Why Public Companies Shouldn’t Use Spreadsheets for Lease Accounting

If your public company clients use spreadsheets to maintain their leases, you know what a pain those spreadsheets can be. They are error-prone, difficult to adjust, and can even increase risk. Or, as one audit partner recently phrased it, “Spreadsheets are cumbersome and fragile.”

Many public companies opted for spreadsheets when they first implemented the new lease standard. Some organizations made the deliberate decision to use spreadsheets because they’re “only” leases; they assumed based on old accounting standards that their spreadsheets would still be easy to maintain. Other organizations may not have properly planned for implementing the new lease standard and belatedly assumed that spreadsheets were their only option. 

Whether your clients actively chose to use spreadsheets or ended up there by default, CPA firms and public companies now realize that spreadsheets aren’t a long-term solution for ongoing lease maintenance. Even if the implementation process was manageable with spreadsheets, many are encountering issues with Day 2 accounting. 

Most public companies have completed their first years with the new lease accounting standard and some have already experienced why spreadsheets aren’t effective for ongoing maintenance such as lease modifications—which have been unusually prevalent as a result of the pandemic.

You may be wondering, “are there any feasible alternatives to Excel?” And to that we are excited to respond with an exuberant, “yes!” See the difference for yourself by checking out our calculator that compares the time you spend on ongoing maintenance tracking leases in a spreadsheet vs. using alternatives like lease accounting software.

Below you’ll find a detailed breakdown of why your company or CPA firm should avoid lease tracking spreadsheets and look for alternatives such as lease accounting software.

3 Reasons to Avoid Lease Tracking Spreadsheets

1. Spreadsheets make audits more painful

As CPA firms now know from experience with their public clients, a lease tracking spreadsheet presents major challenges during audits. Even though the first year of audits post-implementation has passed, managing ongoing maintenance in a lease tracking spreadsheet will only make future audits even more painful--and that will drive up costs for both the CPA firm and their clients. In fact, one public company told us recently that their audit fees increased by 25% due to the extra work with their lease accounting spreadsheets.

For you as the auditor to trust that your clients’ numbers are accurate, you need assurance that their controls don’t have material weaknesses. If there are multiple people working within a lease tracking spreadsheet and it has no built-in validation and minimal security options, that could cause major problems. If your clients are using a lease tracking spreadsheet that has even one error, any calculation could be wrong. When they’re relying on an easily breakable spreadsheet, it creates a lot more work and they need much stronger internal controls to prove that the numbers are accurate.

If you do find an issue during the audit then your clients are looking at rework, which means more time spent in the lease tracking spreadsheet. It’s incredibly frustrating to get deep into an audit and realize there is a material control weakness that could have been addressed earlier. Auditors cannot say that the organization’s finances are in good shape if the spreadsheets are a mess.

2. Spreadsheets lack data integrity, version control, and security

Spreadsheets require a lot of manual effort to make impairments, modifications, and revisions to leases. When a lease changes, the updates on a lease tracking spreadsheet are complex and nuanced.

The new lease standard has also added greater complexity to financial disclosures. In addition to the simple maturity schedule that was previously required, there are numerous additional quantitative calculations to include in footnote disclosures. The smallest error can break these formulas. 

Further, most organizations have many people who touch leases. One leader at a major public accounting firm learned this lesson during implementation: he’d assumed that only a couple of people were involved with leases at his client organizations when really it was around four or five.

With that many people working in a lease tracking spreadsheet, it’s difficult to know who made which changes and whether you’re working in the latest version. Part of that confusion stems from the fact that spreadsheets are so easily compromised. In a spreadsheet, one user can edit, lock, duplicate, cut or otherwise ruin a spreadsheet. The time spent identifying and correcting human errors—which are inevitable—is time wasted unnecessarily.

3. Spreadsheets waste time

Spreadsheets begin as a blank canvas. That means anyone working in a lease tracking spreadsheet first needs to add the calculations and processes required to fit their unique situation.

This may not have seemed like a big deal when implementing the new lease accounting standard; any new standard requires some initial heavy lifting. What has been a surprise for many is the ongoing maintenance required for tracking leases. Due to those nuanced calculations in the new lease standard, any changes (and there will be changes) after initial setup take hours of work to maintain accuracy.

Multiply that over many leases at a large company and you have a major time suck. When asked about the prospect of using spreadsheets, one Manager of Corporate Reporting for a public company responded, “We only have a couple of dozen leases—I can’t see how an organization can manage their lease portfolio effectively in a spreadsheet.”

In addition to building your spreadsheets, your clients also need to build reports for presenting information to internal and external teams. The team might be well-versed in what the lease tracking spreadsheet says, but they’ll need to allocate additional time to generating journal entries, amortization schedules, and footnotes, which are standard for most lease accounting software.

What is a Better Alternative to Excel?

Accountants and finance teams have long relied on spreadsheets for lease accounting, despite the pain points listed above. It’s time for them to explore the world of alternatives to Excel, because while relying on spreadsheets was feasible under ASC 840, spreadsheets are simply not feasible long-term for lease accounting under the new standard, ASC 842. Public companies may be reluctant to use lease accounting software because they worry about having to retrain staff on a new system, or that it will cost too much; however, the right solution will ultimately save the organization time and money. 

Benefits of lease accounting software include:

      • Quick and easy lease modifications. Updating existing lease terms can be done with just a few clicks and no concerns about data integrity or broken calculations. 
      • Improved workflow. Know exactly what data to enter for the correct calculation. Get things done right the first time, then focus on what really matters.
      • Greater security. If someone makes an error or an unauthorized change, version control will help identify the problem. Too many errors? Access control makes it so that only the people who need to update the numbers can do so. 
      • Calculation accuracy. All the tedious formulas no one wants to build in Excel are done for you. Tip: Look for software that comes with SOC certification and an Agreed-Upon Procedures (AUP) report, to ensure accuracy, security, and privacy. 

It’s also important to keep in mind that not all lease accounting software is created equally. LeaseCrunch sets itself apart from other options in the market with the following critical benefits:

    • Ease of use. LeaseCrunch is designed for anyone to easily use it, with helpful wizards and on-screen tips throughout the software.
    • Cost. While many software solutions make sense only for large lease portfolios, LeaseCrunch is affordable and scalable for any size organization, with pricing based on the number of leases.
    • Enormous time savings. Easily generate journal entries, quantitative footnote disclosures, a full amortization schedule, financial disclosure statements, and more with the push of a button.
    • CPA firm collaboration. Unlike other lease accounting vendors who cut CPA firms out of the equation and sell directly to organizations, LeaseCrunch partners with the CPA firm and offers multiple engagement options. CPA firms can white label the solution and own the value, or let LeaseCrunch interface directly with the end-user organizations.  

Is Excel Becoming Obsolete?

While using Excel moving forward is going to be increasingly difficult for companies and CPA firms that must abide by the new lease accounting standards, we understand that there are still companies and firms that wish to continue to use Excel. That’s why LeaseCrunch offers the ability for companies to export their lease accounting data straight into Excel, rather than using alternatives to Excel spreadsheets.

Want to learn more about LeaseCrunch as one of the best alternatives to Excel on the market? Schedule a demo to see the tool in action and ask us about our free trial!

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