Remember when you loved watching cartoons? Then without even knowing when it happened, you realized they were too simplistic and didn’t meet your entertainment needs. You’d outgrown them.
The same thing can happen with Excel.
When you first started using it for your financial lease accounting, you were so impressed. Thought you couldn’t work without it. But somewhere along the way, errors increased, functionality was lacking. But for whatever reason, you stuck with it.
Excel spreadsheets certainly have their value. The popular software application is versatile, inexpensive and is a convenient file format for downloading or uploading data from other sources.
But there are significant consequences for continuing with Excel when your lease accounting compliance needs have surpassed its capabilities. Especially now with the new lease accounting rules in the mix.
If you have more than 10 leases, including real estate, vehicle, equipment and embedded leases, it’s recommended that you upgrade from Excel or other manual systems to an automated financial lease accounting software solution.
If you’re still on the fence and thinking that Excel will suffice, take a moment to analyze your current situation. If you’re experiencing the following issues, then, at the very least, it’s time to seriously consider more comprehensive options.
# 1 Too many errors
As great as Excel is, it can’t take care of human errors. A few mistakes here and there probably doesn’t seem like a good enough reason to make changes to your entire financial lease accounting system. But if you’re already finding a significant number of errors that have to be fixed, imagine the burden of preparing your financial reports under the new guidance.
Now that all leases with terms over 12 months have to be capitalized on the balance sheet, many more “opportunities” to make errors exist.
Not only because of the sheer volume of entries and calculations involved in accounting for all your leased properties, vehicles, office equipment such as copiers, computers, software and servers, furniture and more, but also in the complexity of those calculations.
The new lease accounting standards require complicated calculations such as finding the present value of remaining lease payments. It’s not that Excel can’t be programmed to perform this calculation, but the lease liability is just one of many calculations you will have to do to be in compliance.
Additionally, the requirements for compliance with the new lease accounting standards mean you can no longer enter leases and just forget about them. Your lease portfolio will have to be monitored for reassessment triggers, changes to terms and the addition of new leases.
Whether mistakes occur from carelessness, misinterpretation of rules or omission, no one wants to spend time and effort correcting them. And it’s no longer just a matter of wasting resources. Moving forward, the stakes are raised for making such errors. Just one typo or one wrong formula could result in incorrect financial reports and the need for a financial restatement.
# 2 Duplicate entries
It’s highly likely that if you’re using Excel for lease accounting that you also have siloed information and systems that aren’t connected. This disconnectedness can result in spreadsheets being created in different areas of the company that will inevitably contain duplicate entries.
Excel lacks the controls to prevent duplicates and other problems associated with having lease information in various locations. Even unique identifiers won’t keep a lease from being entered one way in one spreadsheet and by a different label in another department’s spreadsheet.
Because you don’t have a single source of truth like that of a centralized repository, you’ll need to meticulously check your lease agreements and contracts and their corresponding data on a regular basis.
Another problem that Excel can’t take care of is the integrity of your data. Anyone can alter or delete an entry. So it’s impossible to know who made a change, when or why. With the new standards comes increased scrutiny. You’ll want a lease accounting solution that provides a clear audit trail and role-based access.
# 3 Reports are too time-consuming and complicated
Once again, the absence of a centralized repository for leases means that when it comes time to create reports, data must be pulled from different documents, verified, manually re-entered, and then double-checked for accuracy before providing the desired analysis. This takes time and effort that are best spent elsewhere.
The situation isn’t going to get any better under the new guidance. Staying compliant is going to require vast amounts of documentation. The creation of required schedules is no longer an annual or quarterly task. The many events that occur over the life of a lease means its schedule must be revised as well as the off-setting journal entries. Impairments, renegotiated rents, the acceptance of TIA--they all need to be recorded when they happen.
In addition, the new standards require quantitative and qualitative disclosure reporting that Excel can’t address sufficiently.
You will need an automated, more robust system than Excel to handle all these looming challenges.
# 4 Late fees, overpayments and missed deadlines
Important details about agreements are difficult to capture in Excel because it wasn’t designed to have the functionality to properly manage leases. When there are personnel changes and acquisitions, it’s easy for critical information about renewal dates, rent abatements and scheduled rent escalations to get lost in the shuffle.
And you could pay dearly for those “missing” details.
But you wouldn’t be the only one. A surprising number of companies have experienced costly mistakes due to relying on Excel. Sometimes the overpayments are huge--for instance when free rent on the anniversary of a lease is not accounted for. Other times the individual amounts aren’t all that substantial, but over time can make quite a difference.
For example, a lease stated that the lessor had the responsibility to pay for specific repairs or maintenance services, but because that information wasn’t readily at hand in Excel, when the bill for the repair came in, it was paid by the lessee.
With financial lease accounting software, there would have been an alert so the bill wouldn’t have been mistakenly paid.
# 5 Too much time spent building spreadsheets
Although it’s true that an Excel spreadsheet can be configured to accomplish a lot, all that building and coming up with formulas takes time. And what happens if after all that effort, you find an error. As you know, once a spreadsheet is set up, editing its formulas is almost as time-consuming as building it in the first place.
In fact, making changes to your leases in Excel can take up to 10-30 hours a month, whereas performing the same task with lease accounting software can take about 15 minutes.
And that one little decimal point that’s off? In addition to the resulting ripple effect on all your calculations, you will have no idea where to rectify it because Excel doesn’t track changes.
Conclusion: Spreadsheets still have their place
Rest assured, there is still a place for Excel spreadsheets in your financial lease accounting process. During implementation to the new lease accounting rules, they can be helpful when you’re creating your lease inventory and organizing the data before it’s integrated into a lease accounting software solution.
Even without the additional demands of compliance, managing a portfolio containing more than ten leases with manual processes is, well, unmanageable.
Lease accounting software accurately and efficiently performs the necessary calculations, runs standard and ad-hoc reports, updates the relevant data when lease events occur, tracks changes and provides alerts regarding critical deadlines.
If you’d like more information about how to use Excel during your implementation process or how an automated solution can help you execute the new lease accounting changes, our team of experts would be happy to chat with you. Their expertise with both Excel and lease accounting has guided hundreds of companies through compliance.