After a year’s postponement, new lease accounting standards will take effect in December 2021 for private companies and non-profits operating in the U.S. Under ASC 842 and IFRS 16, long-term leases must now be captured on the balance sheet. This is a significant change and makes accounting for leases much more difficult. Let's look at how to make it less demanding.
Gathering and organizing lease data can be time-consuming, especially if the original documents aren’t centrally located. Performing the numerous calculations involved and ensuring the results are accurate is just as challenging. NetSuite has just released a new capability that makes the CFO a true advisory to your growing organization and a superhero who will help your organization grow while ensuring compliance.
Don’t let your Controller or CFO waste their time and increase the risks by working with the limitations of spreadsheets or traditional financial software like Quickbooks or Xero.
Netsuite release 2021.1 fixed that already.
Here are five things to consider when analyzing the system you currently use. They also form the framework to help you decide if it's time to switch.
Complexity
While ASC 842 will increase financial transparency, which is good for investors, it presents many challenges for accountants. A long-term lease will now appear on the balance sheet as both an asset and a liability, the latter representing the current value of future lease payments. Lease amounts must be amortized over the life of the agreement, with the expense separated into two parts: a lease fee and the interest charge. The percentages used to calculate the fees are highly variable and must be considered on a lease-by-lease basis. How a lease is treated depends on the structure, components and term of the agreement, the value of the asset and many other considerations. Spreadsheets are simply the wrong tool for dealing with this degree of complexity.
Accuracy
Accountants need accurate data to do their job well. Overreliance on spreadsheets and manual processes, however, can get in the way. Data entry is one of the most common sources of mistakes. Transposing two numbers or miskeying a single digit can lead to overpayments, liabilities being under-reported and other potentially costly mistakes, including tax penalties and fines.
Security
Spreadsheets are inherently insecure. Cells can be locked to prevent changes, and workbooks can be password protected, but these features only work if enabled. This should be standard practice, but it isn’t. Even if it were, however, security would still be an issue. Spreadsheets are often shared among peers, especially when collaboration is required. Sharing a protected file means sharing the password as well, which defeats what little security these applications provide. This is an open invitation to risk.
Accountability
In addition to the security risks mentioned above, when multiple people have access to a single spreadsheet, it’s nearly impossible to hold anyone accountable if there are errors. Data logs are a common feature of enterprise accounting software and provide a complete record of every activity performed by anyone with access to the system. If spreadsheets had this capability, entries, edits and deletions would be easy to track. Unfortunately, they don’t. While some have a “track changes” feature, this capability is rarely used and can be disabled by anyone with access to the spreadsheet.
Functionality
Spreadsheet applications are used extensively in finance and accounting. They form an essential, some would even say indispensable, tool. But despite their utility, there are many things they simply can’t provide. The data logging limitations mentioned above are just one example. Spreadsheets also lack a number of other important features relevant to lease accounting, including:
- Document management – Signed lease agreements should always be backed up with electronic copies. These should also be available for review when needed, but like all legal documents, access should be carefully controlled. Accomplishing both requires document management and security features that spreadsheets don’t offer.
- Automated alerts – Forgetting to renew a lease can be expensive. The lessor may demand higher rates or offer the asset to another party. Keeping track of renewal dates is easy if you only have a handful of leases. It’s harder when there are dozens. A system that automatically reminds you to review leases before they expire can be a lifesaver.
Flawless Inbound is a NetSuite solution partner that can help you and your Financial team by Implementing the NetSuite Financial First module for your organization and help you migrate from a legacy financial-only cloud software or spreadsheets. Contact us today to learn more about NetSuite implementation ERP solutions, and Digital Transformation!
