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Industry roundup: 19 March

Manual lease accounting issues flagged by survey

LeaseAccelerator has announced the results of the 2021 Global Lease Accounting Survey conducted with EY. While lease accounting standards for public companies have been around since 2019, the results show that there is still a significant opportunity to drive ROI from the investments that were made in adopting the standards. Public and private organisations who drive toward integration and the automation of their core lease accounting processes can see dramatic improvements in efficiency.

The survey exposed several challenges corporates are struggling with in their lease accounting: 

  • Over half of respondents (51%) said they have more than 250 leases but still don’t have lease accounting integrated with their ERP systems, requiring manual work.
  • 35% are still using spreadsheets to manage lease accounting.
  • More than half (58%) said they don’t have a centralised lease versus buy process.
  • 42% said that they terminate less than 70% of their leases on time and overpay.

These gaps drive audit risk and accounting costs, suppressing the ROI expected from leasing and compliance investments. The report includes guidelines for organisations at all stages of adoption of ASC 842, IFRS 16 and GASB 87, with recommendations to make lease accounting more efficient. LeaseAccelerator says the survey can help organisations benchmark the maturity of their leasing process, evaluate outsourcing or managed services for lease accounting processes, and identify ways to use lease lifecycle automation as a catalyst to optimise their processes.

“In this survey, lease accountants identified key unresolved accounting challenges and explained practical ways to improve their lease management this year,” said Michael Keeler, CEO at LeaseAccelerator. “It’s clear that organisations in all phases of adoption can be more efficient and integrated to reduce their overall risk and cost and drive a higher ROI.”

 

Institutional investors search for yield in cash portfolios

Treasury teams are keeping cash safe and liquid in the first half of 2021 but are going further out on the curve in search of yield, according to a recent survey from ICD, treasury’s trusted independent portal provider of money market funds and other short-term investments.

According to the ICD 2021 Client Survey, 70% of Americas respondents said they are expanding their investment portfolios to include new products beyond traditional cash investments. This sentiment is in keeping with a poll from the ICD webinar 'Short-Term Investment Options in a Low-Rate Environment', in which the 71% of attendees said the same.

“With more visibility into operating cash requirements, companies are feeling more confident with T+1 versus same-day liquidity in exchange for a higher return,” said Tory Hazard, chief executive officer of ICD. “Currently these products are yielding significantly more than traditional cash investments.” 

According to Crane Data, short duration bond funds, for example, were yielding 32 times government money market funds, on average, as of 28 February 2021. 

Over 150 treasury professionals from the US, Canada, the UK and Europe participated in the ICD 2021 Client Survey, providing insights on trends in institutional investments and technology. Across all regions, 61% said they are maintaining or increasing their cash balances.

 

ARRC announces Refinitiv as publisher of its spread adjustment rates for cash products

The Alternative Reference Rates Committee (ARRC) has announced that it has selected Refinitiv, an LSEG (London Stock Exchange Group) business, to publish its recommended spread adjustments and spread-adjusted rates for cash products, following a robust request for proposals (RFP) process. Refinitiv will publish ARRC-recommended spread adjustments to Secured Overnight Financing Rate (SOFR)-based rates and spread-adjusted SOFR-based rates for cash products that transition away from US dollar (USD) LIBOR.

The recommended spread-adjusted fallback rates that Refinitiv will publish are for use in cash product contracts that contain ARRC-recommended fallback provisions to address instances where USD LIBOR ceases or is non-representative. In those instances, contracts that contain ARRC-recommended fallback provisions will switch to a spread-adjusted “fallback rate,” the rate that a contract indicates should be used if its base rate is not available. These are analogous to the fallback rates included in International Swaps and Derivatives Association’s IBOR protocol for derivative contracts.  The recommended fallbacks for both derivatives and cash products referencing USD Libor will fall back to forms of SOFR plus the relevant fixed spread adjustment.

Refinitiv will provide the recommended fixed spreads and spread-adjusted rates for cash products that transition away from USD LIBOR to SOFR through the ARRC’s fallback provisions. Refinitiv will make the spreads and spread-adjusted rates readily accessible on a daily basis to the general public without cost.

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