Companies have finally started to react to the fact that the changes in lease accounting legislation (that arise from IFRS 16) mean that they need to take immediate action in order to become compliant.
The huge changes that are just around the corner, coupled with the fact that many businesses now have substantial and decentralised lease portfolios, mean that the sharpest companies are turning to automated lease management and accounting software. This will help with their transition to compliance and to optimise their lease management and accounting into 2018 and beyond.
The new lease accounting changes bring a series of challenges to businesses with a lease portfolio;
- All leases will be accounted for on balance sheet, barring certain exemptions.
- Key financial ratios, interest cover, asset turnover, net income and more will be affected.
- Operating cash flows will be impacted by the lease accounting changes.
- The mere definition of what constitutes a lease is changing.
- Companies will need to present retrospective reporting and/or they can complete transitional reporting.
And this all needs to be well in place before the official 1st January 2019 implementation of IFRS 16 deadline. Those businesses which are subject to the regulations of the FASB ASC 842, will see an earlier deadline of 15th December 2018, for fiscal years beginning after this date.
Either way, given that 1 in 2 companies operate using a major lease portfolio, there is immediate action to be taken.
Enter lease management and accounting software.
The benefits of lease management and accounting are myriad and using the right software can not only make compliance with the new accounting standards easy but will also help to ensure your lease portfolio is managed in an improved way. Your lease portfolio could perform better than before the change, if you use the right tools.
Makes sure you tap truly into the benefits of the best lease management software by choosing a programme which facilitates all of the following:
- Saves Time, Space and Money
- Ensures Accounting Compliance
- A Full Audit Trail
- Secure Cloud Based Data Storage (So Accessible Remotely)
- Tailored Reporting and Alerts
- No Licence Fees
- Better Negotiation of Lease Agreements
Saves Time, Space & Money
Even in this digital age, it’s astounding how many businesses not only still use paper based filing systems for their lease agreements, but their records aren’t centralised either. Lease paperwork and information is often spread between different employees and even offices.
The problem with this is that it will make collating all your lease portfolio information a time consuming and difficult task to complete. It increases the risk of information being missed and therefore runs the risk of your company not being compliant with the new changes.
Lease management software stores all of this data centrally and electronically, meaning it is there, ready and waiting as and when it ever needs to be accessed.
Ensures Accounting Compliance
But, furthermore, the best lease management and accounting programmes will provide users with all the relevant tools needed to effectively analyse the data and red flag any discrepancies which will hinder compliance. The most advance applications on the market will also often incorporate an array of useful features, tools and automated processes that make confronting even the most complex portfolios effortlessly simple. Users of such applications are able to produce all the accounting information required to accurately complete the financial statements obligatory for compliance; including income statement, cash flow and balance sheet, amongst other useful standard reports.
The fact that the portfolio information is digitised means that retrospective and transitional reporting is easy to complete too.
A Full Audit Trail
The electronic system of lease accounting software creates reports, monitors user changes and tracks the portfolio information. This allows a full audit trail which is an evolved step from multiple Excel spreadsheets as they can quickly become numerous and duplicated which makes it hard to track changes properly.
And it’s a whole world away from paper based systems, which we have seen many companies still use for managing their lease portfolio.
Secure Cloud Based Data Storage (So Accessible Remotely)
As mentioned, a dedicated lease management software platform is superior to using other electronic filing systems like Microsoft Excel or similar. Even when over saving spreadsheets with most recent versions, there is still the potential for lost files, accidental use of superseded versions, difficulties in collaborative working and the influence of separate user habits.
Whilst the flexibility and wealth of options and tools in spreadsheet tools is probably their biggest strength, it can also be their Achilles’ heel when multiple users own the same spreadsheet. Formatting can become a potential minefield.
“All users are only accessing one metaphorical 'spreadsheet' of information and so there are no risks of loss or misplacing the information”
But a secure cloud based system, like the one Innervision’s LOIS software uses, means that all users are only accessing one metaphorical “spreadsheet” of information and so there are no risks of loss or misplacing the information. Also, thanks to it being an online system, it can be accessed remotely from multiple sites and can only be used the way it is intended.
This minimises the risk of operator error arising from different user styles.
Tailored Reporting & Alerts
But this isn’t to say that lease accounting software is overly prescriptive. At least, not all lease accounting software is prescriptive, some options let you tailor reports and alerts to suit your own needs. Whilst also having built in report generators which compile the information you are most likely to need.
Having the management of your lease portfolio taken care of by a piece of software means management time is freed up to focus on growing the success of the business. But, when this goes well, it means your lease portfolio is going to grow in size too.
Proper software will grow with you and have in-built scalability features.
No Licence Fees
Lease software which is run on a SaaS basis means no licence fees and complicated installs across different user’s machines - which often incur extra costs with every install.
‘Software as a Service’ instead runs on an online portal for which a company pays for tiered access and accounts to use, rather than individual copies of software. This means that multiple users can use the same piece of software without the traditional cost implications of buying multiple pieces of software or multiple subscriptions.
Better Negotiation Of Lease Agreements
Having a centralised lease portfolio, accessible by your whole team, means that you can analyse your lease agreements in order to spot potential opportunities for improvement. Also, an intelligent software can spot upcoming issues, such as impending auto-renewals for example, and notify the procurement team or whoever is responsible.
And by being part of a network of the software’s users, you can confidentially benefit from a wider market knowledge. Your software can compare your lease portfolio’s performance against similar agreements across the industry which helps to optimise how well your agreements are performing.
See More About The Benefits Of Digitising Lease Management
If you want to find out more about the benefits of digitising your lease management and what options are available, check out this helpful document which Innervision have compiled for you to use.
See the full range of benefits and see what options are best for you and your team: