Compliance and Beyond: Managing Day Two Lease Accounting

After the initial adoption of the lease accounting standards ASC 842 and IFRS 16, organizations continue to face significant challenges that affect their financial and operational efficiency.
Effective lease accounting software can be the key to overcoming these hurdles. Let’s explore the primary challenges and strategies to manage these complexities successfully.
Key Challenges in Lease Accounting:
- Data Management and Accuracy: Inaccurate lease data can lead to non-compliance and financial discrepancies.
- Lease Classification: Incorrect classification can significantly alter financial statements.
- Timely Journal Entry Creation: Delays can impede financial reporting and compliance.
- Continuous Monitoring and Compliance: Requires ongoing oversight, which can be resource-intensive.
- System Integration: Integrating lease accounting software with existing financial systems may need substantial IT support.
- Audit Readiness: Maintaining data integrity and accuracy is crucial for audit compliance.
- Disclosure Requirements: Expanded requirements increase the volume of information to track and report.
- Resource Intensity: Detailed reporting can strain resources, especially for companies with large lease portfolios.
- Lease Changes: Modifications can overwhelm teams during tight deadlines.
- Discount Rate Application: Determining the appropriate Incremental Borrowing Rate (IBR) can be complex.
- Subleases and Lessor Accounting: These complex issues require detailed compliance processes.
- Embedded Leases: Essential for compliance but typically involves fewer contracts.
- Lease vs. Buy Decisions: Affects long-term financial planning rather than daily operations.
- New Lease Acquisition: Focuses on process optimization rather than immediate compliance.
Strategies for Success in Lease Accounting:
- Implement Robust Lease Accounting Software: Utilize advanced software to automate and streamline lease accounting processes, reducing the risk of errors and enhancing compliance.
- Streamline System Integration: Ensure seamless integration between lease accounting software and your existing financial systems for better data flow and accuracy.
- Automate Compliance Processes: Leverage automation to minimize manual effort in compliance tasks, ensuring timely and accurate reporting.
- Enhance Resource Allocation: Optimize resource allocation for effective management of detailed record-keeping and reporting.
- Adopt Advanced Reporting Tools: Use sophisticated reporting tools to handle expanded disclosure requirements efficiently, improving transparency and compliance.
- Invest in Continuous Training: Regularly update your teams on the latest lease accounting standards and software functionalities to maintain high levels of accuracy and compliance.
By adopting these strategies and leveraging lease accounting software, organizations can better manage the complexities of lease accounting, ensure compliance, and improve the accuracy of ongoing financial reporting.