8 Key Risks of Relying on Spreadsheets for ASC 842 Lease Accounting Compliance

While spreadsheets are widely used for various tasks in accounting, they may not be the ideal tool for complying with the ASC 842 lease accounting standard. The ASC 842 standard, which was introduced by the Financial Accounting Standards Board (FASB), aims to increase transparency and comparability of financial statements by requiring lessees to recognize assets and liabilities for leases with terms greater than 12 months. Using spreadsheets for compliance with ASC 842 comes with a number of risks and limitations, including:

  1. Human error: Spreadsheets are prone to human errors, such as incorrect data entry, formulas, or assumptions. These mistakes can lead to inaccurate financial reporting, which may have severe consequences for businesses and their stakeholders.

  2. Limited scalability: Spreadsheets may work for small organizations with a few leases, but they can become unwieldy and inefficient as the number of leases increases. Complex calculations and multiple data sources can lead to slow processing times and poor performance.

  3. Lack of automation: Spreadsheets do not provide automation features, such as automatic updates to lease calculations or generating journal entries. This increases the time and effort required to maintain lease schedules and ensure compliance.

  4. Difficulty in handling lease modifications: ASC 842 requires organizations to account for lease modifications, such as changes in lease terms or payment amounts. Spreadsheets can be cumbersome and time-consuming when it comes to handling these modifications, increasing the risk of errors.

  5. Inadequate audit trails: Spreadsheets lack robust audit trails, making it difficult to track changes and identify potential errors. This can lead to a lack of transparency and increased risk during audits.

  6. Limited collaboration and version control: Spreadsheets can be challenging to manage when multiple team members need to access and update them. This can result in version control issues and difficulty in maintaining a single source of truth for lease data.

  7. No built-in compliance checks: Spreadsheets do not have built-in compliance checks for ASC 842 requirements, leaving it up to users to manually ensure compliance. This increases the risk of non-compliance and related penalties.

  8. Inability to integrate with other systems: Spreadsheets typically don’t integrate seamlessly with other financial and accounting systems, making it difficult to consolidate data and generate accurate financial statements.

To mitigate these risks, organizations should consider implementing a dedicated lease accounting software, like iLeasePro, that is specifically designed to comply with ASC 842 requirements. These solutions offer features such as automation, scalability, audit trails, and integration capabilities, which can help organizations reduce the risk of errors and ensure compliance with the standard.

Try iLeasePro for free right now; https://www.ileasepro.com/signup/free/

You can take a video tour of iLeasePro or schedule some time on our online demo calendar to see how iLeasePro can help you and your firm comply to the ASC 842 Standard.

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