The lease versus buy cost and savings opportunities is a debate that has a long-standing place in corporate financial decision-making. Under the new lease accounting standards for ASC 842 and IFRS 16, that conversation is changing. In many companies, the lease processes have been neglected with little investment in systems to manage these assets. The new standards bring an opportunity that companies cannot ignore through better lease management.
Recent updates are demanding a high-level of internal effort to reach the new accounting standards for ASC 842 and IFRS 16 and companies have an opportunity to revisit their strategies on when to lease and when to buy equipment. The increased complexity of lease administration and lease accounting can have a lasting effect on a company’s financials. As a result of the new rules, increased reporting will allow companies to reach a greater more comprehensive understanding of their lease portfolio. With this new more comprehensive data, companies will be better able to manage leases smarter making leasing more efficient and possibly cheaper. It could mean leasing will increase, even when taking into consideration the new costs for reporting them. A better understanding of the processes, overall performance, and increased scrutiny can make leasing more efficient and cheaper than ever before.
With the new complex standards, there are opportunities for equipment leasing cost savings as well as reductions in sales tax. Keep in mind that all tax discussions and strategies must include a comprehensive view of the company and its operating activities and goals. With this new emphasis on lease arrangements, companies should look for the best strategic approach from a tax, business, and financial reporting perspective. Some of the key considerations include:
- What is the cash flow need of the company?
- How will leasing versus purchasing the asset impact financials?
- Is the asset likely to become obsolete in the near future?
- Will there be a tax difference if the asset is leased versus purchased?
Implementing Costar’s proven lease management software will assist with sorting out the difficult decisions necessary to ensure continued growth in business and at the same time meet compliance standards. Private companies must have a plan to become compliant by year end 2019, and implementing CoStar lease management software is your critical path to success.
Learn more about the hidden benefits of lease accounting.