For many organizations, another audit season has just ended. If lease accounting was a thorn in your side, it is a good time to reassess your current processes and policies. Now that your organization has gone through a couple of audits post ASC 842 adoption it’s easier to see what new audit considerations should be included annually and areas for improvement in managing your leases.
Whether you need to improve your ASC 842 processes, upgrade your current lease accounting solution, or have some complexities within your leases to account for, it’s not too late to make a change.
Simplify ongoing lease accounting
Lease changes
ASC 842 compliance didn’t end with recognizing lease liabilities and ROU assets on the balance sheet. Lease accounting compliance is now a part of your annual audit. In the normal course of business, leases are subject to multiple changes that can be complicated to account for. Multiple nuances are part of the calculations for events like renewals, amendments, terminations, or impairments. It is most efficient and accurate to account for these changes promptly, but oftentimes the accounting team finds out a lease change has occurred months after the fact. This requires the team to make tedious and complex catch up entries that can lead to questions during the audit.
Spreadsheets make these changes a nightmare. But even many lease accounting softwares require significant manual work to process lease changes. If your solution, be it spreadsheet or software, doesn’t recognize lease changes after the period has closed and automatically creates catch-up entries, it may be time to upgrade. LeaseQuery accounts for catch-up lease actions by generating automated calculations, journal entries, and a reconciliation report of the catch-up adjustments for your audit trail.
Variable payments
Outside of lease changes or other balance sheet effects of lease accounting, you must maintain proper records of variable payments, such as common area maintenance, short-term leases, and subleases for footnote disclosures. If you are using spreadsheets, or a lease accounting software that doesn’t support variable payments, you must build all of these complex calculations yourself and all of this information can become very disorganized. Don’t settle for less. There are lease accounting solutions, like LeaseQuery, that automate accounting for these complexities and create the required footnotes.
Streamline financial statement audits
There’s no doubt that any efficiencies or improvements to the audit process make life easier. Responding to your auditors’ requests for documents and reports is a headache and they don’t like asking for new supporting files continuously.
An easy-to-use lease accounting software streamlines workflow by allowing your auditors read-only access to the system. They can pull the reports and data that they need, saving your team the stress of providing the requested documentation. The software also has internal controls built into the program’s workflow, so organizations do not have to design, establish, and maintain these processes themselves.
Learn more about how Shoe Sensation and McLeod Health saved time for both their teams and their auditors by automating ASC 842 compliance with LeaseQuery.
Centralize lease data
A good lease accounting software provides benefits beyond compliance. Centralizing lease data enables accounting teams to work more efficiently and be better partners to other areas of the business.
A central repository provides easy access to your contracts and documents
Many organizations are leasing a substantial number of assets, resulting in increases in their balance sheet liabilities. A silver lining to all this lease accounting reporting is that companies can now have more financial information and actionable data on their leases than ever before – if those leases are stored the right way.
Leases stored as PDFs on a server or maintained in department sharepoints are a missed opportunity. A lease accounting software with a cloud-based central repository provides access to all of your lease contracts and other lease documents from any location that has an internet connection. A good lease accounting software, like LeaseQuery, will have sophisticated search, sorting, and user role functionalities that make it easier for the right people to find what they are looking for.
Improve your budgeting, forecasting, and financial decisions
Easy access to leases is only the first step. Look for a lease accounting solution that allows you to analyze the lease data in your central repository to answer questions like: How much money will you spend on your leases next year? Can you identify how much will be spent by a particular region, department, or business division? And more.
With the enormous amount of lease data that is contained within a lease accounting system, you can get deeper insights into your lease agreements and the financial details than ever before if your solution has the right reporting capabilities. If not, you will have to do a lot of heavy lifting to complete these calculations in Excel. The custom reporting features in LeaseQuery make it easy to generate a report on any allocation or segment you choose. With this information at your fingertips, you can offer your colleagues expert advice as they enter and renew their lease agreements.
To learn more about how accounting software can help you improve your budgeting for capital assets, read our blog, “Improving Capital Budgeting Decisions Using Finance and Accounting Tools.”
Never miss a critical date or lease renewal
As noted above in the section regarding lease changes, the accounting department isn’t always kept up to date on leases. When the accounting department isn’t informed of lease renewals, extensions, and other key dates, it can result in overpayments, missed payments, and late fees. The right lease accounting software can help organizations avoid this frustration and expense. Don’t rely on an internal process where the person who manages leases or contracts notifies you of the upcoming critical date, leaving a lot of room for error. LeaseQuery can send automated alerts before a critical lease date approaches so you’re informed.
For example, if you identify leases in your portfolio your company should not renew, like equipment no longer being used or leases with contracts that no longer make economic sense, critical alerts for these renewal dates allow you to make sure you terminate the contracts by the appropriate timeline or have enough time to negotiate better lease contracts.
Collaborate better
Multiple departments in your company are impacted by leasing agreements and each department has its own lease-related challenges. A good lease accounting software can solve many of these challenges. For example, the legal department can easily pull up contracts using a search function and the facilities team can also benefit from being alerted to upcoming critical dates. When you enter a lease into LeaseQuery, you can receive alerts that notify you of any necessary documents needed to ensure journal entries are completely and accurately capturing events in the periods they occur, such as rent escalations or renewals. This enables you to request those documents from your colleagues well before you close out the month or the quarter – no last-minute fire drill necessary.
Switching is easy: Don’t wait to experience the benefits
The transition to the updated lease accounting standards was arduous for many teams. But switching solutions, whether you are replacing a spreadsheet or outdated software, is much simpler. As key information was already abstracted for the initial lease liability and ROU asset calculations at adoption, transferring the data into a new software can be relatively quick if your new provider has the right processes. The time spent implementing a better lease accounting software is well worth the investment as amortization schedules, journal entries, footnote disclosures, reports, catch up changes, and more are all available with the click of a button.
Schedule a LeaseQuery Demo and free consultation today to learn more.
