Lease Accounting Software: Is it the Right Fit for Your Business?

Using Excel or any other spreadsheet may seem like the easiest path to managing your company’s lease portfolio, however, that may not necessarily be the case, especially at a time when human capital is at a premium. This blog will highlight a few of the reasons why utilizing a lease accounting software solution is likely the easiest solution for your company.

Built-In Lease Accounting Controls

A lease accounting software is designed to accurately calculate your lease assets and liabilities based on specific inputs. A software will also streamline the necessary journal entries that must be made for the initial recognition and the standard recurring entries. One of the biggest drawbacks of utilizing a spreadsheet tool like Excel is that calculations like these are made up of multiple formulas. As lease portfolios increase in size, so does the likelihood of errors, such as an incorrect input or an incorrect cell reference.

Lease Accounting Resources and Reference Tools

A lease accounting software can help make management decisions simple. Most software supplies link to specific guidance as well as additional tools and wizards to assist management in determining critical inputs like the lease term and discount rate.

Lease Modifications

There are significant assumptions made when assessing the initial lease value, such as lease term length. For example, a lease may contain a 5-year option to renew at the end of the current lease term which ends in 2026. When initially valuing the lease, the Company may determine that it is reasonably certain that they will exercise the option, as there is an economic incentive to do so, thus adding an additional 5 years to the initial lease term (i.e. 2031). However, let’s say that in 2024 facts and circumstances change, and the Company no longer has plans to renew the lease. A modification will need to be made to reduce the lease term, which will also result in a decrease in the values of the lease asset and liability; a calculation that can easily be made within the software. Additionally, a lease accounting software solution will give your company and accountants an audit trail to follow all modifications made to a lease.

Footnote Disclosures Under the New Lease Standard

Under the new lease standard, there are several required quantitative disclosures that were not previously required. Some of these disclosures include the range of interest rates utilized, the weighted average of remaining lease term, the weighted average discount rate, and the aggregate future lease payments for operating and finance leases. Without lease accounting software, management would have to calculate these disclosures on their own, taking valuable time away from other meaningful tasks. Most lease software can perform these calculations with a click of a button.

As discussed above, even if your company only has a few leases, it is likely beneficial to look for a software solution to ensure your leases are properly valued and recorded. Most lease accounting software packages are modestly priced and pay for themselves in the time saved.

Do you have questions about the new lease accounting standard and how it affects your company? Please reach out to your Freed Maxick contact or use our contact form.