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Looking Cross-Enterprise At Leasing

The SEC has made a unified approach to lease accounting a must-have

By Elizabeth Wine | Updated on July 05, 2005

Frank Luongo, director of treasury analysis at Whirlpool Corp., realized last year that the $13.2 billion appliance maker needed to overhaul its lease accounting documentation. Not only were contracts difficult to administer, with different departments granting different rates, they were just plain hard to find. “They tend to get lost over time, or worse yet, multiple versions of the document were out there,” says Luongo.

Obviously, this was not a good thing in a post-Sarbanes-Oxley world. Whirlpool turned to an automated solution by San Francisco-based vendor Captara Corp. to help put its leases in order. Captara’s solution helps execute the entire equipment leasing process from the Web, giving employees a single view of all the company’s obligations. Embedded in the application are best practices on sourcing, documenting and actively managing contracts over time. Without a ready mechanism and standard lease documentation, it also used to be difficult to set up a competitive bidding process efficiently. A big advantage with the new system, says Luongo, is the standard master lease agreement provided by Captara. Now, Whirlpool can move fast from the lease-versus-buy decision for a piece of equipment to the issuance of an RFP. Lease accounting practices took on a heightened urgency when it became clear that external auditors, as well as the Securities and Exchange Commission (SEC), were taking a more critical look. An SEC report released in June said the current lease guidance under FAS 13 should be “reconsidered,” and criticized the “all-or-nothing” approach used to determine whether a lease is reported on the balance sheet or in the footnotes. Companies are looking to lease accounting software to help guide them in deciding such classifications and in establishing a consistent set of economic and financial assumptions across departments.

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