The introduction of new lease accounting standards such as ASC 842, IFRS 16, and GASB 87 has made lease accounting significantly more complex for many organizations of all sizes. However, lease accounting software has emerged as an exceptional tool to help companies manage this new complexity and ensure they comply with the latest regulations. Lease accounting software centralizes lease data and automates calculations. In addition to that, it generates compliant reports and provides analytics—all of which you need to make smart decisions. Here are 10 compelling reasons every organization that needs to comply with new lease rules should strongly consider implementing lease accounting software.
1. Achieve Compliance with Lease Accounting Standards
Lease accounting software ensures your company complies with the new complex standards mandated by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). The software handles important requirements such as properly classifying leases as operating or finance leases based on detailed criteria.
It accurately calculates the right-of-use assets and corresponding lease liabilities that will have to be reflected on the balance sheet. It also simplifies ongoing compliance as the software can automatically calculate amortization expense for right-of-use assets and interest expense on lease liabilities.
By automating compliance with the technical aspects of the new standards, lease accounting software ensures organizations like yours follow the regulations accurately and completely. It reduces the risk of non-compliance or errors that could lead to negative audit findings or financial restatements. That’s why your business should consider investing in reliable lease accounting software. It can become the foundation for transitioning to the new standards and maintaining compliance even when the standards change.
2. Centralize Lease Data and Documents
Lease accounting software provides organizations with a single centralized platform for all lease data and documents. No longer is it necessary to search across multiple disconnected spreadsheets or folders to find details on a lease. You can now access all critical lease information, including terms, payments, calculations, journal entries, and reporting, in one cloud-based system.
You can upload and attach related lease documents and images directly to the corresponding lease record. Key data points are extracted automatically to streamline lease abstraction. Everything related to a lease is accessible in a single location for authorized users across the organization. This centralized database is ideal for lease accounting efficiency and transparency.
3. Automate Complex Lease Accounting Calculations
Lease accounting software automates the intricate and advanced calculations required for areas like lease classification, present value of lease payments, and allocation of lease costs between operating and finance leases. It eliminates manual errors as the software performs these complex calculations automatically based on lease data.
Built-in calculators streamline compliance with specific accounting standards. Adjustments for factors like residual value guarantees, purchase options, and lease incentives are handled programmatically. The software enables lease cost amortization schedules, journals, and disclosures to be produced with accuracy and efficiency. Automation of calculations is an important benefit of lease accounting software.
4. Generate Compliant Financial Statements and Disclosures
Lease software enables organizations to accurately reflect important items such as right-of-use assets, lease liabilities, interest expense, operating lease expenses, and cash flow presentation. The system automatically populates all the required disclosures in the financial statement footnotes based on the lease data.
Also, built-in reporting allows financial statements and disclosures to be generated with a few clicks. Lease software integrates with ERP systems to ensure proper recording of journal entries and financial statement updates. Automated disclosures save huge amounts of time while also ensuring compliance. The software becomes the engine for generating compliant financial statements and disclosures.
5. More Accurate Financial Forecasting and Planning
A centralized lease database and reporting capabilities give finance and accounting teams the valuable insights needed for more accurate budgeting, forecasting, and long-range planning. Lease software lets users easily view current and future lease payment obligations by department, location, asset type, or other customizable categories. This aggregated data can be seamlessly incorporated into budgets, forecasts, and strategic plans across the organization.
With clear visibility into upcoming lease renewals, renegotiations, expansions, and end-of-term options, teams can create more reliable forecasts of future costs. Built-in lease analytics and reporting allow scenario modeling based on assumptions and variables such as interest rate fluctuations, equipment usage, and office space needs.
6. Improved Collaboration Across Departments
Cloud-based lease management software allows all stakeholders associated with leasing and asset management—such as Accounting, Finance, Procurement, Real Estate, etc.—to collaborate within a single centralized system. The software enhances transparency by ensuring all teams have access to the same up-to-date information and documentation.
Workflow functionality streamlines the routing of new lease requests, renewals, modifications, and terminations across the organization for reviews and approvals. This facilitates information sharing and breaks down operational silos that often exist with spreadsheet-based processes. All stakeholders can work cooperatively on asset acquisition analysis, cost allocation, budgeting, and other strategic initiatives. This results in improved productivity and financial optimization.
7. Scalability for Growth and Changing Requirements
A key benefit of software-as-a-service lease management solutions is scalability. As an organization grows, it’s easy to add additional leases, users, and other data into the cloud-based system. The software seamlessly handles increased transaction volumes while maintaining overall performance.
Custom fields, hierarchical locations, and user roles can be added to the system to address evolving business needs. You can configure complex workflow rules on the software to automate processes as requirements change. This enables the software to adapt and scale to business growth, mergers and acquisitions, global expansion, and other scenarios. The system becomes a flexible platform capable of handling greater complexity over time.
Lease accounting software should be an essential tool for any company required to apply the new lease accounting standards. The benefits go far beyond just compliance. Lease software enables centralized data, smarter planning and decisions, optimized workflows, stronger controls, and greater productivity. Carefully selecting the right software lays the foundation for long-term success and ensures you have a high-performing lease accounting platform.