What is the Difference Between Lease Administration Software and Lease Accounting Software?
Why You Need Both to Comply With the New Lease Accounting Standards
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. 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. However, few have systems installed to track IT, fleet, or other types of equipment leases. In this article, we will explain the differences between lease administration software and lease accounting software as well as their inter-dependency.
What is Lease Accounting Software?
Lease accounting software has a specialized lease accounting engine designed to produce the information needed for your public financial disclosures, such as the annual 10-K and quarterly 10-Q reports, that are provided to the SEC. Lease accounting software typically acts as a subledger to track all the debits and credits specific to leasing. Much like a subledger that tracks payroll, inventory, fixed assets, or receivables, a lease accounting subledger tracks all the depreciation, amortization, and interest expenses associated with your leases. It produces a set of debits and credits that can be uploaded to the general ledger in your ERP. From there, your financial reporting systems can pull the general ledger to generate all the information needed to create your balance sheet, income statement, and cash flow statements under the new standard.
- Lease Accounting Engine – Supports both the current and new standards for US GAAP (ASC 840 and 842) and IFRS (IAS 17 and IFRS 16).
- Lease Accounting Subledger – Records asset-level journal entries for leases, including commencement, expense recognition, principal reduction, short-term and long-term re-classes.
- Classification of Leases – Enables classification of leases – for example, operating and finance lease classification to support FASB’s ASC 842.
- Financial Disclosures – Generates the necessary debits and credits to support quarterly and annual company quantitative disclosures required by the new standards.
What is Lease Administration Software?
Lease administration software acts as the enterprise-wide source of master data about your real estate and equipment leases. Lease administration also provides automated workflows to reduce the time required to book and contract for new leases, renew or expand leases, and terminate or purchase assets at the end of term. The automation enables you to grow the size and scale of your leasing program without having to build a large team of lease administrators. The software also helps you to optimize the economics of your leasing program by eliminating wasteful spending and providing insights to negotiate better lease terms. Automated invoice processing and desktop audits identify common landlord billing problems and revenue leakage from uncollected sublease income and security deposits. Features such as lease versus buy analysis and evergreen fee reporting are provided for equipment leases.
- Lease Database – Tracks all leases with details on lessors/landlord names, contact information, payment schedules, contract lengths, and end-of-term options.
- End-of-Term Management – Automated notifications alert decision makers of a lease that is approaching the end of term. Workflows automate renewal, buyout, or termination processes.
- Invoice Processing – For real estate leases, invoice line items are compared to expected rents and operating costs. Discrepancies are highlighted before payments are disbursed.
- KPIs and Reporting – Dashboards show the economics and performance of the leasing portfolio. Users can drill down by business unit, geographic location, or asset type.
Want more details? Read the Twelve Features of Lease Administration Software. Or learn more about LeaseAccelerator’s Lease Administration Software.
Why Do You Need Both Lease Administration Software and Lease Accounting Software?
The two applications need to work together closely to ensure you comply with the new lease accounting standards. The lease administration system will notify the lease accounting system when a new lease is signed and when a lease is renewed, terminated, expanded, or contracted. The two applications also need to remain in synchronization on changes to variable rents and end-of-term plans. Any of these changes might trigger a remeasurement and accounting change.