Lease accounting essentials fall into several key areas, including the people, processes and controls that support audits and the project over the long term, to the technology you choose to automate the compliance and audit processes.
Understanding what is essential to your business will allow you to simplify your lease accounting process.
For most organizations, success with lease accounting will be based on how you address three important internal elements – people, processes and controls.
Understand that organizing the personnel and processes are equally important. Know whether you will be using internal or external resources and identify who in the organization is involved in leasing. Technology will never fully replace human resources as there will always be a gray area of judgment that requires human decision-making that cannot be automated by machines. Consider what resources you have in place to manage lease accounting with sustainable compliance in mind.
Establishing a process for your lease accounting is critical for your organization. Be sure to have a process in place for finding new leases and properly terminating leases, as well as monitoring existing leases for changes that may or may not affect accounting. Consider how you will set up repeatable processes to simplify your lease accounting and remain in compliance.
Proper controls allow the accounting team to successfully defend management’s assertions. In other words, having the right controls shows that your organization has established the proper governance of the leasing and lease accounting processes across departments. Consider who on your team will set and monitor your policies, and who is responsible for lease accounting audits. Find additional tips on how to make your lease accounting audit easier here.
Using technology for lease accounting
Many organizations have realized that the fastest path to compliance is with lease accounting software. As you build the business case for purchasing a lease accounting solution, you’ll want to think through your requirements.
Below are a few considerations to remember:
- Any business with more than 5 or 10 leases will struggle managing lease accounting through spreadsheets. Software will help you automate common tasks and manage accounting more efficiently compared to a spreadsheet.
- Software may cost less than you think, especially if you only have a few leases. Consider our free essential plan for up to 9 leases.
- With lease accounting software, you have less risk, lower costs and better controls across your lease accounting process. The software makes audits much easier.
Focus on the essentials for your business
When choosing lease accounting software, it is important to understand what is essential to your organization.
As a start, the software must provide the correct accounting and make it easy to load, classify and validate leases in a central repository. The software should allow you to map the inputs to GL accounts to streamline your import process. The software should also have documented controls to track lease modifications and remeasurements. And last but not least, you’ll need audit-ready reporting.
The right solution will deliver these essential capabilities:
- Load and manage lease portfolio
- Manage lease modifications
- Support subleases and lessor leases
- Map to your charts of accounts and GL
- Support data export and import
- Support specialized agreements: SBITAs and Asset Retirement Obligations (AROs)
- Provide training and ongoing support, including accounting examples
Test out lease accounting software
Although lease accounting may seem complex at first, taking these “must haves” into consideration can get you started as you build your overall compliance plan. From establishing the right resources, processes, and controls to choosing the technology you’ll use to support the project, these decisions will help you meet your deadlines.
To ensure your lease accounting project is a success, consider a free trial of EZLease.