Compliance under FASB ASC 842 is not all gloom and doom.
Although, if you’re in the throes of implementing the new lease accounting standards, it can feel like a perpetual dark cloud hanging over you with no hope of ever seeing sunny skies again.
While it’s true that preparing for compliance--the monumental tasks of gathering leases, analyzing them, creating policies, evaluating lease accounting software providers, training staff, abstracting and migrating data and then testing—is challenging, the new lease accounting changes present a golden opportunity for strategically optimizing your finance and lease accounting practices.
And that’s best accomplished through the tool of automation.
Despite the deferred deadline, compliance is not a choice. Any business with even one lease over 12 months in duration must report under the new requirements. So, if you’ve ever considered an automated solution for either lease management or lease accounting, there’s no better time to dive in.
It simplifies the complex implementation process. Just the calculations needed for determining lease asset values and liabilities alone are complicated enough under the new lease accounting standards. And that’s only one step.
Stakeholders are more open to change. The stark reality of compliance has created a general climate supportive of finding new solutions, discovering new methods of increasing efficiencies, and protecting the bottom line.
Day Two reporting is inked in on next year’s calendar—and every year following. FASB ASC 842 isn’t going away. Investing in technology before the compliance deadline saves valuable resources that are otherwise wasted by continuing to depend on spreadsheets and other manual processes to do the work that automation can perform for you.
The Benefits of Automation
#1 Streamlined Processes
Having all contracts and other documents related to real estate, vehicle, equipment and other leased asset data—including embedded leases—stored in a single cloud-based system means improved accessibility, reliability and standardization.
Centralization and a searchable database = fast and easy data location.
Quickly find the information you need for reporting, negotiating terms and all other related decision-making. Rather than scrolling through spreadsheets for critical data and hoping it’s up to date, or wondering when a lease term was changed and who made it, you have true information in minutes with just a few clicks.
A solution with features that give you the ability to track changes and have second-party approval, paired with the uniform data entry procedures and record keeping that automation facilitates, results in more reliable data.
Everyone’s on the same page.
Efficiency and reliability are also improved by the enhanced communication and collaboration between departments that goes hand in hand with using software solutions.
When Real Estate and Procurement have immediate access to the same data, it exponentially increases efficiency by eliminating the time spent correcting errors that often occur with departments retrieving and sending information back and forth.
Finally, even though no one likes to think about audits, think about how much simpler and stress-free an audit could be when the auditors have access to all the information they need. You just provide them with a login, and they can pull data and run reports while you continue working without interruption.
#2 Improved Decision-Making
Consolidated lease data in an automated system provides a global view of obligations that obviously improves your ability to forecast, budget and make better informed decisions about capital project management.
But consider how the capability to build a customized report could affect how you manage your liabilities to drive positive balance sheet ratios. Or how to be more proactive about achieving favorable debt-to-equity ratios.
It’s difficult to get a clear view using Excel.
If you’re not using an automated lease accounting solution and instead are depending on Excel spreadsheets or some other manual method, more than likely you have no internal controls, no alerts for critical renewals or expiration dates and no way to capture pertinent information like TIA that can affect decisions that, in turn, affect the balance sheet.
Then there’s the clear window into space planning.
Seize the opportunity to re-evaluate how all your square footage is used and optimize it to limit your liabilities. And don’t forget about other operational efficiencies like streamlining preventative maintenance.
And if all the above decision-making benefits aren’t convincing enough, there’s the advantage of deeper insights into your leasing practices and behaviors. Lease accounting solutions allow you to identify trends. Running portfolio analysis reports on specific metrics such as lessor concentration, expiration dates and rate analysis by lessor can point to adjustments or terminations you might want to take action on.
#3 Real Cost Savings
In addition to avoiding unnecessary late fees incurred because a deadline was overlooked or overpayments because no one noticed a lease expired—yes, it’s been known to happen—automated lease solutions that integrate management and accounting functions allow finance professionals to more easily evaluate lessor terms and conditions no matter what department or location originated the lease.
And how about the lease or buy question?
Now that operating leases are required by FASB ASC 842 to be capitalized on the balance sheet, it presents an opportune time for companies to conduct a lease vs.buy analysis with existing and future leases. By using controls to define when to lease or buy, businesses can potentially reduce costs and make the most of tax impacts.
Leverage with vendors.
With a complete view of all leases in one centralized repository, you can manage vendors more cost-effectively. You may see opportunities based on economies of scale for increased leverage with specific vendors.
And last, there’s the opportunity to reduce or eliminate cost leakage which results when a lease’s terms are expiring, and action is not taken in time.
No one can deny that the new lease accounting standards required by FASB ASC 842 can feel overwhelming and unduly complicated, but the truth is, they were necessary for improved financial reporting, increased transparency, and comparability.
As grim and grueling as implementation of the new standards is, forward-thinking finance executives will see this as a strategic time to onboard a solution that will streamline processes, improve decision-making, and realize savings in costs and resources—all which make compliance just a little more bearable and a whole lot brighter.
If you have questions about how you can benefit from lease management or lease accounting software, or how to tackle FASB ASC 842 implementation, our team of lease accounting experts is happy to chat with you. With over 20 years of experience under our belts and hundreds of completed projects, we can help you execute the new lease accounting standards flawlessly.