Your business already uses Excel for many accounting calculations, including for ASC 840 lease accounting, so it’s understandable that you may want to consider continuing to use it as an option for lease accounting under ASC 842. And although it’s inexpensive to use and there’s comfort in using it, it may only get you so far in ensuring accurate lease accounting reports and calculations.
The reality is Excel will create challenges supporting large lease portfolios and the complex calculations that are required to comply with the new lease accounting standards. Ideally, the lease accounting solution you select should make it easy to view every lease – and address any changes made during the lease term, something that will be more difficult using Excel. Improperly tracking your leases and performing manual calculations using Excel puts you at risk of inaccurate data and reports.
In this blog, we will discuss why Excel is not a sustainable choice to accomplish lease accounting compliance, and why lease accounting software is critical to ensure accurate, confident compliance.
1. It’s difficult to keep up with changing lease terms
As leases change (expire, terminate, etc.), it’s virtually impossible to keep track of each change using Excel. One of the main reasons this is so difficult to do manually is due to the large volume of leases held by organizations. Businesses often have hundreds, even thousands of leases, each with their own unique terms that regularly need to be tracked to ensure accurate lease accounting reports.
Unlike Excel, a fully integrated lease management and accounting technology solution is designed to centralize lease data in one location and, therefore, support ongoing lease maintenance. This enables you to view and maintain lease clauses and options under one single source of truth – without having to manually sift through data. Lease management software simplifies and streamlines the process of updating lease data, which ensures always accurate, reliable lease financials required for compliance.
For example, technology like Visual Lease provides automated critical date alerts so you can always know when leases require action. Excel lacks these built-in tools, which therefore puts you at risk of missing important options within your leases.
2. Lease accounting calculations are complex
The calculations required to generate journal entries and disclosure reports for ASC 842 must be accurate to achieve and sustain compliance. Automated lease accounting technology is the only way to confidently create reliable, accurate reports.
Excel doesn’t have the capability to support the unique nuances required for lease accounting calculations. Utilizing Excel for lease accounting will likely take a lot of time and resources to produce calculations, and you may not be able to rely on those calculations, as there isn’t an efficient, sustainable way to validate accuracy. Even if only one element of your Excel formula is off base, it can negatively impact your calculated numbers – and you may not even realize the error before it’s too late. Additionally, Excel has a limit on the number of transactions that can be tracked and reported.
Lease accounting technology automates these otherwise complex reports and calculations, which saves you significant time that would be spent manually producing them in Excel, and also ensures the calculations are trustworthy. In fact, lease accounting software like Visual Lease provides proven calculations that are backed by a SOC I Type II audit.
3. Excel spreadsheets are prone to human error
Lease accounting is too important to risk manual errors. Just one mistake could lead to a failed audit, which is why lease accounting automation is so critical.
Using Excel to produce disclosure reports will typically raise red flags during your audit. Your lease data is already subject to a much higher degree of scrutiny by your auditors due to the new lease accounting standards, especially for initial adoption, so when it’s time for your audit, auditors appreciate a defined, reliable process that eliminates the room for human error within calculations.
An auditor knows if you utilize a lease accounting solution that is backed by a SOC I Type II report, your financial reporting and calculations should be reliable, and they won’t need to spend as much time testing the detailed transactions as they would with manual spreadsheets.
If you use Excel, auditors will most likely need to take a different approach to their auditing process, which can be time-consuming and costly. For instance, they may need to select a larger sample size of transactions to reliably test the details of your Excel calculations.
It begs the question, are you really saving money (and time) by using Excel instead of proven lease accounting technology? A failed audit can lead to increased fees and fines, along with damage to your business’ reputation. Why put yourself in a position where this can easily happen with Excel when you don’t have to?
4. Excel lacks historical data required for audits
Imagine inputting lease data into an Excel spreadsheet and the next day there are numerous changes to the data – you don’t know who made the changes and when. As leases change throughout the year, there needs to be an effective, reliable way for departments to capture any lease modifications to their portfolio, so that their lease data stays up to date. Doing this in Excel requires constant manual intervention and upkeep and can lead to a lot of questions raised by auditors and other stakeholders across your organization.
Providing transparent updates – with a complete audit trail of which update was made and when – will be incredibly important at the time of your financial audit. In Excel, there isn’t a reliable way to track who’s making changes and when the edits take place. This puts your business at risk of producing inaccurate, outdated information.
Lease accounting software provides full audit trail functionality that enables you and your auditors to see who, what, where and when every change to your lease data has been made. Having the history of every change to your leases is necessary control to create a reliable lease accounting process.
Invest in lease accounting software
Excel is one of the most accessible tools in an accountant’s arsenal. However, it wasn’t built to handle the thoroughness and accuracy required for lease accounting. To achieve and maintain lease accounting compliance, you’ll need to invest in a solution that was designed to set your business up for success.
Lease accounting isn’t just a one-and-done disclosure, it demands consistent upkeep of your entire lease portfolio. Lease accounting software is an integral part of conducting complex calculations with confidence, ensuring all your leases are up-to-date and achieving (and maintaining) lease accounting compliance.
Want to learn how Visual Lease’s lease accounting software can help you sustain compliance? Click here to see our solution in action.