Excel is one of the most popular software applications on the planet for good reasons. It’s extremely flexible. It’s cheap. Pretty much everyone knows how to use it to one extent or another, and it’s a great file format for uploading or downloading data from all sorts of other applications. What’s not to love?
In fact, in theory, you could use Excel for managing your entire business. It could be your CRM, your HR system, your inventory control solution, or your POS. It probably isn’t though. Why? Because these tasks are so important and so specialized that it makes sense to use applications that are designed for exactly that purpose. Doing so reduces risk, ensures consistency, and lets you take advantage of custom features that uniquely fit the task at hand.
All of this applies to the new lease accounting standards, FASB 842, GASB and IFRS 16. Here’s why even though we love ASC 842 Excel templates dearly, they aren't the right tool for the new world of lease accounting.
Reason 1: Revisions
If you think of creating the required schedules as an annual or quarterly event, using Excel might not seem so bad. But there’s a catch. Dozens of day-to-day events that can happen over the life of a lease may require revisions to the schedule and off-setting journal entries. Add or reduce space? That’s a revision. Accept a tenant improvement allowance? Experience an impairment? Renegotiate rent? All revisions. Lease accounting software is designed to automate the changes to your schedule and your GL when these everyday events occur. Excel isn’t.
Reason 2: Audit Trail
Although lease accounting has been only a footnote in financial reporting’s past, that’s no longer the case. Auditors are going to be very interested in your lease schedules, and they’re going to want an audit trail. They’ll want to know who was responsible for each change and why specific changes were made. Spreadsheets just aren’t designed to do this. What you need is field-level audit trail capabilities.
Reason 3: Lease Classification
This one isn’t an issue for those reporting under IASB or GASB, but for those reporting under FASB ASC 842, it is enormous. For each lease, you’ll need to decide based on a number of factors whether it should be reported as an Operating or a Financing type lease. More than a dozen bits of information are necessary to make the right choice. Excel can’t help you do that, but lease software with FASB reporting capabilities can. The best lease administration software solutions make a recommendation based on all of the data about the lease, but let authorized users override it if they have cause to do so.
Reason 4: General Ledger Integration
The lease schedule is only part of the picture; there are also offsetting GL entries for the Right of Use Asset to consider. An integrated lease accounting solution streamlines the process of doing the entries and reduces the opportunity for error.
Reason 5: Formula Validation
Who validates that the formulas in a spreadsheet are correct and stay that way? That’s a huge challenge for most organizations. The best lease accounting software is validated by multiple CPA firms on a regular basis (don’t consider a solution that isn’t). If you think about it, the software vendor’s future depends on accurate and up-to-date calculations. It’s not something they are likely to get wrong.
Reason 6: Role Based Access
You will likely have real estate, facilities, finance, and legal folks who need various forms of access to your schedules and the information that feeds them. You want everyone to have the read and edit rights they require, while at the same time limiting the number of people who can make changes to those authorized to do so. Excel is a poor tool for role-based access to information.
Reason 7: Reporting
The new lease accounting standards will create the need for a bunch of new reports, including Disclosure reporting. The right lease accounting software gives you the ability to create ad-hoc reports when you need them. Some solutions even come with hundreds of standard reports that you can use as-is or customize for your needs.
Reason 8: Tables and Assumptions
In addition to the schedule itself, there are a number of tables and assumptions that need to be maintained, including the interest rate table, capitalization thresholds, and accrued balance thresholds for write off or rollover. This adds to the complexity of the whole affair and is much less risky in a software platform than in Excel.
Reason 9: “What If” Modeling
Not every lease scenario will be cut and dried. In some cases, you might want to be able to quickly see what would happen if you changed the classification of the lease or changed your mind about including an option. What would happen if you added or removed the Landlord Allowance, Index Rent, Impairments, and so forth? In Excel, that would involve adding new rows and columns with new formulas, then deleting them to get back to the way it was before. Lease accounting and lease administration software like AMTdirect lets you make the changes and revert them easily.
Reason 10: Journal Entry Account Consistency
With a spreadsheet, someone will need to manually pull out the Journal Entries and assign them to the right account. Lease accounting software ensures that the correct accounts are used for each charge type.
Reason 11: Disaster Recovery and Security
Lease accounting is now central to financial reporting for your business. You must be absolutely sure that your information is hosted in an environment with backups, failover equipment, and SOC compliant security measures. Choosing a proven lease accounting provider gives you the peace of mind that your data is safe and available no matter what.
Our clients that are well on the path to compliance have discovered that there is more complexity involved than they expected. Many of them have used ASC 842 Excel templates for the current lease accounting approach but quickly realized that it wasn’t going to be an adequate solution for the new standards. Because time is running short and resources are getting tied up, it’s a good idea to start evaluating lease accounting software as quickly as possible.