A company with more than ten active leases must consider a lease accounting solution. The new accounting standard requires more sophisticated financial calculations and detailed monitoring and tracking of leases. Companies will find it extremely challenging to use spreadsheets for lease accounting because of the following limitations of spreadsheets:
- Lack of ability to track changes: One cannot track changes in spreadsheets. Employees can deliberately or inadvertently overwrite spreadsheet data. Therefore, spreadsheets do not meet internal control standards.
- Converting complex ASC 842 requirements into Excel formulas is challenging and error-prone: ASC 842 is a complex standard requiring precise computations. For example, it is not easy to set up spreadsheets for leases that do not start at the beginning of a month. One must also adjust for different days in each month as well as incorporate initial direct costs, lease prepayments, rent holidays, and lease incentives received. Even if a spreadsheet is set up correctly for one type of lease, it will need modifications for a different type of lease. Many employees do not know how to modify these spreadsheets or introduce errors while doing so. A standardized approach is crucial for good internal controls.
- Aggregating and summarizing data across spreadsheets is difficult: Imaging a business with hundred leases. It has painstakingly set up a workbook with a worksheet for each lease. These leases have different payment dates, classifications, discount rates, maturities, renewal options, and termination options. Aggregating this data to produce the summary lease footnote required by ASC 842 is challenging when done in Excel. Similarly, summarizing lease data by geography can be tedious as well.
- Interfacing with journal entry software such as Sage Intacct: It takes much work to output the journal entries required by general ledger software such as Sage Intacct. This process can be automated via software.
- Version control is difficult with spreadsheets: Spreadsheet versions tend to proliferate, especially when multiple employees access them from multiple locations. Employees tend to create “personal” copies to try things out, which turns into a scattered set of spreadsheets with conflicting or duplicate data.
- Cloud-based software has become reliable, user friendly, and easier to access: Gone are the days when software had to be installed on a specific machine, required a client interface on each user’s machine, and could not be accessed from anywhere. Modern cloud-based systems do not require any local installation, can be accessed from anywhere and is easy to use and maintain. Version control is no longer an issue as the provider can update the systems transparently.
If you still haven’t transitioned to the ASC 842 Standard and looking for help, or have already transitioned and are looking to streamline your lease accounting and lease management processes – iLeasePro and iLeaseXpress can help you out. Click here to schedule an iLeasePro demonstration or simply get started with iLeaseXpress.