Selecting Lease Accounting Software — What to Consider

2 min read
March 21, 2018
CoStar Real Estate Manager Blog

Selecting Lease Accounting Software — What to Consider

Hidden costs, ERP integration experience and rapid deployment capability are just a few of the essential considerations for selecting lease accounting software for ASC 842 and IFRS 16 compliance.

Originally Published February 26, 2018 by Accounting Today.

In early 2016, the Financial Accounting Standards Board (FASB) issued the most significant change to financial reporting for leases in 40 years. For the first time, most operating leases will be reported on company balance sheets, requiring more complex calculations than previous guidance. With a deadline for compliance as of 2019, businesses across the United States are now working with their accounting departments to select the best lease accounting software. The selection and implementation process for software can be time consuming, and with the deadline for compliance quickly approaching, time is now critical for putting a new system in place.

Like many complex purchasing decisions, comparing solutions is not always easy. There are specific criteria businesses can investigate to determine which lease accounting software option is the best fit for their management and reporting needs.

The first step is to make sure the lease accounting software is CPA tested and vetted for ASC 842 and IFRS 16 compliance. A thorough review of functionality includes verifying correct calculations for the many nuances of lease contracts that include payment escalations, mid-term terminations and renewal options.

It is best to work with a vendor who has years of experience providing lease accounting compliance software to customers for both real estate and equipment leases under the current ASC 840 guidance. The software must also have proven enterprise security measures in place – including annual SSAE 18 SOC 1 and SOC 2 audits – and robust internal control mechanisms to meet Sarbanes-Oxley requirements.

Other considerations before making the investment in new software include:

Be aware of hidden costs, including upgrade fees and maintenance costs.

On-premise software solutions may have competitive pricing for functionality, but can also have many hidden costs that include buying additional servers, hiring additional IT maintenance staff and paying expensive fees for software upgrades or additional users. Cloud-based or SaaS solutions can feature unlimited user models, pay-per-data pricing and no software upgrade fees, which usually proves to be a better value in the long run.

Ensure new software can integrate with existing ERP and IWMS systems.

Integration is the name of the game in today’s interconnected technology ecosystem. Much of the essential lease data needed for reporting will be hosted by one or more management systems, including third-party vendors like real estate service providers or equipment supplier databases such as fleet leasing fleet companies. Any selected software provider must have the ability to connect data sources and integrate with existing IWMS and ERP systems to generate the calculations required for accurate reporting.

Select a provider with service and support for the long run.

The new lease accounting standards are here and aren’t going away. So choosing a vendor for the long term is a wise move. Beyond functionality, choose a software provider with an established track record for helping with implementations, customer support and ongoing data management. Vendors should also be backed by a large, financially stable company to assure long-term data management and operations.

Finally, do not underestimate the knowledge of others. Ask the most notable accounting firms which lease accounting software providers they recommend. Ask questions of peers at other corporations. It is important that any new lease accounting software and policies put in place are also a valuable mechanism for business management, operational optimization and even cost savings. Ultimately, the changes needed for compliance present an opportunity to become a more streamlined and efficient organization.