Why do you need ASC 842 software?
Many public and private companies have made the decision to transition to lease accounting software, to ensure they are in compliance with the FASB ASC 842 lease accounting standard. In general, the benefits of having ASC 842 lease accounting software in place far outweigh the costs associated with such software.
For example, just the time saved across the accounting team is usually orders of magnitude larger than the cost of the ASC 842 software solution. Add to this the amount of stress and headaches prevented, increased visibility for key stakeholders, more accuracy and fewer errors, seamless compliance and numerous other benefits – and you have a “no brainer” when it comes to integrating ASC 842-compliant lease accounting software.
The big question is: how to choose the right software? Where should you begin? In this article, we’ll guide you through the consideration process, including the right questions to ask of about lease accounting software, what to look out for, and potential pitfalls to avoid. Let’s get started.
How to choose the right ASC 842 lease accounting software
Choosing the “right” ASC 842 lease accounting software is, of course, a misnomer. Generally speaking, there is no one size fits all approach. What’s right for one entity is not necessarily right for every other entities, and therefore it’s critical to analyze your specific needs in order to choose the solution that fits them best.
Factors that are likely to influence your decision are the number of leases you have in your organization, your company size, the size of your accounting or finance department, the industry you’re in, your current technological setup and your current ASC 842 lease accounting standard compliance status.
What’s important to note is that across all of these areas, the implementation of ASC 842 lease accounting software is likely to be a significant boon for your business. Let’s discover what you should be looking out for specifically.
What do you need it to do?
What specific areas of accounting for ASC 842 are you looking to improve? For example, some products provide specific solutions for particular areas – such as lease payment and calculations – whereas others provide a full end-to-end solution from source documents through to auditable journal entries and disclosures.
Some solutions are manual and require much human input. Others are automated, and let AI-enhanced software do the heavy lifting for you.
What solutions are available that meet your needs?
In terms of available solutions, we start from the most basic, and move through to the most advanced.
A very basic solution is to use Microsoft Excel. Excel is a great tool when dealing with a smaller number of leases, but as soon as that number grows, it can be extremely challenging to keep up just using Excel.
For example, if you have a fleet of vehicles, and there is a change to the conditions around the leasing of those vehicles, the knock-on effects of that change are significant. This might be a lease modification under ASC 842, which means that the accounting standard kicks in, requiring new calculations and possibly new journal entries and disclosure requirements. Switching between Excel and your accounting package while trying to make sense of a raft of leases is enough to have even the most enthusiastic accountants wishing they were someplace else.
While Excel is important and will always have its place for accountants, when it comes to leases and particularly the new requirements of ASC 842, a more robust solution is required.
In terms of ASC 842 software solutions, companies such as Trullion provide AI-powered automation that can actually scan source documents such as Excel spreadsheets or PDF files and extract key information such as lease costs and dates, and then apply these to journal entries and even disclosures – providing one source of truth for all stakeholders, from accounting teams to company leadership, and including external auditors.
So when considering where along this spectrum your needs lie, it’s important to consider some key factors.
Key factors to consider when it comes to ASC 842 lease accounting software
What particular areas are of the greatest importance when it comes to ASC 842 software as a service?
Data Security
Your financial data is one of your most precious assets. If it fell into the wrong hands – such as a competitor or hacker – the results would be disastrous.
Protecting this information is therefore of paramount importance, and any ASC 842 lease accounting software solution must have the highest levels of data security in place. Key questions to ask here are:
Is the product SOC 1 and SOC 2 certified by AICPA, the Association of International Certified Professional Accountants? Does the company providing the service have a robust privacy policy in place? Is the product used by recognizable names?
These types of questions can help give assurance in terms of the protection of your key financial data.
Audit Trail
It’s one thing to do your lease calculations and journal entries. It’s one thing to do your lease calculations and journal entries. It’s quite another to ensure that your work is auditable; that is there’s a clear audit trail and when external auditors come in and check your balances and calculations they will find everything they need easily and will be able to sign off on your financial statements.
The best lease ASC 842 lease accounting software solutions will generate 100% auditable journal entries and disclosures, and allow all stakeholders – auditors included – to gain visibility into the lease function and the associated information.
Costs
Of course, a cost / benefit analysis needs to be done in terms of the ASC 842 lease accounting software meeting your needs. If the cost of the software outweighs the potential benefits, then you’re better off not going down that road.
What we can say however is that in almost all cases, the cost of ASC 842 lease accounting software is a tiny fraction of the benefits that the lease accounting software provides, and there is a clear business case to be made for purchasing ASC 842 lease accounting software, as direct return on investment (ROI) can be demonstrated.
Today, most ASC 842 software as a service (SaaS) solutions are very affordable, thanks to the minimal infrastructure required. What’s more, as these solutions are cloud based, there is no business interruption required when they are integrated into your system.
Support
When it comes to new software, it’s important for you to know you’re not out there alone. Support is critical, especially during the transition process to a new ASC 842 lease accounting software solution.
Support should be both accessible and knowledgeable, and should give you the guidance and confidence to go ahead and conquer ASC 842 lease accounting standard compliance.
Will it grow with you? Can it scale?
Modern SaaS ASC 842 lease accounting software solutions are completely and seamlessly scalable. So whether your company is made up of 5 or 50,000 users, the experience will be the same.
Watch out for older solutions that might not scale as well. These might seem tempting at first, but can result in a huge headache later down the line as your organization expands.
Company reviews
The best indicator of how good an ASC 842 lease accounting software solution is, is third party reviews. These enable you to see how others have experienced the product, and any benefits or warnings that might be relevant. They are trustworthy and vetted, so you can relate to them with a high level of confidence.
Sites such as G2 and Capterra provide a great source on unbiased reviews, and so this is a key area to look out for when considering your ASC 842 lease accounting software solution.
Choosing the right ASC 842 software
As we’ve seen, the right ASC 842 software will differ from company to company. It will depend on factors such as how many leases you have on your balance sheet, what level of automation you want, and whether you’re looking for one part of an ASC 842 lease accounting software solution, or a comprehensive end-to-end solution that takes care of all the heavy lifting for you.
Trullion provides everything you need when it comes to ASC 842 lease accounting software. Streamline workflows, automate data extraction, and get a live 360° data image of your transactional workflow.
With Trullion, you have access to tremendous benefits. These include:
- Seamlessly meet ASC 842 compliance requirements
- Accelerate your ASC 842 adoption timeline
- Produce 100% accurate and consolidated reports in minutes
- Effortlessly trace your audit trail back to the source data
- Access simple reports and clear financial obligations schedules
Most importantly, by adding Trullion, you will be able to save massive amounts of time, reduce stress and friction, save money, increase visibility, reduce errors and be fully compliant with ASC 842 requirements.
Interested in finding out more? Sign up for a free consultation with our team of CPA experts!
