ASC 842 & IFRS 16 – A Boom in Lease Accounting Software

ASC 842 & IFRS 16 brings some of the most impactful changes to GAAP in quite some time and as organizations scurry to get into compliance, a whole new category of software has been born… Lease Accounting Software.

Lease Accounting Software is typically a software as a service (Saas) that tracks & reports all financial aspects of leases, including the proper balance sheet reporting, profit & loss reporting, and the proper financial disclosures for leases.

Features at a Glance

Here’s a high-level of what you should expect from a Lease Accounting software.

  • Wizards available to help capture all necessary lease-related information
  • Advanced calculations built into the software that provide recommendations on proper lease types
  • Approval workflows
  • Ability to integrate to your accounting general ledger (no double-entry should be required)
  • Built for the lessee in mind (ASC 842 impact)
  • Ability to back-date re-measurements (renewals, impairments, terminations – full and partial)
  • Manage multiple lease portfolios (separate entities, divisions, etc.)
  • Snapshot dashboards to highlight pending leases, renewals coming, etc.
  • Create ASC 842 & IFRS 16 disclosures

Why Consider Lease Accounting Software vs Manually Managing Your Leases?

Whether or not you’ve converted to the new standards at this point, you’re likely 1 of 3 scenarios.

Option A.) Manual

If you have a material number or $$ in leased assets and you are currently managing those leases manually, you likely have a well-versed ASC 842 and/or IFRS 16 CPA on staff on or retainer. Both standards require in-depth knowledge of how the new rules work thus not every person on the accounting team can properly record a new lease.

Beyond the knowledge and proper setup, perhaps you have a crafty spreadsheet that spits out calculations, calendar reminders, workflows in place for new leases, etc. Manual very well be working for some that are already converted to the new standards but we’d venture to say that it’s not exactly pretty.

Option B.) Outsource the Whole Thing

Sign into a new lease & then send the paperwork for your CPA. They utilize their tools/expertise and provide you with suggestions and/or entries at the end of the year, end of the quarter, etc.

Option C.) Software

In simplest terms, think of TurboTax but for your leases. You’re beautifully prompted with a step by step guide to entering your information, there’s a genie in the background doing calculations and telling you where it’s a financial lease vs an operating lease (comparable to where you should take the standard deduction or itemize in TurboTax) & for all intents in purpose… The software knows the rules when you may not.

After the information is in, you have a sole system of record that handles everything that you need. The data’s in, you’ll be auto-alerted on renewals, terminations, etc. & you’ll receiving all of the reports & entries at the end of the month with little to no effort.

This beautiful lease utopia is why you’ll see a number of Lease Accounting companies in this year’s Top 500 Fastest growing Tech companies which was published by Deloitte. The problems being solved are real problems and a number of companies have created solutions to these problems.

Let’s check the most important boxes with what every single company needs when it comes to leases (for which you can find peace of mind knowing your lease accounting software will provide)

  • All correct data for leases has been identified
  • Leasing data is accessible at all times (hello cloud / SaaS products
  • Calculations are accurate & consistent.
  • Minimized risks and errors come audit-time
  • Proper disclosures are made
  • Proper notifications when important events are near
  • Time-savings are being realized by reports & automation
  • Saved money by replacing a staffed lease accounting guru

Planning for a Lease Accounting Implementation

A quick list for planning/implementing lease accouting software:

  • Identify your goals (many can be picked from the list right above)
  • Gather your leases and start centralizing & cleaning up
  • Begin evaluating Lease Accounting solutions (more on that below)
  • Contact your CPA & discuss the best cutover to the new standards
  • Setup a staging environment and learn the application (great opportunity to push for a FREE trial during this period)
  • Import leases into a staging environment
  • Ensure your staging environment spits out all necessary reports & entries
  • Sign-off on your staging environment
  • Work with your lease accounting software to move your staging environment to production

Evaluating & Selecting Lease Accounting Software

When evaluating lease accounting software (applies to most software searches), here’s our recommended process

  • Identify your goals and requirements (process goals, business requirements, accounting requirements, technical requirements, etc.). Here are our tips on doing this correctly as it’s the most important piece of any implementation.
  • Gather your lease count and gross lease amounts
  • Gather your user counts (clerks, managers, approvers, etc.)
  • Create a budget (think about the manual process above & what a budget that replaces this process might look like)
  • Identify & select the lease accounting solution that fits you best (this is what Solugence does)
  • Determine which pricing model suits you best (based on your user counts and/or lease counts)

The latest ACS 842 deadline date for private companies is December 15, 2021 (as of today 11/22/2020). Prepping for a conversion to the new standards with or without a solution can be an arduous task so it’s recommended to get moving!

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