Preparing for the FASB lease accounting changes is time-consuming, and there are many tasks you’ll need to complete before the deadline so you’re ready to comply. Getting software for the new lease accounting standard is an important one. Almost every organization will need a tool to perform calculations and feed journal entries to the general ledger, at a minimum.
You may have heard conflicting opinions about the right time to purchase software for the new lease accounting standard. In this article, we’ll dig into both sides and help you determine what’s best for your organization.
Option 1: Collect data first, then get software for the new lease accounting standard
Some accounting firms have recommended focusing on data collection first before beginning your search for software for lease accounting standard changes.
For one thing, collecting all your lease data will require a major effort. Especially for public companies who need to comply with the new standard by January 2019, there’s no time to lose. It’s imperative that you start immediately if your data collection project is not already underway. For large companies, this effort alone could take 6 months.
Here’s what the to-do list looks like for data collection:
- Find all the records associated with property and asset leases that must be brought onto the balance sheet for compliance with ASC 842 and IFRS 16. That includes all the original lease documents plus any letters of intent, addendums, and modifications.
- Identify lease data that you need to extract from lease records.
- Abstract those documents to pull out relevant lease data.
- Find embedded leases in other existing contracts, and extract the related data.
- Classify leases to understand their lease accounting treatment under the new standards.
- Aggregate data in a central repository, which could be a database or spreadsheets.
- Figure out what data you’ll need to do lease accounting calculations that you don’t have in your current records.
- Add missing data and validate your records for completeness and accuracy.
To learn more, read our previous articles explaining this process:
Data Collection Tips for ASC 842 Transition & IFRS Compliance
FASB Lease Data You Can’t Get From the Lease Abstraction Process
Embedded Leases Accounting: Do Your Contracts Contain Leases?
Those recommending that you complete data collection before you purchase tools also point out that having your data ready can help define your requirements for software for the new lease accounting standards.
While these are valid points, we believe the disadvantages of this approach far outweigh the benefits.
Option 2: Choose your software for the new lease accounting standard ASAP
Full disclosure: it’s true that Visual Lease sells software for the new lease accounting standard. So you might think we are biased on this question. However, our opinion is not based on self-interest, but rather on the interests of our clients. Let me explain.
There’s one huge disadvantage to option #1, and that’s the rapidly approaching deadline for compliance with the new lease accounting rules. At this point, public companies that have not yet finished data collection won’t have enough time to complete that process before buying software for the new lease accounting standard.
You may not be worrying about it because so many software providers are telling you that it’s quick and easy to implement their tools. And that may be true. However, the impending FASB lease accounting deadline can and will complicate matters. As demand increases the closer we get to January 2019, experts say resources needed for implementation will be harder to come by.
As the deadline nears, software vendors will be inundated with new customers attempting to get lease accounting software up and running quickly. Even though vendors (including Visual Lease) are ramping up their staff to meet the demand, it’s very possible that the implementation time estimates you’re hearing now will be longer come November or December of 2018. If you wait to choose software for the new lease accounting standard until after you’ve finished collecting data, you may find yourself at risk of missing the deadline for compliance.
The fact is, there are only so many lease accounting experts out there who are qualified to abstract your data and get it into software for the new lease accounting standard.
Our best advice to mitigate the risk of not meeting the compliance deadline? You can compare and choose software while you are in the process of collecting data. When you do that, you get on track to finish data collection on time, and you can lock in the availability of implementation experts.
There’s another upside to choosing this approach besides optimizing your timeline. You can also take advantage of your software vendor’s expertise to help with your data collection and other preparation efforts. After all, we have helped many other companies just like you to achieve FASB lease accounting compliance. We can share best practices that can help you improve your leasing policies and procedures as well. You can even get tips that can save your company a great deal of money.
Learn more: How Lease Accounting Software Can Pay For FASB/IFRS Compliance
The bottom line: now is the time to begin looking at software for the new lease accounting standard if you haven’t already done so. Get started by signing up for a demo of Visual Lease.