Features of Lease Accounting Software
You may be wondering, what exactly are the key capabilities of a lease accounting software application? Some features are obvious. For example, the software needs to be able to perform the proper accounting under the new lease accounting standards (FASB ASC 842 and IFRS 16). Generating the necessary journal entries required to report your leases as assets and liabilities on your balance sheet will be most critical to supporting the standards. To arrive at the journal entries, you will need an accounting engine and a database that can store the key terms and conditions for each of your leases: base and variable rents, start and end dates, and end-of-term options. Beyond these basic features, what else should you look for in a lease accounting software application?
Features of Lease Administration Software
What are the key features of a lease administration software application? The answer is that it depends what type of lease administration software you are referring to. Equipment lease administration software offers features such as lease versus buy analysis, competitive bidding, and end-of-term management. Real estate lease administration software applications feature invoice-to-pay automation, critical date management, and spend analysis. There are also many common features between real estate and equipment lease administration software applications.
Lease Accounting versus Lease Administration Software
To comply with the new lease accounting standards most companies will need both lease administration software and lease accounting software. Few companies, if any, have an enterprise-quality lease accounting application in place. But many companies have some, if not all, of the lease administration software they require. For example, most companies have a lease administration application in place for real estate, but few have systems installed to track IT, fleet, or other types of equipment leases.
Equipment Lease Accounting and Administration Software Evaluation Guide
Use this Guide to understand:
- Global Lease Accounting Engine and Lease Accounting Sub-Ledger
- Compliance with ASC 842 and IFRS 16 Financial Disclosures
- Responsibility and Management Accounting
- Equipment Competitive Sourcing and End-of-Term Management
- Real Estate Lease Administration and Spend Analysis
Detailed Software Requirements:
- Lease Data Abstraction Technology
- Cloud and Behind-the-Firewall Deployment Options
- Information Security
- General Ledger Integration and APIs
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More on Lease Accounting Software Selection
Evaluating Your Current Software Systems and Defining a Strategy
Evaluating Your Current Lease Accounting and Lease Administration Software
Before you can effectively evaluate new leasing software applications, it is important to understand the systems being used to administer and account for leases today. Most companies do not have a centralized lease accounting application. Spreadsheets have become the default application. Few companies, if any, have a single enterprise-wide lease administration system that is used across the enterprise for real estate, IT, fleet, and equipment leases.
Single-Vendor versus Best-of-Breed Approach
You need both a lease accounting and a lease administration application to effectively comply with the new lease accounting standards. Should you use one vendor for both lease accounting and lease administration or should you take a best-of-breed approach? Having these two applications tightly integrated ensures that the accounting team is always aware of any new leases, modifications to existing leases, and end-of-term plans for expiring leases.
Integrating Lease Accounting Software with Other Applications
Connect with the General Ledger, Fixed Asset, Accounts Payable, and Real Estate Administration
Many companies will want to synchronize their accounts payable (AP) applications and their lease accounting system. To perform accurate accounting for your leasing portfolio, you will need to capture precise details of periodic rent payments as well as other fees incurred at the start and end of the lease.
Read more about how your Accounts Payable and Lease Accounting applications interact.
Fixed Asset Management System
Many companies will want to synchronize their lease accounting application with one or more fixed asset management systems. Ideally, the fixed asset systems should be tracking all plant, property, and equipment, including leased right of use assets. Maintaining an accurate inventory of leased real estate and equipment in the fixed asset system is critical for calculating the depreciation used in financial reporting and property tax calculations. Additionally, an accurate inventory of all assets is required to secure proper insurance coverage for leased real estate and equipment.
Read more about how your Fixed Asset Management and Lease Accounting applications should work together.
Real Estate Administration
Many companies have an integrated workplace management system or a real estate administration application that serves as the system of record for all property leases. Much of the leasing data needed to perform real estate administration is also needed to perform proper lease accounting. Rather than manually entering data into both systems, the best approach is to establish integration between the real estate administration application and your lease accounting system. During the term of a 10-year, 20-year, or 30-year property lease, a number of changes can occur that might impact the accounting.
Read more about how your Real Estate Administration and Lease Accounting systems should interact.