Implementing the new lease accounting standard is turning out to be more complicated than many originally expected – and one of the biggest challenges is identifying and properly classifying leases (not all leases that qualify under the new standard necessarily say “lease” at the top of the document).
Once you’ve identified and collected everything that qualifies as a lease, there are additional steps to ensure you’re properly accounting for and disclosing them on the company’s financial statement – and analyzing how the financial statement changes impact the company’s financial position, opportunities for credit, and much more. The result is that a large time commitment may be needed to work through the process.
Given the complexity of the changes, ensuring you have the right tools for the job is critical – and while it may be tempting to use spreadsheets, you’re likely to run into critical limitations pretty quickly. Lease accounting software designed specifically for this task streamlines the complex task of implementing the new standard, though there are many misconceptions about these tools. Let’s break them down.
Misconceptions About Lease Accounting Software
As noted above, perhaps the biggest misconception is that spreadsheets are the best approach for complying with new lease accounting rules. Those who’ve tried it, though, are finding that once they get beyond about 10 leases that spreadsheets lack the muscle to get the job done – especially when it comes to the footnote requirement.
Myth: Manually entering lease data into a spreadsheet is the easiest way to capture lease data.
Fact: This is usually the least efficient way to record and track leases. There are other factors, like time and cost savings, to consider. For example, it takes about three minutes to enter a lease into LeaseCrunch, the lease accounting software our team uses.
Using the lease data, the software calculates the footnote disclosures required under the new lease standard. The footnote disclosure includes finance lease expense (amortization and interest), operating lease expense, weighted-average remaining lease term, weighted-average discount rate, and maturity analysis.
Myth: Lease accounting software doesn’t make sense for a company with just a few leases.
Fact: Lease software can easily scale for small to large lease portfolios. Pricing is flexible depending on needs and complexity. It’s also important to remember that even if there are only a few leases right now, there could be more in the future. Or those few leases could change, meaning different lease calculations are required – and lease modifications can be difficult to do in a spreadsheet.
Myth: Lease accounting software is complicated to learn and hard to use.
Fact: LeaseCrunch is designed to be a simple, straightforward lease accounting solution. There isn’t much training needed to begin using it. Built-in tools and wizards guide users through the software, walking you through each step of the process to figure out the type of lease and lease term. And, these tools can be configured as a required part of the workflow or an optional reference point.
The Benefits of Lease Accounting Software
There are several different lease accounting solutions available. Barnes Dennig chose LeaseCrunch for our clients for its scalable and cost-efficient solution. It’s lease accounting at its core. At the end of the day, companies just want the debits, credits, and footnotes.
These are some of the top benefits we’ve found in working with LeaseCrunch:
- Margin of Error – Spreadsheets introduce more opportunities for risk. One wrong formula could potentially result in a material misstatement. With lease software, the company can stay focused on the inputs and let the calculations be generated automatically.
- Bulk Import – For companies that have a large volume of one type of lease, like a vehicle or a forklift, Lease Crunch’s capabilities include bulk import. From there, the software performs all necessary calculations and handles the footnote disclosures. This is a time-saver for the company and a potential cost-saver for the audit because the auditor wouldn’t have to focus on the outputs.
- Documentation – Under the new lease accounting standard, documentation is important. LeaseCrunch captures the data inputs for lease term and classification and can export that information for auditor review. Users don’t have to worry about where they kept certain records; it’s all in one place, making the audit process simpler, too.
Relying on spreadsheets to manage lease accounting compliance may work for some, but it can rapidly lead to unexpected complications. That’s why so many have turned to lease accounting software to make the transition process easier and more streamlined.
If you have questions or need assistance with a lease accounting issue, contact us for a free consultation. As always, we’re here to help.