The new leasing standard ASC Topic 842 Leases has been in the works for a number of years but is effective for private companies and certain not-for-profit organizations for annual periods beginning after December 15, 2021. This means, effectively, most private companies and not-for-profit organizations will need to implement the standard for the calendar year 2022.
Many companies will want to consider using some type of leasing software. Over the past few years, as the standard was being developed and refined, many companies set out to create leasing software. Some software have been geared toward ASC 842 implementation and reporting; others designed to accommodate both ASC 842 reporting and lease management.
Lease Management Software vs Lease Compliance Software
When considering to invest in software, the first step is to assess your needs. If compliance with ASC 842 is your main focus, you will want to consider software geared towards this goal. If your company has a large volume of leases and/or if you don’t currently have a good system in place to track your leases, you may want to consider software that includes lease management functionality in addition to compliance with the new standard.
Lease Software Considerations
Even if your company has a relatively small lease portfolio, using lease software can greatly reduce the time and resource constraints ASC 842 implementation can cause. Software solutions can provide the journal entries needed to implement the standard and record ongoing lease activity, the amortization schedule(s), and the required quantitative footnote disclosures. As you are reviewing lease software options available, keep in mind the following factors.
- Fee structure – Fee structure can vary greatly across software options. Fees can be assessed annually or monthly, and there may be a one-time initiation fee. Fees can be variable, such as based upon number of users and/or leases, or there could be a standard set fee. Consider your needs carefully to ensure the fee structure aligns with your organization.
- Cost per user – Depending on the size of your company, this could cause pricing to jump significantly based on user count and/or future growth of the company.
- Cost per lease – Overall cost could quickly become significant based on the number of leases and cost per lease.
Ease of Use
- Training – When implementing a new software, it is important for your full staff to understand the intricacies of the systems. Consider how much time it takes to train on each software.
- Technical support – Availability of support from the lease software company may vary. Some companies include support packages with the program, while others may come at an additional cost.
- Delivery method – It is important to match your organization’s preferred delivery method with that of the software. For example, your organization may benefit more from a cloud-based software than a localized software.
Furthermore, consider asking these questions when narrowing down your ideal software options:
- Has the software been thoroughly tested by a third party?
- Did the company receive a SOC (Service Organization Controls) report from a reputable firm? If so, did the report identify any issues or deficiencies?
- Is the software being continually updated by the provider?
Financial Reporting Requirements
- What accounting standard does your company report under? For example, GASB (Governmental Accounting Standards Board) or IFRS (International Financial Reporting Standards)?
Lessor vs. Lessee
- Will the software support the needs of both types of users, if that is important to you?
Lease Tool Takeaways
As you can see, there are several factors to take into consideration when thinking about ASC 842 implementation and lease software. Even if your lease portfolio is small, using lease software that will calculate the required journal entries and disclosures can make the investment worthwhile, regardless of number of leases.
Clark Nuber has identified LeaseCrunch as a great option for many of our clients due to ease of use, affordable cost, the existence of a SOC report, the ability to repot under FASB, GASB or IFRS, and the support offered to users at no additional cost. Once leases are input into LeaseCrunch, users can run reports that will produce the amortization schedule(s), journal entries, and quantitative disclosures needed for compliance with ASC 842. The software can also be customized to set up different reporting entities, input your company’s specific general ledger account numbers and names to customize the journal entries, and take into account foreign currency translation issues.
If you have questions regarding the new lease standard, or you are interested in using LeaseCrunch, send me an email and I’d be happy to help.
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