Keeping up with compliance requirements is a major challenge for businesses that lease out assets. These requirements have been further expanded with the introduction of forms FASB ASC 842 and IFRS 16 that have significantly increased the volume of financial data being reported and have made the lease accounting process more complex.
These developments make the already data-heavy and effort-intensive lease accounting function impossible to handle using spreadsheets and instead demands specialized tools.
This buyers guide explains the basics of tools known as lease accounting software and discusses things to know to enable informed purchase decisions.
Here’s what we’ll cover:
What is lease accounting software?
Lease accounting software is a tool that helps lessors manage the financial and reporting aspects of their leased assets. The tool automates tasks such as lease portfolio management, budgeting, and amortization schedule management. It also helps maintain compliance with international and domestic accounting standards such as the FASB ASC 842 and IFRS 16.
The software can be used to manage lease accounting for individual assets or portfolios of assets.
Critical date alerts in Visual Lease (Source)
Common features of lease accounting software
Lease accounting software includes features that help to reduce data entry, ensure compliance, and reduce costs. Here are the common features of the software:
||Track and manage the legal, operational, and financial aspects of any type of leased asset such as real estate or equipment. Manage renewals and buyouts, terms and conditions, and servicing dates.
|Amortization schedule management
||Add amortization schedules, define the amortization period, calculate total lease charges, and lease duration. You can also view the opening asset and liability balance.
|Critical date alerts
||Track critical dates for term-end renewals, lease terminations, buyouts, and more.
||Import capital lease data such as periodic depreciation and salvage value from different geographical locations or business units and consolidate them into a single report.
What type of buyer are you?
These are the two broad categories of lease accounting software buyers:
- Buyers looking for portfolio accounting: If you lease out assets of the same category having the same start and end dates, such as a fleet of ships, you can go for portfolio lease accounting software. In this type of tool, transactions are reported based on each lease contract. This simplifies accounting compliance as calculations can be made in aggregate and you don't have to account for each asset individually.
- Buyers looking for individual asset lease accounting: If you lease out different categories of assets that have different start and end dates, such as buildings or apartments, you can use a solution that supports lease accounting for individual assets. In this type of software, transactions are individually reported for each asset on a lease contract. As it involves diverse assets, making aggregate calculations, in this case, is a complex task.
Benefits of lease accounting software
By now you understand the core features of lease accounting software and its buyer types. Now let's look at some key benefits that will be of value to you:
- Reduce unnecessary costs: The tool offers features that help you track variable expenses to ensure you don't pay for unnecessary costs. The tool also helps track critical dates in the absence of which your organization may continue to pay for expired leases.
- Reduce errors: As opposed to spreadsheet-based lease accounting, the software automatically keeps track of the required financial fields to ensure accurate calculations. Data can also be extracted from any chosen field and populated directly into the formulae, which further increases accuracy.
- Improve compliance: Lease accounting software helps simplify the transition to new accounting standards and helps comply with evolving regulations by allowing users to update lease disclosure regularly. This helps ensure the accuracy and relevance of lease data as users can be sure that the data is current.
Key considerations when buying lease accounting software
As the last step to purchasing lease accounting software, you need to keep a few additional things in mind:
- Integration with ERP tools: It's advisable to check if the software supports integration with enterprise resource planning (ERP) systems. In case of a change in lease terms and conditions or changes in user decisions because of termination or extension, lease liabilities and right-of-use assets can go through multiple remeasurements. The impact of these changes reflects on the balance sheet and if regulations change, it will be difficult and risky to carry out a last-minute customization.
- Deployment: You will need to consider the deployment options available based on your business requirements. If you select on-premise software, you will need to evaluate the complexity involved in installing, maintaining, upgrading, and backing up the software. You will also need to consider if your IT resources are sufficient for deploying the software. If you select a cloud-based solution, you will need to evaluate the vendor based on their data storage capabilities, security policies, and the professional services offered.
- Reviews: Apart from the functionality your chosen software offers, it's advisable to check vendor reviews and choose a vendor with a good track record of offering help with implementations, data management, and customer support. You should also check if the vendor is financially stable or backed by a large firm and can support long-term data management and operations.
If you wish to further understand the features and benefits of lease accounting software, you may fill out this form for an obligation-free consultation. Our advisors will understand your requirements and guide you in shortlisting the options most suitable for your business.
Note: The applications selected in this article are examples to show a feature in context and are not intended as endorsements or recommendations. They have been obtained from sources believed to be reliable at the time of publication.