By LeaseCrunch® on August 6, 2021 at 8:44 AM
It was great being in Las Vegas at ENGAGE last week! We enjoyed the conversations and insights we gained while there.
While there are many hot topics in accounting right now, we heard from many of you that lease accounting is relevant, timely and top of mind. Companies need to start thinking about how to implement, and firms want to help clients prepare. But what’s the best way to start? Below are some of the key takeaways from our conversations last week:
Step one: Start Identifying Leases
The first step in preparing for the new lease accounting standard implementation is determining how many leases the organization has in its contracts. While this may take some time, we’ve created this free tool to help companies and firms get a definitive answer as to whether a contract contains an embedded lease or not.
Questions to ask are:
- Does the contract include any sort of physical asset being used on your behalf?
- Do you have the right to substantially all of the economic benefits from that physical asset through a period of time?
- Do you have the right to direct the use of the identified asset?
It’s important that companies being identifying their leases now. By starting with this, a great deal of time will be saved in the future.
The Ability to Collaborate is Essential for Lease Accounting
CPA firms want to help their clients prepare, but also want and need to stay independent. Some clients do not have the resources or ability to complete the work, and will rely on the firm for guidance and assistance. Firms should look to find a solution that allows for these three scenarios:
- The firm does all the work for the client, including:
- Entering the lease data
- Running and exporting the reports
- Revising leases when required
- The client does the work above and has the option to remove the firm from having access to the organization’s information
- The firm invites the client to enter the data into the software, and then the client can also invite users and enter data into the system
It’s tempting for your clients to try to use a spreadsheet for lease accounting. However, experience tells us that spreadsheets won’t work for lease accounting implementation and maintenance. Not only are they complex and time consuming to create, build and maintain, for lease accounting the formulas must be accurate and easy to update when there are modifications or revisions to leases. This is not easy to maintain in a spreadsheet.
In addition, spreadsheets lack security and version control. Coworkers, members at the organization's CPA firm and others can easily make changes to leases and spreadsheets. They are far too easy to break or enter inaccurate information which could go unnoticed but cause issues when it’s time for an audit.
Finally, spreadsheets increase audit fee pressure. Clients who used spreadsheets may take much longer to audit because of the lack of controls for material weakness and the unanticipated errors in the data that could be uncovered during the audit.
The Time is Now!
We heard from several firms that their clients are avoiding preparing for the new lease standard due to its complexity and confusion. But there is good news! Implementation does not have to be difficult. By finding a solution that provides both CPA firms and organizations with the ability to collaborate and automate the required disclosures, implementation can be simplified.
To see how LeaseCrunch can help your clients with their lease accounting, request a demo with one of our lease accounting experts!