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Insight On Lease Accounting Standards For The Technology Industry

Insight on lease accounting standards for the technology industry

The technology industry faces unique challenges and opportunities with the new ASC 842 compliance standards. For example, if a customer is contracting for capacity on a supplier’s servers and other IT equipment that the supplier has, does the supplier have the right to lease the equipment to serve other customers? What happens when the terms of a lease change? What if the facts and considerations believed to be sound in the original lease change? Do these modifications mean you have a new, separate lease?

With the rapid pace of technology advancement, many technology entities choose to lease their IT equipment including computers, servers, storage and network equipment rather than purchasing them. Leasing is believed to be ideal for companies that do not have the capital to buy equipment upfront nor do they want to maintain it through future updates and repairs.

The new accounting standards will affect all technology entities from ambitious startups to enterprise businesses that rely on leasing because technology ages so quickly, and leasing makes financial sense in response to tight budgets and limited funding. The compliance burden can be significant due to limited accounting, financial reporting, investor relations, and IT resources.

Traditionally, leasing in the technology industry has been a decentralized process. It is nearly impossible to efficiently track tens of thousands of equipment assets effectively by using a traditional spreadsheet. A lease may also be embedded in a contract that may not appear to be a lease. Moreover, it is tedious to meet thousands of end-of-term notification deadlines without an automated workflow. There is financial risk associated with managing your leasing program inefficiently. With the new lease accounting requirements centralizing lease data will be crucial to success both in meeting new lease accounting compliance standards and an improved balance sheet. This new lease accounting standard is the most significant accounting change in more than a decade, and it is coming very soon. Implementing Costar’s proven lease accounting software will assist with sorting out the difficult decisions necessary to ensure continued growth in business and at the same time meet compliance standards. It would be best if you had a plan to become compliant soon and implementing CoStar lease management software is your critical path to success.