Implementing the new lease accounting standards, IFRS 16 and FASB ASC 842, may seem like a burden right now, but there are some benefits beyond compliance that may surprise you. The processes and tools you use to transition will enable you to work more efficiently, improve the audit process, and help you make smarter financial decisions.
Forecasting and budgeting
How much money will you spend on your leases next year? Can you identify how much you’ll spend by a particular region, department, or business division? With all the data you gather on your leases to comply with the new standards, you can get deeper insights into your leases than ever before.
If you use Excel for lease accounting, you’ll have to do a lot of heavy lifting to make those calculations. A lease accounting solution with custom reporting features makes it easy to develop a report based on any allocation or segment you choose. That enables you to offer your colleagues expert advisement as they enter and renew their lease agreements.
Keep up with critical dates
We’ve covered the costliness of missing critical dates by performing your lease accounting with Excel in this blog. 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. And that’s frustrating. After all, it’s not that you aren’t on top of things – it’s just that you don’t have the information you need.
More than likely, you’re relying on an internal process where the person who manages leases or contracts notifies you of the upcoming critical date. That leaves a lot of room for error. With lease accounting software, you can enter in all the important dates relevant to a lease and the system can send automated alerts before a critical date approaches so you’re informed.
Improved interdepartmental collaboration
How many departments in your company are engaged in leasing agreements? Do you have a dedicated resource for managing contracts? Each department that deals with leases has its own interests to consider. In our step-by-step lease accounting guide for help with the transition, we walk you through how to build an interdepartmental team to ensure you have a complete inventory of your leases.
Going forward, you can build on that process and make it part of your routine. Meet with this team on a regular basis (but less often than we recommend in the guide) to make sure you’re aware of new leases and contracts that may contain leases. Doing so will reduce frustration for everyone in the long run.
You may even find that lease accounting software solves challenges for your colleagues in other departments. For example, the legal department can pull up contracts using a search function and the facilities team can be alerted of upcoming critical dates. When you enter a lease into the system, you can receive alerts that notify you of documents you may need to complete the entry. This enables you to request those documents from your colleagues well before you close out the month or the quarter.
Easier, more efficient audits
Any efficiencies or process improvements to the audit process make life easier. Responding to your auditors’ requests for documents and reports is a headache. And guess what? They don’t like having to ask for that information.
An easy-to-use lease accounting software makes everyone’s job easier. They can log in and pull the reports and data that they need and you don’t have to stress about providing the documentation they request.
Easily access lease documents
How are you currently housing your lease documents? Are they in PDFs on a server? Does each individual department maintain their own? How long does it take you to find a document when you need it? There’s a much simpler approach.
With a lease accounting software, you can keep all of your contracts and related documents in one place. It’s difficult to search for documents on a network drive, but lease accounting software has more sophisticated functionalities that make it easier to find what you’re looking for.
Once you’re over the initial hurdles that come with transitioning to the new standards, you’ll find that there is a silver lining to all your hard work. Some of your most cumbersome and time-consuming tasks will be simpler, saving you valuable time without sacrificing your accuracy.
You don’t have to wait until your transition is complete to experience these benefits
Companies that purchase lease accounting software start taking advantage of many of these benefits before their transition is complete. As a result, they’re better prepared to create their first post-transition journal entries, amortization schedules, and reports when they reach their transition deadline.
If your company has more than 10 leases, it’s likely that you’re planning to purchase lease accounting software. The sooner you implement a solution, the sooner you can start enjoying these time-saving, error-reducing benefits. Schedule a LeaseQuery demo and free consultation today to learn more.