And one of the main reasons why is because software automates the entire process of moving leases onto the balance sheet, a requirement of FASB ASC 842.
Before the new accounting standard, many companies managed their lease portfolios using manual processes and separate systems for real estate, procurement, contract management, and accounts payable.
All that has changed.
In fact, 72% of public companies onboarded or upgraded lease accounting software to implement FASB ASC 842 and 61% of private companies plan to follow suit when their 2021 deadline hits. This allows stakeholders from across the company to access all lease data in a central repository.
There’s a catch, though. While lease accounting software providers are essential for completing the new accounting standards accurately and on time, there’s just not enough capacity in the industry to handle the demand.
The Numbers: FASB Lease Accounting Software Providers
Although lease accounting providers are increasing their customer counts as a whole, there aren’t a boatload of options to choose from.
In fact, one of the concerns for companies who must meet a 2021 compliance deadline for FASB ASC 842, GASB 87, or IFRS 16 is that there simply aren’t enough software vendors to cover the amount of companies that need to comply.
There are only about 20 lease accounting software providers available in the United States, with only 10 trusted for lease accounting compliance.
- IBM Tririga
- Tango Analytics
- Visual Lease
These lease accounting software options range in price and services. They also range in years of experience and industry knowledge.
A few companies morphed into lease accounting providers when the new accounting standards were passed. Because of this, their solutions are often in beta mode or not built to support full lease accounting compliance.
“A lot of vendors have scrambled to put something together in order to offer their services to potential clients for the new lease accounting standards,” warns Mike Handley, CPA & Senior Manager at CFGI. “Once you dig down another level, it’s easy to see that they wouldn’t be able to provide all the requirements from a compliance perspective.”
Make sure to follow a careful RFP process to ensure you sign on the best vendor for your company.
The Numbers: U.S. Private Companies
The small list of lease accounting software providers may not seem alarming. But you have to compare it to the amount of customers to bring the picture into focus.
According to the Statistics of U.S. Businesses (a subset of the U.S. Census Bureau), there are 5.9 million companies in the United States.
Of course, not all of those have large enough portfolios to need lease accounting software. So if we whittle down the number to companies with greater than five employees, we’re left with a more sizable 2.2 million companies needing lease accounting services.
But let’s narrow it down farther.
Let’s say just 5% of those 2.2 million companies meet the compliance criteria for FASB ASC 842. You’re left with a more manageable number: 110,000 companies.
A little over a hundred thousand companies doesn’t seem like an overwhelming number considering the almost 6 million it started from. However, now you have to divide that by the comparably infinitesimal amount of lease accounting software providers.
The truth is, each provider would have to assist an impossible 5,500 companies each to cover the market in time for compliance.
And they’d have to do it all in under a year.
Benefits of Starting Early
Because there’s a glaring imbalance in the number of lease accounting software providers compared to the amount of companies they need to service, companies need to start implementation soon.
Even though the deadline has been pushed back, private companies who begin the long trek towards completing implementation now will win in the long run. That’s because choosing a lease accounting software provider now means not taking the risk you won’t have one later on.
Getting started now provides several benefits.
First, it manages all lease sourcing, allowing you to complete lease-vs-buy comparisons and analyze spend in your lease portfolio. Software is also integral to managing leases themselves, whether real estate, equipment, or embedded leases.
The latter have proved especially complex for FASB ASC 842 reporting, which is why a thorough system and team of experts will be critical to success.
Perhaps most importantly in light of the new lease accounting standards is the lease accounting application side of software. This part allows financial teams to generate accurate reports and disclosures for the new accounting standards.
Tapping into the benefits of lease accounting software providers early on will give you the ability to customize the system and get accustomed to using it by the time the FASB ASC 842 deadline rolls around.
This will give you a level of comfort that your reporting latecomers will miss out on.
Conclusion: Restoring Order with FASB Lease Accounting Software Providers
One of the common mistakes public companies made with FASB ASC 842 implementation was underestimating the challenges and complexities. And another major one was underestimating the time needed to tackle those challenges with confidence.
The consequences were severe: Huge investments of time, devastating loss of revenue, and a strain on people and resources.
Private companies can avoid this horror story.
With 12 months until their time is up, smart private companies will move full steam ahead with the implementation process today. They’ll understand the lease accounting software provider options, review what stakeholders require from different parts of their organization, and start gathering lease information from all the places it lives.
With this head start, they’ll have much smoother sailing and much less stress with FASB ASC 842 compliance.
If you need a place to jump off, download our free Authoritative Buyer’s Guide for Lease Accounting Software. And reach out to our experts if you have any questions about the new lease accounting standard and how it applies to your company.