather than on AI.

Q3. All systems look the same. What are the "behind-the-scenes" comparison points to avoid regrets?

We are in the process of selecting a lease management system, but there are many options from ERP to SaaS, and we are having a hard time comparing them. Of course, we are concerned about the functionality, but what are the points that we should check later, such as inter-system integration, support system, or fee structure (e.g., number of cases, account billing, etc.)? We would like to know what you frankly look for when actually comparing tools from different companies.

A. "Can it calculate interest?" is a matter of course. What you should look at is "reorganization" and "billing system". 2.
Frankly speaking, I don't think there is much difference in the basic lease accounting process itself. It is because "calculating interest and reducing liabilities" is a matter of course that any system can do. What makes the difference is "linkage," "support," and "billing structure.

• Connectivity : Can we pass journal data to the accounting system in the way we want?
• Support Support : Will the client be given a manual and left to "do the rest on their own" or will they be accompanied by a dedicated staff member (for unfamiliar staff members, the companion type will be a relief!) ).
  

In the actual broadcast, we will answer more in-depth questions from the field and specific examples of problems that cannot be covered here, as much as time allows. Please check the archived broadcast for the rest of the story.

• Trouble cases that are likely to occur when dealing with "reorganization

• The concept of "the right to give instructions (the right to direct use)" to avoid denial

• Real situation of "project progress" of early adopters

• Surprising differences in system costs depending on "billing type

• There is more! The "Audit Corporation Response" talk, etc.

Summary and Information

The new lease accounting is a big project that includes not only the implementation of tools, but also audit compliance and restructuring of workflow. For those companies that have not yet decided on a policy, why not start by determining "your company's contract status" and "necessary support"?

Q3: AI has been well received as "the best background music for work! Click here to view the archive

In the questionnaire survey for this seminar, we received many favorable comments from those in charge of practical operations, such as "I was able to hear real opinions that were not from the textbook," and "I was able to gather information while working with my hands. We hope you will enjoy the "in-depth and frank talk" that could not be fully introduced in the article as background music during your lunch time or while working.

Video

Lunchtime Radio] New Lease Accounting 2026 Front Line - "True Feelings" and "Realism" toward the Application of the Standard, All Discussed without Discovery!

This is a live radio talk show about new lease accounting that you can enjoy while having lunch during your lunch break. We will talk about "how to fight with audit firms" without any pretense, and of course, we will talk about the hardships faced by each company, behind-the-scenes of system implementation, and other "exclusive inside stories" that go beyond the framework of a seminar.

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Product introduction materials

HUE Lease Accounting Product Introduction

Complete coverage of HUE Lease Accounting, including reorganization support and unlimited number of users (charged by number of contracts). SaaS solution starting from 30,000 yen/month

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