5 Steps to Lease Accounting Compliance

You want to be compliant in your lease accounting, but you also may not know which process will be right for you and your company. The first step to becoming lease accounting compliant is to understand the lease accounting standards, including ASC 840, ASC 842 and IFRS 16. When you become acquainted with the new standard, you will be able to identify how the new standards apply to your company and leases. Understanding how the standard applies to your company will give you a better understanding on which route you want to take in becoming lease accounting complaint. The different paths to becoming compliant range from performing all duties in-house to completely outsourcing all processes. This article will present the different avenues available to companies and their pros and cons.

  1. Become an Expert– In-House

After taking the time to read the standards and applying them to your business, you may think you can do this in-house. You may have a robust accounting department, or you may not have many instances where the standard applies to you. In this instance, you are assuming the role of leaving the responsibility to your accounting team to build your processes from scratch without third-party partnerships or lease accounting software.

Pros:

  • More Control: A benefit to performing your lease accounting in-house is that your accountants are in-office. They can relay questions to each other and are available to each other. They can pop their head into a colleague’s office (or zoom call) and ask a question.
  • Accounting Team Growth: By giving the responsibility to your accounting team, you are allowing them to take ownership and grow. Developing your accounting team to be experts can lead to success in more areas than just lease accounting.

Cons:

  • Time and Effort: When performing lease accounting in-house, not only do you need to understand the standards, but you should also become an expert. Becoming an expert requires reading the standard, being aware of updates, reading standard interpretations, compiling data, building out lease accounting processes and training staff. Each of these tasks requires a good amount of work and in the end, you may not have the time or the resources to do each one effectively.
  • Spreadsheets: One large (seriously large) part of doing in-house lease accounting is the number of spreadsheets used. The sheer number of spreadsheets and tabs to track lease information is frightening enough, let alone the process to create lease schedules and maintaining them. A vast amount of time is spent opening, closing and reopening spreadsheets just for your accountant to post a journal entry. We all know the amount of human error that goes into creating useful standard spreadsheet templates.
  • Costs: When we quantify the time spent to DIY your lease accounting process and lease spreadsheets, we are looking at a substantial number. That number gets bigger when we add the amount of time spent on becoming an expert and then training. Time is money and the cost to do in-house may exceed the budget.
  1. Spreadsheet Cheat Sheet

One way to save your team time and money is to use our free NetLease Template. You can cut the time used in DIY-ing your own spreadsheets to almost no time with just clicking and downloading. Reassure yourself of the accuracy and trustworthiness of your lease spreadsheets by using the

  1. Partner with a Consulting Group

While you may think the amount of time and effort to become a lease expert is too high or you would like to hire additional help, partnering with a consulting group or an accounting firm could be the answer.

Pros:

  • Expertise: When utilizing an accounting firm, you can count on the knowledge and experience of their team. They are available to answer tough questions and give insight.
  • Transfer Workload: Hiring outside consultants gives your accounting team a break from needing extensive knowledge, developing lease processes, and creating lease spreadsheets. Speaking of spreadsheets, you will most likely need to provide compiled lease data to your consultant.

Cons:

  • Back and Forth: Working with a consulting group will require kickoff calls followed by recurring status meetings and more. In between meetings your accounting department will be answering the endless stream of questions and providing additional data.
  • Costly: While it is helpful to have an outside group help in becoming lease accounting compliant, the five or six figure invoice that will be paid may turn you away.
  1. Lease Accounting Software– Automate

In reading the above, you can already guess using spreadsheets to manage leases and staying compliant can get messy. The smart option is to implement a lease accounting software such as NetLease to automate lease processes and stay compliant. NetLease is a one-stop-shop for achieving lease accounting capabilities.

Pros:

  • Streamline: NetLease is simple and automated to provide full lease automation when it comes to inputting lease data, generating lease schedules, managing lease modifications, posting journal entries, and running reports.
  • Automate Compliance: NetLease stays compliant with ASC 842, IFRS 16 and GASB 87 requirements.
  • Training and Support: Netgain has a team of accountants to assist in implementation, training, and support to make lease accounting process as simple and stress free as possible.
  • Flexible and Scalable: NetLease can support any industry and any size with the abilities to store and access key details and documents for each lease.
  • Reporting: NetLease provides a robust end to end audit trail and provides push-button reporting to support FASB, IFRS, and GASB disclosures, auditor reconciliations, and key decision making throughout the entire lease lifecycle.

Cons:

  • Choosing the Right Software: While it might be obvious that a lease accounting software is crucial to staying compliant, how does one choose the right software? Choosing will require some research and some shopping around. Sign up for a NetLease demo today, by clicking the link at the bottom of this page.
  1. Outsource Lease Accounting

Outsourcing your lease accounting provides the least amount of time and effort by your accounting team. When using an outsourced accounting service such as NetLease Complete, you can receive compliance within 72 hours.

Pros:

  • Simple Expertise: NetLease Complete is as simple as these few steps:
  • Sign up, choose your lease volume, and set your parameters
  • Upload your leases to our customer portal
  • Receive lease schedules and required disclosures for ASC 842, IFRS 16 or GASB 87
  • Transfer Workload: Outsourcing your lease accounting alleviates your accounting team of the arduous lease accounting tasks. This extra time and effort can be spent in other areas within your company.
  • Reduce Fraud: With outsourced lease accounting, the ability to commit frauds decreases. The data, schedules and reports are out of the accounting team’s hands and with a third-party, reducing some of the incentives for fraudulent behavior.

Cons:

  • Less Control: Outsourcing all your lease accounting means you may not be able to customize or address issues as quickly as you would when it is in-office. When work is outsourced, you lose control over how the work is being done and misunderstandings may come from irregular communications.
  • Security: Although most outsourcing firms have appropriate safeguards for your data, there is always an opportunity that confidential information could be compromised.

Bottom line:

Whatever solution you choose, exploring all options will help you make that informed decision. Complying with the new lease accounting standards is key to avoiding putting your company in a bad position. You want a clean audit rather than being forced to redo your financial statements. Give serious attention to achieving compliance by the deadline, and as you manage future leased assets. As you move forward ensure that your lease accounting can be fast and simple, and ready for the long term.


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For more information on automating your lease accounting, schedule a conversation with one of our CPAs