Lease management is a complex area of the property and financial management side of a business. Thankfully the task is made easier by lease management software that is available online. It will take care of the figures, the deadlines, and the accounting standards.
When it comes to managing leases, we ought to not just know that software exists but also what it can do for us. We shall explore these functions so that we know how much easier it could be for our business.
What is the Process of Leasing?
The leasing process begins when the lessee enters a leasing contract with a lessor. A lessee will approach manufacturers and suppliers to gather the details about an asset in terms of its specifications, design, installation, price, warranty, and service.
Leasing can relate to real estate, equipment, or vehicles. A portfolio of several of any of these can start to become unmanageable if a close eye is not kept on when payments are due and when leases need to be reported. This is where software can prove extremely useful to businesses with even small portfolios to run. It is not just the income to account for but the payments that are made for the upkeep of properties or machinery. Those leasing an asset will expect it to be well maintained.
What is Lease Management Accounting?
Lease management accounting is often referred to as lease administration. It is the execution of tasks daily that relate to what is contained within a company’s lease portfolio. It is not easy to manage because there is no one approach to lease management. At the same time, a company needs to have direction with it and cannot simply record its transactions in an ad hoc way.
The accountancy side of leasing involves document management (documents need to be kept for tax purposes), reporting (there will be audits to pass), and many other types of administration that will involve coordination between stakeholders.
The functions of Lease Accounting Software
Lease accounting software exists to ensure easy compliance in respect of the key accounting standards. These are ASC 842, IFRS 16, and GASB 87. Everyone involved in leases will need to be familiar with these and the recent changes that give more transparency to leases. They are now, for instance, shown more transparently on a balance sheet.
Advanced controls within the software will mean that there is enterprise compliance and also administration for real estate.
Compliance is the key and software makes it much easier to records things, keep them up-to-date, never miss deadlines, and be reporting figures in this new way that will not mislead lenders or investors viewing the accounts.
The point is that compliance needs to be automatic and not something that has to be worked hard at when software can effortlessly cope with the task.
We cannot complete this article on accounting standards without talking about these key accounting standards that relate specifically to leases. Here is a quick explanation of the main ones:
- ASC 842 – increases the visibility of leasing obligation in respect of public and private companies.
- IFRS 16 – is concerned with lease components of a contract.
- GASB 87 – is taking into account the liability of leases and the intangible assets the lessee has a right to use.
Before ASC 842, the majority of leases would not be included on the balance sheet that was supposed to be a true reflection of the activities of a business.
With IFRS 16, it is now only short-term leases of 12 months and less that do not get included on a balance sheet.
GASB 87 replaces the current capital and operating lease categories with just a single model that is based on the idea that leases are a way of financing the correct use of an asset.
Lease management is complex, but those with accountancy skills and the right software can make light work of the process and always be ahead of the game. This is when it comes to keeping up with reporting leases in a way that will comply 100% with the latest accounting standards.