Lease accounting requirements drove real estate and accounting together around shared data and processes. Leases change frequently. Lease administration teams and lease accounting teams both need rent amounts, payment timing, and lease term dates. One solution, without compromising the needs of either team, is the best scenario. CoStar makes lease accounting and lease administration better together.
What Teams Need
- Lease Accounting teams need the most automated lease accounting solution for compliance and reporting. They also need timely and accurate lease data in the current period. The data determines each contract’s ROU asset and lease liability. It’s further used to create amortization schedules and meet ASC 842 requirements. Anytime the rent or lease term changes, accountants need to know immediately because this triggers compliance-mandated remeasurements. Sometimes accounting also needs portfolio reports or related information and has to rely on real estate to get basic reports. Finally, some teams occasionally need researched real estate property data to support their work in determining fair market value (FMVs). These most often go to real estate.
- Real Estate Teams need a comprehensive lease administration solution for managing leases and critical dates, paying and reconciling rents, managing the renewals process, and more. Real estate also needs to immediately let accounting know about lease changes, terminations, and new leases. However, real estate focuses on serving the business with portfolio and lease management while driving cost savings. It’s a new process to provide lease data and updates for compliance with lease accounting. With accounting’s new mandates, it’s extra time for real estate to provide new lease data reports and other portfolio information and respond to the occasional FMV requests when they should focus on the next big renewal or new location and lease.
Great news! Real estate and accounting can each have a comprehensive solution that meets their needs without compromise from one source. Better together, the single platform provides all the needed functionality and includes the reports, alerts, and process automation that saves both teams valuable time and prevents errors. The right solution automates the processes between accounting and real estate.
One Platform – Single Source – Accuracy – Speed
One robust solution provides reliable, consistent lease information, removes errors, increases efficiencies, and establishes cross-functional collaboration across the business. New leases are then summarized into a system. It’s necessary to track both the legal and financial elements of that lease. These elements can control start dates, options, dollar amounts, and more.
Lease administrators have the responsibility of maintaining a single source of lease data. With one source, accountants can be confident that all data and dependent calculations will be consistent and accurate. In addition, software that supports both functions boosts efficiency by cutting down on tedious tasks outside the accounting scope, such as searching for pertinent documents, tracking monthly rent increases, and handling lease amendments.
Leases constantly change – Change can come from many places.
Leases are dynamic, and maintaining lease accounting compliance depends on tracking ongoing lease modifications that come from real estate in the current period. This can be tricky because leases are complex, and there can be many users. There are leases (real estate, equipment, embedded leases in maintenance agreements, etc.) that different departments within a business often handle.
Lease terms change as businesses take on new spaces, scale back, or renegotiate existing leases. Maintaining these updates manually would be inefficient. However, using a complete lease accounting and lease administration solution that accommodates different portfolios, organizations, and hierarchies are critical to ensure the compliance process is supported.
Various groups inside and outside of an organization can manage and modify leases. Due to the number of people involved in changing and creating lease data, it can be challenging to control. These processes can be prone to errors without a solution that easily supports multiple users and groups that only see their necessary leases, data, and fields. Ensuring a system easily supports different users, groups, hierarchies, and lease access is essential.
Audit Trail
Compliance is not just about meeting accounting standard requirements. It’s also about accounting policies, approvals, processes, and reporting that are automated and tracked. Automation saves accountants hundreds of hours, and tracking provides auditability.
Using lease accounting and lease administration software with comprehensive user rights, integrated approval workflows, and audit trail capabilities provides speed and auditability. Any changes made to critical dates, financial impacts of modifications, and more are tracked and easily reported for internal and external audits.
Conclusion
Lease accounting and lease administration go hand-in-hand and work better together. Lease accounting solutions that do not include the best lease administration functionality are unreliable, incomplete, and more complex. The best lease administration solutions should include the most automated lease accounting functionality for the accounting team’s compliance and automation needs.
