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Lease Accounting Software Checklist – 9 Critical Questions

Posted by Amber Bigler Newman | 8/29/17 7:30 PM

Lease accounitng software checklistMost people don’t evaluate lease accounting software every day. In fact, many people who have never thought much about lease accounting technology are being compelled by the new FASB and IFRS mandates to start looking for a solution that can get them to compliance on time. To help, we’ve compiled a list of the most important questions to ask any vendor you consider. You can find one with all the right answers.

1- Has the solution been validated by CPA’s and financial reporting experts?

As one major retail client of ours said, “I can’t afford to get this even 1% wrong.” While the screens that you see in a lease accounting solution aren’t terribly complex (at least they shouldn’t be) the calculations that happen behind the scenes are extremely complicated. That’s why you want to insist on a solution with vetted calculations. Better yet, if the system is recommended by some of the big accounting firms.

2- Is the vendor financially stable and committed to the market?

Trust us, once you get all of your lease data into a system, get it integrated with your general ledger, train your staff, and start managing your leases, you won’t want to have to move to another system because the vendor left the market or was unable to deliver on their promises. Choose a provider with a long, proven track record of stability.

3- How mature is the FASB / IASB compliance functionality?

The standards weren’t finalized until last year and even since then there is an ongoing discussion about the nuances of how the calculations will be performed, so it isn’t surprising or worrisome if the vendor says that their product continues to evolve. That’s a good thing. But you don’t want to go with a vendor that can’t demonstrate the functionality or that hasn’t actively started implementing clients. The outline of the standards has been around for almost 10 years, so find a partner that’s been working on their solution for years, not months.

4- Can the solution support real estate and other contract types?

Keep in mind that the new reporting mandate covers more than just real estate leases. Equipment leases, embedded leases and other types of contracts are covered as well. For reporting, management, and accuracy purposes, it makes sense to find one solution that can handle all contract types.

5- Is there an audit trail and the ability to track data changes?

Lease accounting is about to get a lot more attention from auditors, regulators, investors, and lenders. You should only consider solutions with strong security settings and the ability to assign privileges by role. What’s more, there should be an audit trail for material data changes and events.

6- Does the system integrate with my ERP or accounting system?

Once the leasing system calculates the FASB transactions, it should be able to seamlessly post them to the accounting system or ERP system where the general ledger resides.

7- Are changes to the FASB schedule made automatically when trigger events occur?

A lot of normal day-to-day leasing activities will trigger a change to the FASB schedule. Things like accepting tenant improvement money, renewing an option, changes in rent or space, all require a change to the schedule along with the offsetting transactions. The solution should recognize these triggers and create a recalculated schedule in real time.

8- Can I create standard and custom reports?

The ability to report on the financial activity related to leases is essential. Look for a solution that has the standard reports you would expect to find along with the ability to create custom reports that match your specific needs.

9- Is there a lease classification test built-in?

Under the new FASB guidelines all leases will need to be classified as “Finance” or “Operating.” (Under IASB all leases will be considered finance.) There are a set of general rules that determine which classification is appropriate for each lease. Look for a lease accounting system that analyzes details about the lease and recommends a classification based on that data.

10- Does the vendor offer services to support my team?

This is a big job for most organizations. Some will prefer to do most of the heavy lifting themselves, while others will rely on a partner with the resources and experience to help with things like lease audits, abstraction, implementation, and ongoing maintenance. Even if you don’t think you’ll need much in the way of professional services now, it’s smart to pick a partner that can provide them should you want assistance in the future.

By choosing a partner with good answers to all of these questions, you’ll put yourself in the best position for success.

Topics: Real Estate Accounting, FASB, Lease Accounting

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