Finding Every Lease the Company Has Signed

Ask a company at this size whether it has any leases and you will get an answer within four seconds, which is the first problem. The answer will be the building, and the vehicles if there are vehicles, and it will be given with complete confidence because it came from memory rather than from anywhere.

Memory is a bad instrument here, and not because people are careless. It is because the leases that cause problems are exactly the ones that never felt like leases when they were signed. Nobody remembers signing a lease for the postage machine. They remember getting a postage machine. The document was two pages, it was signed by an office manager six years ago, it renews itself, and the only evidence it exists is a modest debit that leaves the bank every month and has been coded to office expenses ever since.

So the claim, stated plainly: at this size, lease accounting problems are discovery problems before they are accounting problems. The classification question is real and it belongs to your accountant. It cannot be asked at all about an agreement nobody knows about, and a register built from a conversation is a register that is wrong in ways nobody can see.

The four ways a lease goes invisible

Worth naming, because each one implies a different search.

It never produced an invoice. The payment is a pre-authorised debit or a card charge. There is no document arriving monthly to remind anyone, and the ledger sees an amount rather than an agreement.

It came bundled with something else. The copier arrived with a service contract and a consumables plan on one monthly figure. Whoever coded it saw a service charge, because that is what most of it looked like.

It was signed outside finance. An operations manager arranged the forklift. A branch manager took a storage unit. A director signed for the coffee machine. None of those people had any reason to think finance needed a copy, and in most companies nobody has ever told them otherwise.

It renewed itself. The original term ended years ago and the agreement rolled. The people who negotiated it have gone and the arrangement has quietly become permanent without anyone deciding it should be.

Each of those is invisible to the question “do we have any leases” and visible to a bank statement.

Start at the bank, not the filing cabinet

The instinct is to open the contracts folder. Do not start there. The contracts folder contains the agreements somebody thought to file, which is a subset of the agreements that exist, and it is precisely the wrong subset because the ones that got filed are the ones people remember.

Start with a full twelve months of every bank account and every corporate card, and tick every recurring debit against something you can name. Twelve months rather than three, because annual and quarterly arrangements exist and a three month sample misses all of them.

Every debit you cannot tick is a question. Most will resolve into subscriptions and utilities. Some will not, and those are the ones this exercise exists to find. The same sweep is worth doing against the vendor list in accounts payable, sorted by frequency rather than by amount, because a supplier who invoices the same figure every month is either a service you buy or a thing you are paying for over time, and finance often cannot tell which from the ledger.

One more source before the checklist, and it is the best single document in the building. Your insurance schedule lists equipment. Compare it against your asset register and anything appearing on the insurance schedule that is not on the register is either an unrecorded asset or something you are leasing, and both are worth knowing.

The search, by source

Work down this list. It is ordered by yield, not by how sensible each source sounds.

Source	What to pull	What it surfaces	Who holds it
Twelve months of bank debits, every account	Every recurring outgoing, ticked against a named arrangement	The invisible category. This is the highest yield source and it is almost never used.	Bookkeeper
Twelve months of corporate card statements	The same, and cards are worse because charges look like subscriptions	Small equipment, software on hardware, anything a department arranged	Bookkeeper
Accounts payable, by supplier, sorted by invoice frequency	Suppliers billing a consistent amount on a consistent cycle	Bundled arrangements where the equipment is inside a service charge	Bookkeeper
The insurance schedule	The equipment listing, item by item	Things you have insured and do not own, and things you own and never recorded	Whoever renews the policy
The asset register	Assets with no purchase invoice behind them	Equipment that arrived under a financing or lease agreement	Finance lead
Property files	The premises lease, plus any storage, parking, signage or roof space arrangements	The sub-agreements attached to a building that nobody counts as leases	Owner or office manager
The fleet	Every vehicle, and how each one was acquired	Vehicles arranged by the person who drives them	Operations
IT asset list	Hardware, and the terms it came in on	Rolled hardware refresh programmes, where the equipment is replaced rather than owned	IT, internal or external
Utility and facilities suppliers	Tanks, meters, water, alarm systems, plant hire, waste containers	Equipment on site that belongs to the supplier	Facilities
Department heads, interviewed individually	The question below	Everything arranged locally, which is most of what is missing	Each of them
The minute book and any board or shareholder approvals	Anything the directors approved	Larger commitments that were approved and then never reached finance	Owner
Personal guarantees the owner has signed	The list, if there is one, and there frequently is not	Agreements the company is committed to that the company has no copy of	Owner
Last year’s accountant queries	The list of things they asked about	The agreements they have already noticed and you have not	Finance lead
Purchase orders above the approval threshold	Anything approved as a commitment rather than a purchase	Multi-year arrangements dressed as an ordinary purchase	Finance lead

The department head interview needs a script, because “do you have any leases” fails there for the same reason it fails everywhere. Two questions work instead.

What do we pay for regularly that we do not own? This gets equipment, because people know what belongs to them and what belongs to a supplier.

What would stop working, or be taken away, if we stopped paying for it? This gets the arrangements the first question misses, particularly bundled ones, because it asks about consequence rather than about ownership.

Add a third if the person has been there a long time: what have you signed? Asked plainly, without any suggestion that signing was a problem, because the moment it sounds like a problem the recall gets worse.

Cast the net wide, and let somebody else narrow it

Here is where the exercise most often goes wrong. Somebody in finance starts deciding which of the agreements found are really leases, using half a memory of a rule, and the register that results is a filtered list wearing the appearance of a complete one.

The register is a completeness list. It is not a classification, and the person building it should not be classifying. Put in anything where the company pays regularly for the use of something it does not own, and put in the borderline cases too, marked as borderline. A contract wrongly included costs your accountant a few minutes to strike out. A contract wrongly excluded is invisible to everybody, including to them, and it stays invisible until the year it is not.

