Accounting teams may spend anywhere from several hours to a couple of days each month reconciling their ROU asset and lease liability accounts. But this reconciliation process can be cut down to seconds with automation.
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 Enterprise Resource Planning (ERP) system. The 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.
Preparation
No matter how reconciliation is done, the process consists of two major steps: preparation, and documentation and review.
To manually reconcile a company’s total ROU asset and lease liability amounts to those listed on the balance sheet, accountants must create a reconciliation spreadsheet with a row for each lease, a column for the ROU asset, and a column for the lease liability balances. They then must comb through each contract’s amortization schedule to find the current month’s balance for both the lease liability and the ROU asset. Next, in each row, they need to input the name of each leased property. In the respective columns, they need to input the corresponding lease liability and ROU asset balances for each contract. After doing that for all their leases, they must add the amounts in each column to get the total ROU asset and total lease liability.
CoStar lease accounting software can help companies automate the entire reconciliation process.
Documentation and Approval
After obtaining the total ROU asset and total lease liability, accountants create a document that includes spreadsheets and screenshots to prove the amounts for total ROU asset and total lease liability balances produced in the preparation phase equal the company’s total ROU asset and lease liability on the balance sheet. This document contains the spreadsheets produced in the preparation phase and a screenshot from the GL, proving that the totals match. The accountant then must forward the documents to a superior who double-checks everything for final approval.
This documentation and approval process can be bypassed and automated when lease accounting software is integrated with reconciliation software.
Automating Reconciliation
Lease accounting software that integrates with reconciliation software allows reconciliation to occur in seconds without manual reviews. Lease accounting software automatically produces the documentation required in the preparation phase. An abstract and amortization schedule for each lease is housed in the leasing software, which automatically adds all the current ROU asset and lease liability balances to present a companywide total ROU asset and lease liability.
Reconciliation software automatically retrieves real-time balances from the general ledger in the ERP and compares that to the total balance of the ROU asset and lease liability in the lease accounting software. The reconciliation software saves the documentation from the ERP system and the lease accounting software. When the balances from the leasing software and the ERP match, the reconciliation software automatically certifies the numbers are accurate, so no manual reviews are necessary. If they don’t match, accountants will use the lease accounting software and reconciliation software to discover the cause of the variance.
Not all leasing software has the ability to integrate with reconciliation software, so that should be a consideration for buyers. Leasing software should also be able to provide an accounting summary report that includes the company wide ROU asset and lease liability balances, with supporting documentation of the balance for each lease. Some companies use a roll forward report to further support their account reconciliations, and many auditors require these reports. Good lease accounting software will be able to automate the roll-forward report.
