In today's vast and complex business world, it may seem difficult to keep track of all the various lease agreements that your organization might have, especially while facing the implementation of ASC Topic 842. In order to stay on top of things, organizations can leverage a lease management software solution. These software tools are specially designed to help organizations accurately track and account for their leases under ASC 842. For private companies, lease software also helps make the upcoming implementation of the ASC 842 accounting changes more manageable and can expedite the transition process.
It’s a lesson public companies learned when they implemented ASC 842 two years ago. Technology was a key player during the process; results from a 2019 lease accounting survey revealed most business leaders implemented a new lease management system to account for leases under the new standard. History will likely repeat itself as the deadline for private companies to adopt the new standard quickly approaches.
Whether you select technology on your own or with the help of a partner, here is how lease accounting software is a beneficial tool for your implementation toolkit.
Improved Data Quality
Spreadsheets have long been a go-to application for managing leases, as they are easy to use, inexpensive, and offer versatile functions. However, despite your best efforts to manage the complexity of upcoming lease accounting changes, relying exclusively on a simple spreadsheet can actually increase the risk of errors and jeopardize your compliance. One tiny error inadvertently made in a spreadsheet could have a devastating domino effect on your implementation process, requiring a considerable amount of work to be redone and eating up precious time and resources.
Lease accounting software is programmed to understand the new accounting standard and to base calculations on those requirements, as well as summarize the information needed for financial statement disclosures. Your organization also has the option to tailor lease accounting software to accommodate your organization’s unique needs and challenges. Most importantly, lease accounting software preserves the integrity of your data by locking entries, tracking changes, and preventing duplicates, among many other valuable functions.
Centralization of Information
One of the most significant benefits of lease accounting software is that it assists organizations in consolidating the lease information from multiple departments in one place. Many organizations already have their most apparent leases, such as real estate, cataloged in a database. But non-real estate leases, such as equipment or embedded leases, may be stored in multiple other locations.
This centralization of lease information helps organizational leaders have more explicit buy-versus-sell analysis conversations when considering adding assets to the organization. Lease software may help with examining asset worth, budget considerations, and forecasting, which could lead to cost savings.
Updating your lease information timely in the lease software also helps your data stay in audit-ready form all year long.
Maintain Long-Term Compliance
Staying up to speed with lease renewal dates and amendments or other modifications is critical under ASC 842. Lease accounting software has the ability to calculate lease expirations and project renewal or termination dates, and offer automatic alerts for those dates and deadlines as they near. Software also assists you in exploring alternative leases when the time is due, depending on your organization’s specific needs.
Because every lease needs to be evaluated under ASC 842, the new lease accounting standard is a challenge if your organization tries to manage the process on its own. Thankfully, there are tools available that will help you stay compliant and streamline the process of implementation. If you’re interested in learning more about how these technologies work for organizations like yours, please contact a member of our team.
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