Prepare for hurdles
It’s important to know that the end of the year will be a busy time whether you’ve transitioned to the new standards or not. As your team gradually takes time off for the holidays, having a timeline that allows for plenty of time to wrap projects up will help you remain in control. Regular meetings with your team to finalize any outstanding projects will ensure you stay on track without missing deadlines. Additionally, these check-ins can ensure you have all the documentation you need for your transition and end of year audit.
Find out your auditor’s requirements
While you may be inclined to make judgement calls about the new lease accounting standards and how they will affect your leases and your year-end audit, its best to consult with your auditors to find out their requirements. What can you do to ensure your end of year audit is successful?
Do your research
If you’ve already transitioned to the new lease accounting standards, you should prepare yourself for a more intensive audit. There are many resources available to help shed some light on what that audit will look like.
Talk to your auditors beforehand to find out what you their requirements are and what they need. Some things to consider are:
- How to determine the materiality threshold for which leases will go on the balance sheet
- What documentation your auditors will require
- How you will calculate your discount rate
- Whether you plan to elect practical expedients, and the logic behind your decision
Double-check your software
It’s important that your lease accounting software is built for compliance. One thing to look for is whether or not your software has a SOC 1 report in place. One way to make sure that your audit goes smoothly is to ensure that your software allows you to keep all your information in a centralized location so they don’t have to look in multiple places to access the information they need.
Re-examine your lease accounting software
Are you using the right tool for your lease accounting? Whether you’ve already transitioned or you’re still early in the process, having the right tool can prevent a lot of mistakes. While many people transitioned or planned to transition with Excel, the reality is that using Excel can lead to a whole host of issues including inaccurate financial statements, overpaid rent, data breaches, and more. (Read why Smile Doctors chose to invest into a purpose-built lease accounting solution instead of Excel). It’s not too late to choose a compliant solution. When vetting lease accounting software, here are some things to consider:
Data entry validation
In order to avoid mistakes made by human error, select a software that has a two-step approval process to review inputs and ensure completeness and accuracy. Additionally, the data validation feature is essential for the software to have the appropriate controls your auditors are going to look for and for public companies to comply with SOX. Consider appointing a person to enter all lease information and having another person approve it.
The ability to access your lease documents anywhere there’s an internet connection is crucial for you and your team. With a centralized repository, you and your team can access any document related to your lease portfolio, including the actual source lease contract. This can also help during your audit, when auditors need to access your lease documentation quickly.
If you report in multiple currencies, your software should have all three of these available – transactional currency, functional currency, and reporting currency. This allows the software to perform translations and remeasurements as required by US GAAP and IFRS.
Accounting customer support
When you have questions about your leases or lease accounting software, the standard customer support won’t do. Having access to experienced accountants who can answer your questions thoroughly will ensure your success.
Lease update documentation
To ensure your company is audit-ready, your lease accounting software should be sophisticated enough to provide an activity trail surrounding your leases. Ideally, it should provide – the previous value, the new value, who made the change, who approved it, and when. This level of detail is imperative to decrease the risk of material misstatement in your financial statements.
Review the lease accounting standards
The Federal Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) rolled out new lease accounting standards in part because “given the widespread prevalence of leasing, the new lease accounting rules will improve financial reporting and increase transparency and comparability across organizations while also disclosing vital information about leasing arrangements to investors.” Brushing up on your knowledge of the lease accounting standards can help make your end of the year wrap up go swimmingly. Understanding the guidance will help you choose the right software if you need a switch and ensure that you are tracking your leases correctly.
Proactively plan for Q1
After you’ve wrapped up Q4, it’s best to take a brief moment to think about the steps you must take when you begin year-end planning. While several of your tasks may involve transitioning to a new lease accounting software, there are other things you can do to make your year-end closing successful. Some of these include:
- Evaluate your lease accounting software
- Ensuring your leases are properly entered into a centralized repository
- Review your balance sheet and P&L report
- Review your income statements
- Confirm tax deadlines
- Determine if you qualify for tax credits
- Review your income statements
- Evaluate your client list
- Meet with your auditor to discuss your post transition audit
Don’t let the hustle and bustle of the holidays throw you off track. Having a plan to tackle the end of year wrap up will ensure it goes by quicker and smoother. Whether you’ve already transitioned to the new lease standards or you’re in the early stages, reaching out to your auditor, keeping up with your team meetings, and reevaluating your lease accounting software will help. Remember, it is estimated that it will take 1-2 months to select the right software and another 4-6 weeks of implementation. Planning a head with an ounce of prevention is worth a pound of cure.