While ASC 842 and IFRS 16 were rolled out a few years ago, companies are still struggling with compliance and reporting for lessees and lessors due to the limitations of their current lease accounting systems.
These new regulations have dramatically expanded the scope of lease reporting on balance sheets, encompassing not just traditional finance leases but also operating leases for assets like vehicles and equipment. This expansion has led to a significant increase in the volume and complexity of lease data that companies must manage. Many companies are turning to cloud-based and AI-driven solutions to support their increased workload and to automate manual data handling.
However, many companies are still faced with the challenges of outdated lease accounting practices, such as:
- Data collection and management: Information is often scattered throughout the organization.
- Regulatory compliance: New standards require more leases to be on the balance sheet.
- Time-consuming manual processes: Quality assurance and validation often take months.
- Risk of errors in financial reporting: The challenge is not just the calculations, but ensuring data is “passed” to the right reporting tools.
- Compartmentalization and silos: Leases are often managed by various relevant departments, creating silos.
These challenges are especially critical for companies with extensive lease portfolios: from retailers with a large store footprint, to the transportation sector where leasing of key assets is a core part of the business model.
“It used to be that only finance leases—or capital leases as they were called—were required to be on the balance sheet,” says Amanda Nessel, a solutions consultant at Trullion. “But now that operating leases for vehicles and equipment, which are high-volume assets, are also required, it’s led to a lot more complex accounting and a lot more volume that is much more easily managed in a system.”
Strategies for optimization
For companies seeking to modernize their current lease accounting systems, the following factors should be considered when selecting a vendor:
- 1) Are they in the cloud?
- 2) Does this software comply with local and global accounting standards?
- 3) Is there a focus on innovation (as we move toward an AI-driven world)?
The key benefits of using a cloud-based, AI-powered solution for lease accounting optimization include:
1. Eliminating manual errors, saving time, and ensuring data accuracy
AI uses Natural Language Processing (NLP) and Optical Character Recognition (OCR) to efficiently extract key terms and financial information from lease documents. “With automation, your accounting team’s time is freed up for more strategic and analytical activities,” says Nessel.
2. Streamlining calculations and reporting for compliance
Modern AI-powered, cloud-based solutions handle complex accounting calculations based on data inputs and accounting judgments. “These systems handle all of the accounting calculations based on data inputs as well as certain judgments that are made from an accounting perspective,” Nessel explains. These systems can automatically generate journal entries and disclosures, saving time and reducing the risk of errors.
3. Effortless scalability and efficiency
As your lease portfolio grows or becomes more complex, cloud solutions can easily scale to meet your needs. Cloud solutions are designed to integrate seamlessly with your other financial tools and ERP systems, providing real-time data access, enhanced collaboration, and cost-efficiency. “The lease accounting processes can be made a lot simpler and a lot easier if you’re in a system,” says Nessel. “Any headaches that you’re facing with manual processes can be alleviated when using a user-friendly, cloud-based, AI-powered software.”
Your partner in lease accounting process optimization
If you’re still relying on manual processes or outdated systems for lease accounting, now is the time to consider a change. Modern, cloud-based solutions like Trullion radically simplifies your lease accounting process, making it more efficient, accurate, and compliant.
“Implementing a new system can be daunting,” says Nessel. “Not just from a time perspective, but also in what some perceive as a loss of control over their data when it’s not in Excel. But Trullion’s implementation is just four to six weeks, so you’re able to see ROI in record time. And because Trullion is effortlessly user-friendly, it gives you visibility into all the calculations right in the system, your manual accounting headaches go away instantly.”
Want to dive deeper? Learn more about how AI streamlines lease contract management and take the first step towards optimizing your lease accounting process.