Visual Lease, a lease accounting and lease management system company and one of FORVIS' strategic alliance vendors, offered a webinar in February 2022 on Best Practices for an Effective Lease Data Strategy. Repeated themes were getting ahead of your data before adopting ASC 842 and implementing a lease accounting solution is vital for lease accounting compliance. Here are a few other takeaways from the webinar, as well as our perspectives.
Why is it Important to Gather Comprehensive Data on Lease Contracts? Gathering comprehensive data on lease contracts is important to help avoid overpaid rent and missed lease options. Collecting this data is also necessary for compliance with lease accounting standard, ASC 842. According to Visual Lease's Data Institute 2022 Lease Accounting Market Analysis, 75% of companies polled were not fully compliant at the December 15, 2021, the effective date of ASC 842.
FORVIS recommends starting the process to gather and organize key lease contract data early. Many companies' software implementations get derailed by data bottlenecks resulting in delayed go-live dates. Incomplete and inaccurate lease data also can lead to material misstatements of financial statements.
What are Some Common Challenges Businesses Encounter with their Lease Accounting Compliance? Gathering lease data is time consuming, which can be a setback for some smaller companies that do not have dedicated staff to do such work. When pulling together data, cross-departmental resources are needed, which can pull people away from other projects. Lease information is not often located in one place. With leases changing often, maintenance is essential. Companies can counter these common challenges by seeking out global reporting systems for their lease portfolios so they can track the lease data in real time. Additionally, automation reduces errors that can occur when manual spreadsheets. Think of this as one single source of truth that integrates other solutions, ERP style.
These challenges do not go away at ASC 842 adoption or software implementation. FORVIS encourages companies to consider how their processes and related controls will change under the new standard and/or with a new solution. Ensuring all key stakeholders understand their revised roles is integral in ensuring continued compliance.
How can Companies Effectively Prepare to be Successful? Visual Lease recommends developing a comprehensive data strategy, which includes putting designated teams in place, including cross-departmental collaboration, IT, and individuals who will be dedicated to leases. Companies should lean on reliable technology to aid in centralizing all the lease data components, stay on top/ahead of all lease modifications, and manage lease data.
Let the Technology Work for You: Visual Lease has found that companies that rely on manual-entry spreadsheets can have errors in equations or gaps in data. When thinking about automating lease data, consider technology that is flexible and intuitive. The software should allow you to run your own reports with the capability to track key elements of the lease such as critical dates, options, and clauses. This can be critical during an audit.
FORVIS also recommends companies consider both their current and long-term needs when selecting a solution. Taking the time to draft both functional and technical requirements up front will enable companies to make informed decisions that not only fit current needs but can scale with companies as they grow.
How We Can Help
FORVIS collaborates with Visual Lease and other leading technology companies to help power our service offerings. We use these platforms, which can be tailored by industry and other client specifications, to further add value in the areas that support companies' lease accounting implementation efforts, including accounting and financial reporting, global finance, business transformation and performance and process improvement. Learn more about our CFO and Business Advisory services.