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EY Japan Leverages AI for Lease Accounting Standards

In a significant development for the accounting sector, EY ShinNihon LLC, the Japanese arm of EY, has launched an AI-driven tool designed to help businesses navigate the upcoming lease accounting standards that will come into effect starting April 1, 2027. The new regulations are aimed at increasing transparency and standardization in lease accounting practices, which have historically presented challenges for companies due to the diversity of contracts and the complexity of identifying hidden lease agreements.

The New Lease Accounting Standards: A Necessity for Businesses

The new lease accounting standards, mandated by the Accounting Standards Board of Japan (ASBJ) and to be implemented from September 2024, require organizations to recognize a wider range of lease agreements on their balance sheets. This means that many companies are currently engaged in identifying the scope of impacts posed by these standards, drafting implementation plans, and reviewing thousands of contract documents to ensure compliance. Particularly elusive are so-called “hidden leases,” contracts that do not explicitly disclose their lease status, making the identification process arduous and time-consuming.

Introducing the AI-Powered Lease Accounting Support Tool

To tackle these challenges, EY ShinNihon has introduced the "Lease Accounting Standards Determination Support Tool." This innovative solution utilizes artificial intelligence to analyze a variety of contracts—including lease agreements, rental contracts, and outsourcing contracts—to efficiently determine whether they contain lease clauses. The tool is designed for use by EY accountants, who will begin integrating it into their audit and advisory services starting in October.

One of the key advantages of this tool is its speed: it can process each contract in approximately 10 minutes and clearly outline the basis for its determinations across multiple criteria. This capability allows accountants to focus on high-value, expert analysis while reducing the manual workload associated with contract review, ultimately enhancing the quality and speed of compliance support.

A Collaborative Approach to Digital Transformation

The development of this AI tool marks a strategic collaboration among EY's accountants, IT specialists, and statistical analysis experts who are collectively advancing the firm’s digital capabilities in audit services. The design process involved creating prompts that enable accountants to control the AI, ensuring that the nuances of lease agreements—often unique to each industry—are accurately processed.

Given that different sectors exhibit distinctive characteristics related to lease contracts, EY ShinNihon has established a sector-specific organizational framework. This approach has facilitated comprehensive knowledge gathering from ten sectors known for particularly complex lease agreements, allowing for the AI's training to reflect practical realities in the field.

As a result, the firm is now able to deliver high-accuracy determinations, which are essential for organizations across various sectors approaching the new standards.

Looking Ahead: Continuous Development in Digital Solutions

Moving forward, EY ShinNihon is committed to leveraging its deep expertise in audit and sector knowledge to drive ongoing development of digital tools, including AI agents. This initiative is part of EY’s broader mission to forge greater trust in capital markets and contribute to a better working world through technological innovation.

Through the application of data, AI, and advanced technology, EY aims to empower organizations to navigate present and future challenges confidently. Their global network, spanning over 150 countries, allows them to provide seamless services while adapting to local legal frameworks and regulations.

In summary, EY Japan’s introduction of the AI-driven Lease Accounting Standards Determination Support Tool not only simplifies compliance with the new regulations but also signifies a shift towards a more efficient and digitally adept accounting landscape.

For more information about EY and their initiatives, visit ey.com

About EY

EY is a global leader in assurance, consulting, strategy, transaction, and tax services. Their commitment to clients, society, and the planet is driven by a desire to create new value and foster trust in capital markets, ultimately contributing to a better world.

About EY ShinNihon LLC

As a member firm of EY in Japan, EY ShinNihon LLC specializes in audit and assurance services while also providing advisory services. For more details, visit ey.com/ja_jp/about-us/ey-shinnihon-llc.