Do you know according to the new IFRS Standards, entities are obliged to disclose all their leases in the balance sheet? The Financial Accounting Standards Board and IASB took this step in 2016 to provide shareholders with a better and true representation of the leasing activities. The objective was to increase visibility and highlight the assets and liabilities of a company.
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What is the reason behind the lease accounting software?
So, was it really necessary to establish a new standard? At the time of the release, there were about $3.3 trillion in lease commitments by listed companies using IFRS Standards or US GAAP. Out of which, 85% were unreported in the balance sheets. Hence, it did not give all the information to the shareholders in decision-making and kept them under the shadow. Then, among the leases, finance leases were reported in the balance sheet, and operating leases were disclosed in the notes.
However, after introducing ASC 842 and IFRS 16, large public companies transitioned to the new standards. On the one hand, it brought more transparency and comparability between companies, but on the other hand, it made it burdensome to incorporate changes into the existing accounting software.
What are the benefits of lease accounting software?
As they say, necessity is the mother of invention, and rightly so. A purpose-driven and specifically designed for managing lease contracts, a lease accounting software was created.
Many accounting software has been available since 1978 that generate different reports, invoices, etc. however, none was efficient in producing relevant information on leases until EZlease for lease accounting was introduced. It solved all the complexities of leasing processes and made the calculations simple. Further, it produces reports in compliance with IASB and FASB and serves as an archive for the lease data, enabling you to keep track of events. Also, all the information, such as payments, renewal dates, and lease terms, is available just a click away.
The benefits of lease accounting software are well known, and most companies invest in them knowing that it will reduce admin costs, automate tasks, and help them to comply with accounting standards. The right software offers your team more than these compelling reasons.
1. Improved vendor relationships
With the increasing number of lease contracts, adding properties makes vendor management a little difficult. Keeping track of all the contracts and their critical dates requires effort and consume substantial time, resulting in missing key dates that can cause late fees and overpayments. Therefore, having a lease accounting software is beneficial as it provides a complete solution. You receive alerts for important dates that give you a 360 view of all the contracts while reducing your administrating time.
Further, the insights provided by the software enable you to strengthen relationships with vendors. As a result, it increases the margin and gives you leverage to negotiate better terms with them. Additionally, after the new standard, some leases became redundant that do not require renewal, and the software sends you critical alerts to take action on such contracts.
2. Better collaboration within the company
A lease contract involves multiple departments and several individuals. Working without the right software can be troublesome and adversely impact team cooperation. As they need to analyze data, check it manually for errors, and then make forecasts, you are slow to act regarding leasing decisions and opportunities. Consequently, it leads to constraints and can mismanage the contract.
Thus, it is necessary to have an efficient centralized system so everyone can coordinate and work seamlessly. The concerns and responsibilities over the contract vary from department to department. For example, accounts, sales, admin, and legal departments are involved in a lease agreement. So, each department has its own challenges, and while adding data manually into the system, they ought to miscommunicate and are unable to collaborate.
One of the main secrets of lease accounting software is that it saves time by automating many labor-intensive tasks. As a result of a centralized system, teams can create a chart of accounts for all leases and use standard processes to guarantee consistent information is transparent and easy to audit.
3. Easy to manage finances
There are several moving parts in a lease contract. You can make poor decisions based on incomplete information if not managed properly. A lease software management software gives you access to data in real-time, including costs that reduce risks and protect you from using inaccurate financial information at the time of negotiations.
Your stakeholders may need answers to questions like how much will you spend on leases next year? Can you identify regions with the most and least spending? You can respond to any question with the help of insights and financial details provided by the software.
Moreover, you can analyze spending and make accurate budgets while maximizing all your resources. It will improve your financial performance and empower you to make better leasing contracts favoring your company. It also impacts improving audit processes as you can fulfill the auditor’s requests regarding IFRS 16 and ASC 842 effectively. With a read-only mode, you can even give access to auditors to pull any relevant reports and data from the software with no problem.
4. Customization
The best part about lease accounting software is that it can configure changes as per your needs. Indeed, companies belonging to different sectors have different requirements. A company in the tech sector or someone operating in healthcare is both required to report leases, and it is also imperative to meet the reporting demands of the organization.
In addition, leasing accounting software supports the integration and sharing of lease administration and accounting data with other systems, such as ERP systems.
You can grow and evolve your business with the system by leveraging a configurable lease administration and lease accounting solution. The numbers become much more meaningful, and their intentions become clearer when there is a comprehensive range of options in analysis, such as graphs and other details.
Conclusion
The IASB is continuously looking to improve by including new standards for shareholders to access more information about a company. The disclosure of leases in the balance sheet is one step towards it. However, specified software is a blessing, as it provides immediate access to the correct information. It also allows you to negotiate better terms in a lease agreement. Besides, lease accounting software evaluates data and gives insights if the lease contract is viable to renew or not, as well as generates automated reports for better decision-making.
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