Lease accounting audits are a challenge for many companies. But they can be made simple with better financial reports from the leading lease accounting software provider: CoStar.
Accountants usually must produce lease accounting disclosure, roll-forward, reconciliation and ad hoc reports in response to audit requests. But instead of taking minutes or hours to produce, CoStar makes all these available with one click. And critically, they include all the lease-level supporting details that auditors need to ensure the total amounts listed in reports are accurate.
Most lease accounting solutions have a standard one-page disclosure report containing numbers required by ASC 842. But these reports often lack lease-level supporting details.
Missing details require accountants to pull amortization schedules from each lease record so auditors can tally the numbers to ensure they equal the total amounts on the disclosure report. If the reported amounts differ from the auditor’s totals, accountants must then spend additional time discovering where the errors are. When these discrepancies can’t be resolved, issues are documented as errors in the audit.
With CoStar’s lease accounting software, all amortization schedules are in the application, and supporting details for every lease are automatically published to the disclosure report.
Roll Forward Reports
Auditors commonly request lease accounting roll-forward reports, which present three main things:
- The company’s total balance of the ROU asset account and the total balance of the lease liability account at the beginning and end of a period.
- Numerical details that correspond with the following categories showing why the balances changed during that time: amortization, depreciation, additions, terminations, renewals and impairments.
- The balances and categories in total for the company and for each individual lease.
Without an automated roll-forward report, accountants must pull separate reports from the ERP and their lease accounting software, perform VLOOKUPS in spreadsheets, and tie the reports together. Accountants must search through hundreds of lease records to identify balance changes associated with additions, terminations, renewals and impairments. They then must assume that balance changes not identified in their search were due to amortization and depreciation. This entire process can take days to complete and is fraught with risk, because auditors will test the assumptions.
CoStar’s lease accounting software automatically runs a roll forward report with all supporting details.
Lease accounting reconciliation provides documentation confirming that the ROU asset and lease liability accounts reflected on the balance sheet are correct. Those numbers on the balance sheet are constructed from transactions that have been recorded in the general ledger (GL), which typically resides in a company’s ERP system. These ROU asset and lease liability account balances are derived from each of the company’s lease amortization schedules, which typically reside in lease accounting software or in separate spreadsheets. Comparing numbers manually that reside in disparate places can be difficult and result in human errors.
In lease accounting, accountants must perform the following tasks for balance sheet reconciliation.
- Pull a company’s total ROU asset and lease liability amounts from the balance sheet.
- Prove that those total ROU asset and total lease liability amounts are supported by individual amortization schedules.
- Obtain approval from a manager who double-checks everything and grants final approval.
To manually reconcile the accounts, accountants must create reconciliation spreadsheets comparing the amounts on the balance sheet to the amounts in the supporting amortization schedules. This manual process can take hours or days.
But CoStar automates the entire manual process by integrating with leading reconciliation software like Blackline, allowing reconciliation to occur in seconds without manual preparation and review.
Some systems simply don’t have ad hoc reporting, so users can’t create reports as needed on all lease data fields. For example, there’s no way to run a streamlined report that contains only amortization schedules for leases in a specific region that have been either impaired or terminated. If an auditor asks for such a report, accountants must run a standard report, export it to a spreadsheet, and then manually remove all other irrelevant records and fields. That process is time consuming, and accountants run the risk of giving the auditors too much or not enough information, lengthening the audit by creating more auditor questions.
CoStar allows accountants to report solely on chosen fields and to filter by the company’s hierarchy. Users can drag-and-drop any lease data field into a report and give auditors just what they asked for. Once an ad hoc report is created, it can be saved as a template, shared with others, updated on a set schedule, and emailed automatically.