Yes, Accountants, there is a place for spreadsheets in your ASC 842 implementation process.
For some, that bit of news is as welcome as Virginia being assured there is a Santa Claus. Especially with all the headlines declaring lease accounting software as the one and only answer to the challenges of implementing the new lease accounting standards. One article flat out claims the days of using Excel are over!
It’s easy to see why spreadsheets are so beloved. They’re inexpensive, versatile and have been around for ages.
But it’s also understandable that many implementers gave up on spreadsheets in favor of an automated solution. In fact, 72% of public companies that have finished implementation either upgraded an existing system or purchased new lease accounting software. Early on, they realized the magnitude, complexity and significance of the task before them.
And one of those lessons has to do with how and when to use ASC 842 spreadsheets.
If you have more than 50 leases, including any real estate, equipment, vehicle or embedded leases with terms of 12 months or more, the volume of work involved in ASC 842 implementation is staggering. As wonderful as Excel is, it can’t sufficiently support all the requirements of the FASB rules.
Here are just some of the reasons why spreadsheets are inadequate for managing your lease accounting:
Active alerts - The new standards call for ongoing monitoring and updating your lease activity. It’s no longer a situation where you enter a lease into a spreadsheet and forget about it. Renewals, changes to terms and other events that trigger the need for reassessment call for action that can be costly if overlooked. Automated software, on the other hand, will send email alerts so you never miss an important date.
Practical expedients - If you’re considering any of the practical expedients for FASB ASC 842, Excel lacks the functionality to show you the benefits or disadvantages of that election related to your specific situation.
Critical information - The new standards require many pieces of data to make the correct calculations. Much of that data is buried in the lease agreement, such as rent abatement details or tenant improvement allowances. Excel doesn’t capture this information which is critical to calculating correct payments.
Role-based access - When Real Estate, Facilities, Finance and Purchasing and other departments have access to your data, it’s important to know who made a change and why. It’s even more important to have controls in place for second-party approval which protects the integrity of your data.
Audit trail - With all the increased attention on operating leases and the accounting of their ROU assets and liabilities on the balance sheet, auditors will also want to know the who, what, when and why a change was made. Spreadsheets won’t provide them with that trail.
Error-free consistency - How confident are you that your formulas and calculations are always correct? Multiple CPA firms regularly validate all the best lease accounting software. Another aspect to consider is the assignment of journal entries to the correct account. When this is done manually with spreadsheets, there’s always the chance of error. Automated solutions ensure the correct accounts are selected for each charge type.
Flexibility and scalability - Some industries typically have 13-period calendars. What about companies with international leases? And fiscal years that don’t begin in January? Lease accounting software provides the flexibility to easily handle these specifics that you won’t find in Excel. In addition, having a centralized repository for all your leases makes software more scalable than spreadsheets.
Increased reporting - The new FASB rules mean you will need to run a gamut of reports, including disclosure reporting. Many solutions come with hundreds of standard reports, but the best software allows you to create customized reports.
Automatic revisions - As mentioned earlier, the new standards mean you’ll be creating the required schedules more often than under the legacy guidance. Events such as adding or reducing space or experiencing an impairment will require revisions. Lease accounting software automatically makes the changes to your schedules and GL.
Lease classification - If you’re reporting under IASB or GASB, this isn’t a concern as those standards use a single-model approach, considering all leases to be financings. But for FASB rules, each lease must be correctly classified. Many software solutions have reporting functionalities to help you make that decision.
What-if modeling - With spreadsheets, if you want to see the impact of adding an option or changing a lease classification, you need to add rows, columns and new formulas. Then, if you decide to keep the lease as it was, you have to delete all that work. Not so with automated solutions. They allow you to easily analyze different scenarios.
Document management - Having all documents related to your leases stored in one cloud-based location just makes everything easier.
That’s a hefty argument for not depending on spreadsheets exclusively for your lease accounting.
However, spreadsheets are the appropriate tool to play a supporting role in your transition, especially in the beginning phases of ASC 842 implementation. They can help get your lease accounting software up and running in a more efficient manner.1. Lease information gathering
Many companies have property leases, equipment leases and contracts with embedded leases located in various formats and places within the business--sometimes even in different geographies. While you’re collecting leases from your different departments, spreadsheets are a convenient way to keep track of each lease. It’s important to ensure that every lease is identified as one omission means your reporting is inaccurate. And that can lead to the need for a restatement and the subsequent negative repercussions.2. Creating an inventory
After you’ve collected all the basic information on each lease, you’ll need to cross-check your list to make sure it is accurate and complete. One way to do this is to get a list from Accounts Payable and compare it against your list of vendors.The merged list can be used to create a final lease inventory. Again, Excel is an excellent tool for this task.
3. Organizing the data
Properly built, your spreadsheets can expedite the process of loading data into whatever automated solution you choose to use, organizing it accordingly. Your lease accounting provider should be able to guide you through this step.4. Building processes
You may even want to use spreadsheets to help with the processes and internal controls you’ve created for monthly routines to follow in order to keep your lease data up to date.
Conclusion: Keep your spreadsheets!
As you’re going through ASC 842 implementation, it’s best to follow a well-thought out plan, stick to your timeline and depend on proven tools to streamline the transition process.
And, yes, those tools include spreadsheets.
For many private companies and governmental entities who have 50 or more leases, the tools also include lease accounting ASC 842 software. At AMTdirect, our team has over 20 years of experience in lease management and lease accounting solutions. If you have specific questions about the new FASB rules, or just want to check us out, we’d be happy to speak with you.
Give us a call today at 704-896-3118!