The lease accounting standard ASC 842 and IFRS 16 requires a comprehensive and complex approach to accounting for leases that typical ERP and accounting systems are not designed to handle. Most US private companies have now implemented this standard, following the roadmaps public companies followed over four years ago. However, for many the implementation was challenging due to the complexity of the standard and the resource limitations of smaller businesses.
The standard became effective for private companies last year, and most have completed their first year-ends. Many sources have reported that many companies had difficulties in complying with the new standards and did not adopt lease accounting systems but relied on Excel.
One of the main challenges companies found was maintaining the integrity of the lease population, recording changes, and capturing lease data in a timely manner. These were common audit issues that highlighted the need for companies to balance people, processes, and technology for sustainable operations.
As experienced by many public companies before, private companies also realized that they were not prepared to manage ongoing compliance after adopting ASC 842 or IFRS 16. These experiences led public companies to developing more robust lease accounting systems and procedures. They also have embraced automation to avoid the problems associated with manual spreadsheet calculations during lease modifications. Today many public companies found that automation helped enhance efficiency and data accuracy in performing lease accounting.
Optimization is just as important as compliance in lease accounting. It requires a holistic understanding of how lease accounting interacts with the accounting systems and business requirements. Understanding this can help create an efficient monthly close process, a robust internal control system, and a long-term strategy that promises returns on investment.
Optimization can also be achieved by centralizing all lease agreements in one platform and digitizing essential information such as dates, contacts, and terms. This can enable easy access and analysis of lease data. A successful lease accounting strategy also demands effective collaboration, communication, and repeatable processes.
Leverage the complimentary health check offered by Black Owl Systems during your post-audit review, and guarantee the seamless operation of your lease accounting system and processes!