Finding a Lease Accounting Software Solution has become increasingly difficult. For businesses to keep up with the evolving rules and regulations regarding leasing, it’s imperative to constantly monitor changes in order to remain in compliance. Over the past few years, the release of new standards requires greater transparency and accuracy in lease accounting. Utilizing a lease accounting software that automatically tracks and implements any new regulatory updates is imperative to keep you compliant.
Lease accounting regulatory compliance refers to staying in line with legal requirements for the financial reporting of leased assets. In particular, the new lease accounting standards, ASC 842, IFRS 16 and GASB 87.
This article provides an introduction to auditing internal processes. It will help you understand compliance requirements. Fischer Solutions’ software, ManagePath, can help simplify regulatory compliance. It can reduce the stress and difficulty of navigating the process.
Understanding the Lease Accounting Regulatory Breakdown
Previously, many companies were able to keep leases off their balance sheets. They were structured as operating leases, which were only disclosed in footnotes or other non-financial statement disclosures. As a result, investors and other stakeholders had limited visibility into a company’s lease obligations.
In 2015, FASB found that 85% of leases were not being reported on balance sheets. This meant banks and investors could not determine the true financial status of the private and public company being evaluated. Thus began a full-on migration for the way lease accounting was reported.
In 2016, FASB issued Account Standards Update, ASC 842. This targeted off-balance sheets directly, highlighting both operating leases and finance leases. In turn, making regulatory compliance requirements for a company’s lease liabilities a hot topic in the lease accounting field.
On December 15, 2021, ASC 842 became effective as the new lease accounting standard for U.S. companies.
The new lease accounting standards, require lessees to recognize all lease assets and liabilities on their balance sheets. This increases transparency among companies, enabling investors to more accurately assess a company’s financial position, performance, and risk profile.
The Regulatory Trio
There are three main lease accounting standards that you should know about; ASC 842, IFRS 16, and GASB 87.
ASC 842 – The new standard introduced by the Financial Accounting Standards Board (FASB) in the US. The standard requires lessees to recognize lease assets and liabilities. This applies to leases with a term of more than 12 months. These items must be recorded on the balance sheet.
For more in depth information on ASC 842, check out our breakdown of Keeping a Lease on the Balance Sheet.
IFRS 16 – The international equivalent of ASC 842 and was introduced by the International Accounting Standards Board (IASB). The standard requires lessees to recognize lease assets and liabilities on the balance sheet. This applies to leases with a term of more than 12 months.
GASB 87 – The new standard introduced by the Governmental Accounting Standards Board (GASB) in the US. The standard requires lessees to record lease assets and liabilities on their balance sheet. This applies to leases with a term of over 12 months.
Additionally, the new standards aim to align lease accounting with modern business practices. The standards simplify and harmonize lease accounting across different jurisdictions and reduce the complexity of financial reporting.
Now that you have a better understanding of the new standards, let’s look at why ManagePath is your answer to compliance.
5 Ways to Manage Compliance with ManagePath
Fischer Solutions designed software to manage regulatory compliance with automated ease. ManagePath is built for lease administration, lease accounting, project management, etc. This lease accounting software solution streamlines and simplifies your processes, saving time and effort. After all, ManagePath is a lease accounting solution built for the real estate landscape.
While there are many things to consider when making a decision to automate your lease accounting, we did some extensive research. When upgrading ManagePath to comply with new standards, we identified the most common pain points and aimed to provide comprehensive answers.
1. Compliance Itself
a. The Pain Point – Non-compliance with the regulatory standards result in significant fines and penalties. This has a severe impact on a business’ financial health.
b. The ManagePath Answer – Automated updates and audits which will alleviate the risk of failing compliance. The SOC 1 audits around calculations and reports ensure that your lease accounting is accurate and transparent.
2. Improved Accuracy
a. The Pain Point – Accurately managing large volumes of leases is a complex process. Companies can spend hours, days, or even weeks with manual reporting.
b. The ManagePath Answer – Automating many of the tasks improves reporting accuracy and compliance with ASC 842, IFRS 16, and GASB 87. This can reduce the risk of errors and ensure that lease accounting is consistent across the business.
3. Improved Efficiency
a. The Pain Point – Allocating time and resources to manually audit tasks related to regulatory reporting. Duplicate data entry for both accounting and real estate purposes.
b. The ManagePath Answer – Adopt a lease accounting software that automates many of the tasks involved in lease accounting. Lease classification, lease payment tracking, and lease modification tracking, frees up staff to focus on other critical tasks. Integrating your real estate and lease accounting process into one solution to eliminate the need for duplicate data entry.
4. Greater Transparency
a. The Pain Point – The new standards require greater transparency in lease accounting. Lessees are required to recognize lease assets and liabilities on the balance sheet.
b. The ManagePath Answer – Accurate and up-to-date lease data is easily accessed and analyzed. Our reports are comprehensive and easy to read.
5. Better Decision Making
a. The Pain Point: Uncertainty with identifying opportunities for cost savings and portfolio optimization.
b. The ManagePath Answer: Automated data gives businesses greater visibility into their lease portfolio. This can help to inform better decision making around lease management, lease negotiation, lease renewal, and reasonably certain terms.
If you identify with any of the pain points listed, it’s probably time to invest in an automated lease accounting software solution. Request a demo with our ManagePath team to see a more in-depth example of how we can help.
Though not all companies are the same, if you have leased assets it’s likely that you are familiar with regulatory compliance. Businesses need to adopt software that stays up-to-date with any new lease accounting standards. Automated software ensures compliance with the most current standards. It also provides businesses with the latest updates and features, allowing them to make the most of their investments.