©The best photo for all/iStock/Getty Images Plus
The ASC 842 and IFRS 16 lease accounting guidance is one of the most significant changes to corporate accounting in 40 years. To handle the complexities of compliance, organizations with large lease portfolios bought and implemented newly developed software.
While every system performs the basic calculations, most weren’t designed with ongoing operational needs in mind — like lease remeasurements and retrospective true-up journal entries. They also don’t include lease-level audit details or provide automation for key functions like discount rate matching. This requires accountants to spend hundreds of hours performing manual spreadsheet workarounds outside of a software system to truly do all the work needed for lease accounting.
Eliminate manual calculations for renewals or terminations.
If no changes ever occurred after the original agreement, accounting for leases would be simple. But numerous factors necessitate adjustments to lease accounting all the time for renewals, terminations, partial terminations and impairments. The larger the portfolio, the more often such changes occur.
Most lease accounting solutions still have no ability to remeasure the amortization schedules for these updates. Instead, accountants must create these adjustments manually — usually in spreadsheets outside of a software system — or by creating an entirely new lease in the system.
Each type of remeasurement requires its own calculations, usually takes at least 30 minutes from start to finish, and must be saved for auditors.
Why would any accounting team stick with manual tasks like this when automation is possible?
The most highly evolved lease accounting software automates remeasurements. Accountants simply click on the type of remeasurement that is needed, and with just a few more clicks, the software automatically remeasures the ROU asset and lease liability, which is audit tracked as well. Adjustments are saved as part of the original lease amortization schedule without the need for an entirely new lease record.
Post adjustments to the GL with audit details.
Accounting teams are often the last to know about changes to real estate and equipment portfolios. Lease data errors or omissions discovered after month-end close require correction. This too is often a manual process performed in spreadsheets when software lacks functionality to automatically fix these issues.
To fix the problem, accountants must show the amount that should have originally been booked, the amount that was booked, and the difference between the two. This tedious process is time consuming and introduces risk with accounting records maintained outside of the system.
The better approach is to have lease accounting software that automatically calculates the true-ups based on the dates of adjustments, posts the impact to the general ledger in the current period with no impact to a closed accounting period, and maintains an audit trail of the transactions.
Better automation for adjustments not only saves time, but further reduces risks at audit time.
It’s time to learn that being audit-ready anytime — with just a few clicks — is worth the investment in a more fully-automated platform. So don’t settle for the “we’ve always done it this way” of thinking. Expedite your lease accounting processes with CoStar Real Estate Manager.
Do you want to learn more about how automation will revolutionize your lease accounting? Download the CoStar Real Estate Manager Lease Accounting eBook today.