The Financial Accounting Standards Board’s (FASB) new lease accounting standard (ASC 842) will affect both public and private organizations, and effective dates are quickly approaching. The new rules will have a significant effect on companies with lease portfolios, including both operating and real estate leases. While ASC 842 will affect any company that participates in leasing activities, technology solutions can help ease the regulatory burden that the new standard will bring.
Many organizations have traditionally depended on spreadsheets to track and manage lease activity, but those processes will simply not be sufficient to meet the new lease accounting standard. However, lease accounting software can effectively support ASC 842 implementations, helping you ensure compliance by accurately maintaining, processing and reporting lease activity.
Many different software packages are currently available and continue to be developed that meet lease accounting requirements and lease administration in general. In fact, the amount of solutions has grown significantly since the FASB pronouncement. With that crowded marketplace, finding the right solution for your company can be a challenge.
Without a formal software selection process or fit analysis based on the key requirements of the lease accounting standard, organizations are at risk of becoming noncompliant or not getting the most value out of their investment. Since the standard is new, software vendors have had limited time to develop necessary functionality, so available tools vary in the maturity of features to meet the requirements of the regulation. This is particularly noticeable for the lower-priced, more cost-effective solutions.
In addition, software selection should not only be viewed from an accounting treatment perspective, but also the full lease process within your organization. A new technology tool must integrate within the accounting platform, but also with your other key business operations.
Your organization can implement a four-step process to begin to understand potential technology solutions, how they can help with lease accounting standards and align with your existing business processes.
1. Make sure you need to make a change
While the ASC 842 standard is new, some companies may already have technology solutions in place that meet the compliance requirement. However, if system capabilities are not expected to meet new demands, it may be time to review the options that are currently available. A new system can be more than a compliance-driven solution; it can become an opportunity to increase efficiency within the entire lease or asset-management life cycle.
2. Get the right help
If your organization needs a new lease accounting software solution, choosing an appropriate solution can be daunting. Therefore, many organizations work with a consultant to help make a more objective, informed selection.
If you choose to work with a consultant, you’ll want an advisor with broad experience in lease accounting software solutions and who understands that there is no single best choice in the market. Qualified consulting firms have performed extensive market research and testing with various software vendors to understand how products in the market adhere to ASC 842 requirements.
The consultant can work with you to define your precise business and regulatory needs, match them with the capabilities of various systems and determine how solutions will integrate with existing systems and processes.
3. Get it in writing
Once you’ve identified a system that meets your organization’s needs, your consultant can help protect your organization and ensure that your vendor with its system solution follow through on their promises. With software implementations, cost should not be the only consideration. Instead, the goal should be an effective relationship between your organization and the system vendor that ensures compliance and increases efficiency. Key contract issues include:
- Service level agreements that define who to contact if you have an issue, how quickly a vendor will respond, how long repairs will take and any recourse if promises are not met.
- Dispute resolution language that outlines how any disagreements will be resolved.
- Limits on pricing changes during the contract term.
- A termination clause that clearly defines the agreement’s length, when the agreement must be renewed, and how much notice is necessary prior to making a change.
4. Get the most from your investment
When implementing a lease accounting solution, opportunities to re-engineer current operations are likely available to take advantage of the new system’s capabilities. Your organization is investing time, money and effort to choose and install a powerful technology tool. Expanding how that solution is utilized can help you increase your return on investment.
Technology is a critical tool to help middle market organizations support the implementation of the new lease accounting standard and address common pain points. However, as ASC 842 deadlines approach, there is less and less time to ensure that you choose the right technology solution. Preparation is key, and implementing a comprehensive software selection process can help your business efficiently adopt the standard, remaining compliant while streamlining lease processes.