Transitioning to ASC 842 and IFRS 16 is a monumental undertaking with plenty of pitfalls along the way. All of the following nightmare scenarios have happened in real life. Learn from your fellow accountants and don’t let them happen to you.
Nightmare #1: Misinterpreting the standards
ASC 842 and IFRS 16 require you to make a lot of judgement calls. No matter how much you study the new standards, it’s possible that your auditors may find errors in your logic. And nobody wants that.
Avoid this nightmare by investing in a software that has been built with lease accounting expertise and includes ongoing support from lease accountants.
Nightmare #2: Rushing the process
How many leases does your company have? What about embedded leases? Are your classifications correct? Are you going to handle lease accounting in-house or outsource it? If you’re rushing, you may neglect to ask these questions or think through the answers, which are critical mistakes.
Avoid this nightmare by investing the time now to ask all the right questions and create a solid plan. Learn more about how much time you should estimate for your lease accounting project here.
Nightmare #3: Senior leadership doesn’t understand why you need software
When you’re in the weeds of lease accounting, you understand the value of investing in the right tool. But sometimes senior leadership won’t free up the budget for it. In doing so, they miss out on potential cost savings, auditing efficiencies, and – most importantly – being compliant.
Avoid this nightmare by making these 3 points to senior leaders:
- Lease accounting in Excel will set you up for non-compliance
- Software makes accountants more efficient
- Having access to the right tools prevents burnout. According to Gallup, employees who experience burnout are 2.6 times more likely to quit than other employees.
Nightmare #4: Lease accounting software implementation issues
Some lease accounting software companies outsource implementation to a third party that doesn’t have in-depth knowledge of the software or lease accounting. That means they’re less likely to catch and prevent errors, leading to headaches for you later on.
Avoid implementation nightmares by asking potential vendors these questions:
- Do you provide implementation services or are they handled by a third party?
- What kind of training is provided as part of implementation?
- What services are provided to upload existing lease information into the system?
Learn about 10 other topics you should consider when creating your lease accounting sofware RFP.
Nightmare #5: Undermining your plan to outsource
Are you planning on paying a consulting firm to complete your first transition journal entry? What are you going to do for the rest of the year? What happens when you enter into a new lease, or pull a report?
Outsourcing can be beneficial, as long as the foundation for data governance and reporting is in place. Otherwise, you’ll have to rely on the outside firm for everything – and you’ll be charged for each request.
Avoid this nightmare by following these best practices for outsourcing your lease accounting.
Nightmare #6: Using the wrong tool
There are several different tools you can use for lease accounting, but only a few will actually ensure your compliance.
Excel is a powerful tool, but there are some things that it just can’t do. In our experience, we’ve found that companies have lost money, missed important deadlines, and had issues with their internal controls because they used Excel.
Don’t waste valuable time building a spreadsheet when you could be evaluating and implementing better options. Learn more about why Excel is the wrong solution for lease accounting.
Software without the right functionalities
Lots of entrepreneurs saw the new standards as an opportunity to make a quick buck. They rushed their products to market without including functionalities that are critical for compliance.
After signing on the dotted line, their clients realize that the software doesn’t live up to the promises made. That leaves them scrambling for another, often costly, solution.
Software with different modules for different types of assets
Some software requires you to use different modules for different types of assets. Equipment leases go in one place, real estate leases goes in another, etc. This approach only creates hassles for you and increases the chances of making errors.
How to avoid the nightmares that come from using the wrong tool:
- Accept that Excel isn’t the right way to account for your leases.
- Ask to see which features are live during the software demo and RFP process.
- Use software that’s asset agnostic.
Download this lease accounting software checklist to learn more about which functionalities to look for.
Non-compliance: The biggest nightmare of them all
If you encounter any one of these nightmares, you may find yourself non-compliant once the new standards go into effect. An ounce of prevention is worth a pound of cure. Make the right choices today to prevent major problems down the line.