FASB’s “new” lease accounting standard, ASC 842, has been in the works for several years, though the final effective date for non-public companies has been delayed several times. (The most recent news is that ASC 842 Lease Accounting will be effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022 for private companies and private not-for-profit companies.) The silver lining of these delays is that CFOs, CAOs and other functional leaders have been able to reprioritize project teams tasked with implementing ASC 842 in their organizations. They’ve also been able to defer decisions on what ASC 842 Lease Accounting software systems might best suit their needs.
In the meantime, the marketplace for lease accounting and administration software has continued to develop. And now is a good time to review best practices in the selection and implementation process.
ASC 842 Lease Accounting Software Selection: Key Considerations
ASC 842 brings heightened complexity to your lease accounting. Calculations and lease classification aren’t entirely straightforward and require rigorous testing based on a lengthy list of factors to determine the proper lease classification. This is an area where the right platform can add significant value, streamlining the classification process and minimizing the most resource consuming aspects of it.
While real estate leases have long taken center stage in this area of accounting, ASC 842 implementation requires the companies broaden their view of what constitutes a lease. These expanded definitions require accounting and tracking of arrangements, vehicles, office equipment machinery and even software. Be sure any platform you’re considering fully supports the wide variety of lease types that may apply to your operations.
Need help? Get our free checklist to streamline your ASC 842 lease accounting review of new and existing leases.
Streamlined Functions and ERP Integration
Any selected software provider must have the ability to connect data sources and integrate with existing ERP and IWMS systems, to generate the calculations required for accurate reporting under the standard. Choose ASC 842 lease accounting software with features that can be leveraged by functional areas outside of accounting and finance (e.g., Facilities, Compliance, Internal Audit). Such efficiency not only assists with your transition to ASC 842, but it can also make modeling and forecasting more accurate and streamlined in the future. Your ASC 842 solution should fit within the organization’s larger ERP/IWMS framework, expanding its functionality. The right lease accounting platform will extend and enhance the efficiency of both your organization’s accounting and reporting, but also your lease management operations, with a repository for both your lease data and documentation in a single, convenient place. This will ensure you include all relevant data during the implementation, and that nothing slips through the cracks.
Any sound lease accounting platform will have ample data security measures built in, preventing sensitive information from slipping into the wrongs hands and prevent other sources of data loss. The platform should automatically backup all data, log activity, and reveal only relevant data to any specific user. Ideally, only those that only need access to a particular lease agreement shouldn’t have access to all of your agreements.
ASC 842 also has requirements for lessors, and while your organization Maybe you’re not a landlord today, but that doesn’t mean things can’t change tomorrow – for example, subleasing extra office space. If such a scenario occurs, selecting a lease accounting platform that can handle both sides of the leasing equation up front provides maximum flexibility.
Getting through your organization’s audit process is always a key task for accounting and finance functions. Adopting ASC 842 while implementing a centralized, robust lease accounting platform will be able to produce all the necessary reports to demonstrate compliance with the auditing gods. Likewise, that same reporting functionality will also serve you well with your board, stakeholders, and decision-makers.
Be Aware of Hidden Costs
On-premise server-based software solutions may have competitive pricing for functionality, but can also have many hidden costs that include buying additional hardware, taxing your IT maintenance staff, and paying expensive fees for software upgrades or additional users. On the other hand, cloud-based or SaaS solutions can feature unlimited user models, pay-per-data pricing and no software upgrade fees, which usually proves to be a better value in the long run.
Support and Scalability
Selecting an ASC 842 software vendor is a long-term partnership, so it’s important to consider both product features, along with a well-regarded support team that can help you sort through the issues that arise, particularly in light of the new standards. Even with the best solutions, answers aren’t always obvious and can require a helping hand along the way. Vendors should also be financially stable to assure long-term data management and operations.
Do not underestimate the knowledge of others. Ask your audit firms which lease accounting software providers they are seeing among their clients. Which ones do they recommend? Ask questions of peers at other corporations who have adopted ASC 842, and get their honest feedback.
Learn more about principles and processes of system selection in our ERP System Implementation Project Management video Q&A:
ASC 842 Lease Accounting Software Implementation Tips
Make Reporting A Priority
Kick the tires on standard reports and thoroughly interrogate the process of creating and editing custom reports. What’s included, what’s extra, how is it priced? If the software provider can customize reports, engage them early. Many organizations wait until the training or even post-implementation phases to start customizing reports. This delay slows the user adoption and thwarts the momentum organizations want when implementing a lease accounting system.
Engage Cross-Functional Stakeholders Early
Effective adoption of the new lease accounting standards of ASC 842, requires cooperation across multiple functional areas outside of the accounting and finance functions, including facilities and IT. Include them early in the project planning and get their input on their requirements for non-accounting features and reporting needs and keep them engaged as much as possible through go-live and beyond.
Technology in the lease accounting space is evolving quickly, and chances are, no matter when you’re in the market for a lease accounting platform, some new functionality will be just ahead on the development roadmap. But don’t let analysis paralysis dissuade your organization from choosing a system, that will streamline the adoption of ASC 842, but still has the flexibility to adapt future requirements. Technology stops for no one, not even in the search for a lease accounting solution.
Bring in an ASC 842 Lease Accounting Software Implementation Expert
Finally, decision makers should consider the right implementation partner for integrating your ASC 842 software. Even organizations large enough to have an internal PMO function often find themselves constrained for top-quality professionals with extensive experience with implementing a variety of lease accounting software solutions. If your company needs third-party ASC 842 expertise, we can help. Visit our financial reporting and accounting page for an overview, or contact us directly to learn more.
If you’re interested in learning more about the nuances of reviewing new and existing leases for ASC 842, we invite you to download our free resource:
About the Author
Mark has more than 20 years of diverse financial and operational leadership experience, including positions as CFO and Corporate Controller of several mid-market firms in the Fin-Tech, Brokerage and Investment Management industries. Mark was the CFO of Rustic Canyon Partners, where he developed a budgeting process, implemented controls, policies and procedures, and was instrumental in the implementation of several cloud-based infrastructure initiatives. Mark began his career in public accounting at Ernst & Young and KPMG, where he focused on Investment Services and Insurance clients. Mark holds bachelor’s degrees in both Accounting and Finance from Loyola Marymount University.
Categorized in: Financial Reporting & Accounting, Financial Systems