Financial Accounting Standards Board’s (FASB’s) new lease accounting standard ASC 842 may require new software for management and reporting purposes
Private entities got some relief from the Financial Accounting Standards Board (FASB) with the recent proposed extension of the effective date for ASC 842, the new lease accounting standard. Compliance has been challenging for many businesses because it involves both a substantive review of lease policies and portfolios (issues we’ve covered in previous articles) and a technical review of the software needed to effectively track and manage information related to leases.
This article is intended to help you understand and evaluate some of the options available in a very crowded marketplace of lease accounting software. To begin your analysis, ask yourself a couple of basic questions:
- Does your business’ current system track the information needed to meet the demands of reporting under the new rule?
- If not, do you want to implement a system focused solely on compliance with financial reporting requirements, or do you want a more complete lease management program?
Three Types Lease Accounting Software
Options fall into three basic categories.
- Excel: Many businesses have been tracking leases on spreadsheets that were created in-house and adapted as needs changed. For businesses with approximately ten or fewer leases, these sheets may continue to support compliance with the new standard, but they will always come with a higher risk of error. The data entry process and the use of formulas programmed in-house are just a few of the pressure points where spreadsheet solutions tend to break down.
- Lease compliance software: If your primary focus is compliance with the new lease standard, some software packages offer more targeted solutions focusing on helping you meet the reporting requirements of the new standard.
- Lease management software: If your business has a higher number of leases, or if you currently struggle to keep track of your leases, you might want to consider a software package that focuses more broadly on lease management, in addition to compliance with the new standard.
Factors to Consider When Selecting Lease Accounting Software
Just like any other software decision, there are several variables to consider when choosing which lease software is the best fit for your business.
- Lease Accounting Software Cost: Prices will vary significantly based on what features you want to include in your system. Be sure to understand up-front if the price quoted includes set-up fees or if you will need to pay an additional amount to get your business up and running on the new program. Other terms to discuss include:
- Annual v. monthly fees-If you’re in a period of growth, it might make sense to avoid a longer-term commitment and to consider software packages that include upgrade options so that you don’t need to start over with a new vendor if you need additional features.
- Cost per user-How many people will need access to the system and how spread out geographically are they? Does the software pricing structure include thresholds where price jumps significantly with an additional user?
- Cost per lease entered-Another place to watch for threshold numbers where price jumps significantly when the number of leases entered increases.
- Quantity of leases: If you’ve evaluated your lease portfolio and you’re still comfortably under ten leases, your existing spreadsheet process might be enough to support compliance with the new standard. There’s no bright line at which a business must invest in lease accounting software, but many will find that a quality software program can save time and improve accuracy even if they manage only a few contracts.
- Type of lease: Software can vary widely in its ability to serve different types of leases. If your business leases a variety of assets such as machinery and equipment, office space and land, you want to make sure that any software you choose supports all of these types of leases. If you’re more focused on one specific type of asset, some vendors offer more targeted software programs designed to better accommodate one type of lease, such as real estate leases.
- Lease management functionality:
- How effective is your current system of lease management?
- Are you able to easily identify the number of leases in your system and look up the terms of any given lease?
- Are you missing key deadlines?
If lease management is a strength for your business already, you may not need to invest heavily in software to improve in this area. However, if it’s an area where your business needs to improve, options for lease management software can include the ability to track items such as physical location of your leased assets, upcoming payments, lease extension or termination deadlines and more.
Connect with a Freed Maxick Lease Accounting Software Specialist
With all of these factors in play, choosing and implementing new lease accounting software can be extremely challenging.
Freed Maxick offers support in all phases of the process, from consultation on software selection to outsourcing of the initial data entry and even ongoing maintenance of your lease portfolio in the system.
To learn more about how we can help you evaluate and select the right lease accounting software, contact Katy Al-Khalidi, CPA at 716.847.2651 for a complementary discussion of your lease accounting situation and a road-map for compliance.