Are you considering doing your lease accounting in NetSuite?
As part of Oracle’s product lineup, NetSuite is one of the most well-known accounting software solutions on the market. Its popularity is due to its wide range of accounting functionalities and customer support. However, this all-in-one tool does have some limitations. While NetSuite is an excellent general accounting system, it does not natively offer the lease accounting functionality required by the new lease accounting standards ASC 842 and IFRS 16, and will be required by GASB 87.
To get the required journal entries, reports and disclosures, you need to invest in a purpose-built lease accounting solution. This standalone solution needs to be able to produce journal entries in a format that can be accepted by Netsuite so it does not add extra work to your month-end close process.
Which companies need a standalone solution?
In general, to facilitate compliance and improve lease accounting efficiencies, companies with any number of leases need a lease accounting software. And for companies with complex leases, the need for a feature-rich system is critical. It’s important not to underestimate how significant the new standards are. We found that, on average, lease liabilities on balance sheets increased by 1,475%.
The right software doesn’t just help you ensure compliance; it also helps you gather, report, and manage leases more effectively. For industries with widely distributed teams or heavy lease obligations, a standalone software improves collaboration and helps with financial planning and analysis.
Restaurant and retail
Between brick-and-mortar locations, warehouse space, and equipment, retailers and restaurants are typically deeply involved with leasing. When you look at the impact of the new standards on public companies in this sector, it’s clear that the new rules have a ripple effect. McDonald’s, for instance, saw lower store-level margins after transitioning to ASC 842. Visibility to store-level performance is important for separating actual sales activity from corporate-level financial decisions.
This only highlights why it’s so critical for businesses in this industry to have a system that can accommodate their unique needs. Retailers and restaurants need tools that simplify accounting processes and improve financial decision-making. Accounting features, such as the option for a 13-period calendar, make accuracy and compliance easier. And features like ad hoc reporting make it possible to forecast and plan based on individual locations/regions or across the entire portfolio.
The healthcare industry also tends to lease heavily. When it comes to lease volume, embedded leases tip the scales in this sector. With all of the equipment involved in delivering care, it’s not uncommon for suppliers to include equipment leases in contracts for consumable items. For that reason, it’s possible for a healthcare organization to begin the lease transition with the impression that its lease volume is much lower than it is.
Experts advise that healthcare organizations open up lines of communication between departments to identify embedded leases as part of their transition and on an ongoing basis. Having a lease accounting system that all parties can easily and quickly use as a single source of truth helps ease the collaboration process.
Banking and finance
Similar to the retail and restaurant industry, banks and financial institutions tend to have a high volume of brick-and-mortar locations. When you factor in postage machines, ATMs, and security equipment, it’s easy to see how quickly the number of leases – and the complexities that come with them – can skyrocket. In our Lease Liabilities Index report, we found the average liability for financial institutions increased by 6,070%.
With that kind of balance sheet impact, organizations in this sector should be proactively looking for ways to make more informed leasing decisions. And when you consider how many regulations financial institutions have had to adopt in recent years, a system that makes it easy to enter and extract lease data can save a substantial amount of time. A standalone system offers both the ease of use and depth of insights to accommodate these needs.
The importance of cross-departmental access to lease data
A number of departments are involved in leasing – legal, procurement, IT, etc. The new lease standards offer an opportunity to get all of them on the same page, but only if you use a system that enables collaboration. This is one of the challenges of lease accounting with NetSuite. While NetLease meets all of the accounting department’s needs, it may not be effective for other parts of the organization. A standalone solution offers the flexibility needed for cross-departmental access.
Benefits of centralized lease management
A purpose-built lease accounting software is useful for lease management as well. It allows real estate, legal, and other lease professionals to access data on all of your lease obligations at a birds-eye-view. Having this information enables you to report on leases at a level that you may not have been able to before. You can access data based on square footage, location, cost center, or any specification you require.
One of the most laborious tasks associated with leases is research. When you need to answer a question about your leases, it can take a significant amount of time to find the documents you need and locate the right data. A centralized repository for all of your leases makes it easy to search by name, lease number, location, etc.
Finally, a purpose-built lease tool gives you the ability to communicate better with departments outside of accounting. It’s much easier to give your non-financial colleagues access to a software just for leases than it is to give them access to a more comprehensive accounting system. A standalone lease accounting software only contains the data relevant to their needs, and there are no additional modules to confuse them. The dashboard, search features, and stored documents are all related to leases, so they can quickly get in and out.
A purpose-built solution is easy to use
Accounting systems are notoriously difficult to use. A poor user experience diminishes the time-saving, collaboration-enabling benefits software should provide. Oftentimes, one person ends up being the “expert” on the system, and other users have limited access. Purpose-built lease accounting systems put the most pertinent data at your fingertips. Because they don’t have to be everything to everybody, they can focus on the features that are most important for lease accounting and management.
An easy-to-use system makes your monthly and annual tasks efficient, and eases onboarding new users in the future.
Ultimately, it’s about having better, faster access to lease data
ASC 842 and IFRS 16 aren’t just impacting the balance sheet; they’re having a long-term effect on procurement processes, contract negotiations, and financial planning. And with more standard updates coming, you need a system that minimizes hassles and gives you confidence in your data. A standalone, purpose-built system is the best way to achieve that goal.
Check out the following assets covering the additional benefits of LeaseQuery that you may not know about: