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Spreadsheet Accounting Is Unsuitable For IFRS 16 Accounting

Posted by Ryan Hendrie on 05/07/17 10:33

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Although still fantastic tools for internal reporting and holding data, amongst other things, spreadsheet programmes such as Microsoft Excel and Google Sheets aren’t suitable for IFRS 16 accounting.

Here are the ins and outs of why using spreadsheets for lease accounting is unsuitable and what benefits are to be had from using dedicated lease accounting software as an appropriate alternative.

See more: IFRS 16 Overview and Lease Accounting Summary

Let’s start with 8 key reasons why spreadsheets are unsuitable for lease accounting and, after that, we will explain why and show how dedicated lease accounting software can help with each problem:

 

  1. Prone To Operator Errors
  2. Influenced By User Styles & Experience
  3. Overly Complex When Used In Depth
  4. Scalability Issues
  5. Limited Usability & Centralisation
  6. Not Specialist To Lease Accounting
  7. Lack Of An Audit Trail
  8. Lack Of Automation

1. Prone To Operator Errors

The Problems With Spreadsheet Accounting:

One of the greatest strengths of Microsoft Excel is that the more a person knows about the functionality and full capability of the application, the more they are able to achieve using it. Even the somewhat complex “IF” formulae are just the tip of the iceberg when it comes to Excel’s true capabilities.

But it still relies on operator input when concocting the rules and inputting the data. This leaves it open to operator error, which can undermine the whole spreadsheet. Data validation is possible but difficult to code, difficult to highlight errors and difficult to document for other users.

 

The Benefits Of Lease Accounting Software:

LOIS (lease optimisation and information system), Innervision’s lease accounting software removes the risk of operator error by instead performing input validation, complex calculations and analysis on the user’s behalf. The software has in-built formulae and analysis features, meaning that the user doesn’t run the risk of running through a report and then realising it’s incorrect because the first step of the process has an error.

 

2. Influenced By User Styles & Experience

The Problems With Spreadsheet Accounting:

Again, as in the previous point, a great strength of spreadsheet tools is the ability to be able to tailor the programme to work in a way which suits you. They’re so versatile that you can input and present the data in a format of (within reason) your own choosing.

How to layout the tables, how to format the cells, which data to show and which filter options to use are all customisable examples - how you use them varies from user to user.

And this is problematic when multiple users are accessing the same spreadsheet. People get used to using spreadsheets their way, so using somebody else’s sheet slows the process down.

Likewise, the user of a spreadsheet can only get so far as their experience and knowledge of Excel allows them. Would you know what to do if your boss asked you to take a look at the company lease accounting spreadsheets and test the nested OFFSET and CHOOSE formulae within it, in time for their meeting in half an hour?

 

The Benefits Of Lease Accounting Software:

Dedicated lease accounting software is pre-programmed, fully tested and regularly updated to complete the complex accounting calculations and reporting for you, simplifying compliance in the process. This means that no user experience is needed in order to conduct the calculations. All of the input and development has been completed on the back end (developer jargon for the “behind the scenes”, unseen work which is completed before a user sees the end result).

Whilst you can still generate plenty of reports to suit your needs, which still offers flexibility, the programme is designed to do this for you. User styles and experience don’t come into the equation.

The solution will also run the complex accounting calculations for you which helps simplify the compliance and avoid any unnecessary errors.

 

3. Overly Complex When Used In Depth

The Problems With Spreadsheet Accounting:

As touched on, the more a user looks into using a spreadsheet programme, the more they will realise they don’t know. They’re so much more than simple database tools if you want them to be.

But the drawback is that the more complex a spreadsheet and workbook becomes, the more intricate all the formulae and rules are. It can become a mammoth task in itself just making sure that everything is carrying through correctly, difficult to test and onerous to update.

 

The Benefits Of Lease Accounting Software:

Years of prior development and shared expertise means that your lease accounting programme is designed to perform the calculations and generate your reports for you. It is well designed for a specific purpose and is an expert piece of software. Not a “Jack of all trades” spreadsheet tool.

 

4. Scalability Issues

The Problems With Spreadsheet Accounting:

As your company grows, new locations of work open up, new contracts are formed and your business generally spreads outward; the likelihood is that the lease portfolio will grow with it.

 


 “Using a centralised cloud storage base means that your lease data can be accessed by multiple users at once, from different sites, and all feed into the same data pool.


 

Managing your lease accounting in a spreadsheet becomes massively complicated as it spreads between workbooks, documents, pages and even separate files completely. As you scale up your lease portfolio, scaling up your spreadsheet management tools is a nightmare.

 

The Benefits Of Lease Accounting Software:

But lease accounting software is designed for just this occurrence. There is space to input more and more lease data and information, and the programme keeps everything centralised and stored in the cloud. It all feeds into the same bottom line.

 

 5. Limited Usability & Centralisation

The Problems With Spreadsheet Accounting:

A common scenario is that different teams, departments and offices have their own lease accounting spreadsheets. For example, is your Northern office equipment data stored in the same sheet as your Southern office company car fleet info?

And, if not, does pulling all of this data together feel like a smooth and easy task? Is the security as well as the integrity of the data on a company's lease portfolio compromised by multiple users and possibly multiple spreadsheets?

 

The Benefits Of Lease Accounting Software:

Using a centralised cloud storage base means that your lease data can be accessed by multiple users at once, from different sites, and they all feed into the same data pool.

 

6. Not Specialist

The Problems With Spreadsheet Accounting:

Alluded to earlier, spreadsheet programmes are designed to be flexible and to be used in all types of scenarios. Monthly personal budgets and generating internal reports can be done in the same programme.

Which is great - until you are dealing with a highly specialised issue like lease accounting compliance.

Spreadsheet programmes do not have the industry knowledge to know whether the data you input is compliant with accountancy changes like IFRS 16.

 

The Benefits Of Lease Accounting Software:

But lease accounting software is designed by industry experts. It uses their knowledge and insight to present data in the most user-friendly format. What’s more, beyond compliance, the best lease accounting solutions will provide users with the correct tools and functionality that will allow them to drive significant lease portfolio savings and opportunities by enabling effective lease portfolio optimisation.

That’s the benefit of using an expert piece of dedicated software.

 

7. Lack Of An Audit Trail

The Problems With Spreadsheet Accounting:

A spreadsheet is merely a snapshot showing the current result of calculations unless you save retrospective copies and then you have complex layouts to follow..

This means you still need to document your lease paperwork and information elsewhere, in order to show a fully transparent audit trail.

 

The Benefits Of Lease Accounting Software:

Accounting software for your lease portfolio stores the associated paperwork and audit trail within its central cloud. The inputting and recording of a lease transaction includes the uploading of all of the associated documentation which serves as the start of an audit trail in itself. It’s ready and waiting for when you need it and can be accessed as part of the automated reports.

 

8. Lack Of Automation

The Problems With Spreadsheet Accounting:

And it’s the automation factor which is one of the key reasons that spreadsheet accounting is inappropriate for lease portfolios. Having to manually create, populate and run reports is a drain on management resource.

 

The Benefits Of Lease Accounting Software:

But lease accounting software, like LOIS, is designed to be largely automated. The experts behind the programme know what kind of reports you need to generate, so it can take your data and generate them on your behalf. Additional features outside of compliance will also provide users with the relevant tools and functionality that will help improve the efficiency of a lease portfolio. For example, automated alerts and notifications can be set up to make sure you run an efficient lease portfolio, which is, of course, accounted for in compliance with the new lease accounting standards and guidance.

Understanding The Changes To Lease Accounting

For more information and guidance on the new lease accounting standards, what it will mean for your business and the steps companies should take when transitioning to either IFRS 16 or FASB ASC 842. Just follow the link below to access our 7 Step Guide to Lease Accounting Compliance.

 

7 Step Guide to Lease Accounting - Click to View

 Get The Guide