That instruction has a corollary that people find uncomfortable: do not exclude an agreement because it is small, and do not exclude one because it is short. Both of those tests belong to a framework, both are somebody else’s determination, and neither can be applied by the person doing the searching without accidentally making the decision.

What to extract from each agreement

One row per agreement. These are the fields, and the third column is there because the field being missing is more common than the field being wrong.

Field	Where it is in the document	The trap
Counterparty, legal name	The front page	The trading name on the invoice is frequently not the legal name on the agreement, and finance files by the invoice
What the agreement is for, described plainly	The schedule, usually an appendix	“Equipment schedule A” is not a description. Write what the thing is.
Serial or identification number of the item	The schedule	The only field that links the agreement to a physical asset and to the count
Signature date, and the name of the person who signed	The execution page	Often a person no longer at the company, which is itself information
Commencement date	Body of the agreement	Not the signature date and not always the delivery date. Three different dates, frequently all different.
Date the asset was actually available for use	Delivery records, not the agreement	Nobody records this and somebody will ask for it
Initial term	Body	Stated in months in one place and years in another about as often as not
Payment amount, frequency and payment date	Body or schedule	Whether the stated figure includes sales tax is the single most common extraction error
What is bundled into the payment	The schedule and any service appendix	Maintenance, consumables, insurance, usage allowances. The split is rarely stated and has to be asked for.
Variable elements	Body	Usage charges, overage rates, indexation, fuel or rate adjustments. Note that they exist even where you cannot quantify them.
Renewal or extension options, and who holds them	Body, often near the end	Whether the option is yours, theirs or automatic. This field decides more than any other and is the one most often left blank.
Termination rights, notice period and cost	Body	The notice period is the operational field. Missing it by a week rolls the agreement for a full further term.
End of term obligations	Body, often in a schedule	Return condition, restoration, removal, buyout rights or obligations, transfer of title
Security, guarantees and pledges	Body, and the owner’s memory	Whether the company or an individual guaranteed it, and whether anything is pledged
Restrictions	Body	Assignment, sub-letting, relocation, and anything that would matter in a sale of the business
Where the signed original is	Not in the document	The field that stops this exercise being repeated next year
Renewal or notice date, entered in a calendar	Derived	The one output that pays for the whole search on its own

The renewal and notice fields deserve a note. Populate them and the register stops being a compliance artifact and becomes something the business actually uses, because a company that knows its notice dates can negotiate. A company that finds out after the notice window has closed cannot, and it will not find out at all unless somebody put the date in a calendar.

Attach the signed agreement to the row. A register that points at a folder is worth several times one that points at a memory of a folder, and the attaching is what turns a one-off search into a permanent record.

Hand the classification question over

Send the accountant one package: the register, the agreements attached, and the borderline cases flagged with a note saying why they are borderline. Send it well before the year end, because the answer sometimes changes how the year is closed and an answer that arrives after the cut becomes a query in the file instead.

Then let them decide. How each agreement is recorded, which framework requirements apply to it, what the classification is under that framework and what disclosure it carries are all determinations for whoever reports on your statements. That is not humility for its own sake. It is because those determinations depend on the framework the statements are prepared under, on facts inside the agreement that a non-specialist reads differently, and on how the answer interacts with the rest of the file.

Expect them to come back asking for things you did not extract. The usual four are the split between the equipment and the service inside a bundled payment, the date the asset was actually available for use, whether any renewal option is reasonably certain to be exercised, and the interest rate implicit in or applicable to the agreement. Get the first two yourself, because they are facts sitting in your own records. Do not attempt the last two, because they are judgements and one of them is arithmetic on top of a judgement.

The same package answers a large part of the request list on any engagement, and a first review engagement will ask for every lease agreement by name. A company that produces a register with the documents attached has turned a fortnight of searching into an email.

Keeping it current

The search is a project. The register is a process, and it needs exactly one control to survive.

Nothing that commits the company beyond the current period gets signed until the register entry exists. Not filed afterwards. The entry is part of signing. That single rule is worth more than any amount of periodic sweeping, because it moves the burden to the moment the information is in somebody’s hand.

Around it, four review triggers:

Trigger	What happens
Any new agreement, of any size	Register entry created at signature, agreement attached, notice date into the calendar
A modification, extension or early termination	The row is amended and the change is flagged to the accountant, because a modification is frequently treated differently from a new agreement
A site opening, closing or relocation	Full re-sweep of that site’s arrangements. Site changes strand agreements.
An acquisition, or the purchase of a business	Full search of the acquired entity, using this same checklist, before the first close

Then two habits in the monthly close: the register is checked against the recurring debits once a quarter rather than once a year, and any notice date falling in the next two periods is raised in the close meeting while there is still time to act on it.

If your business signs several of these a year, the register is worth building inside a system rather than a spreadsheet, so that the notice dates can actually notify somebody. That is a modest piece of work and it is the difference between a register that is consulted and one that is maintained.

What we do not do

We do not classify a lease, and we do not tell a client how a given agreement should be recorded. We find them, we extract the facts, we flag the borderline ones and we send the package to the accountant who reports on the statements, with the questions attached.

We do not interpret a reporting standard, and we do not repeat a rule of thumb about leases that circulates among bookkeepers as though it were one.

We do not build a lease register from a conversation. The conversation is where the search ends, after the bank statements, the card statements, the insurance schedule and the payables list, because by then the questions are specific enough to jog a real memory.

And we do not exclude an agreement from the register because it looks too small or too short to matter. That judgement is not ours to make, and the agreements that turn out to matter are almost never the ones anybody expected.