2021 may be a tipping point for lease accounting software. Significant changes to the lease accounting standards, ASC 842 and IFRS 16, have forced financial executives in every industry to consider their company’s lease financing in a whole new light. The changes mean that lease accounting, one little more than a note attached to the financial statements, is now an on-balance sheet item.

Make no mistake: this is a huge moment for accountants. If accountants didn’t know the scale of lease accounting in the United States, they soon will. An historically low interest rate for over a decade effectively encouraged firms to take out leases, where previously they may have purchased assets directly. Between 2008 and 2018, the volume of leasing in North America grew from $226.1 billion to $460.1 billion.

Moving these figures to the balance sheet as ‘right to use’ assets and their corresponding liabilities, is a mammoth task for CFOs, financial teams, and auditors, alike. To give some idea of the scale of the task that awaits them, auditing firm Deloitte’s set of guidelines for companies implementing the changes comes in at over 900 pages. When the instruction booklet hits that many pages, software becomes a highly viable alternative.

How Lease Accounting Software Makes a Difference

In a nutshell, the purpose of lease accounting software is to automate the record-to-report processes that characterize lease accounting. A typical lease, even for a relatively small piece of equipment on a company’s balance sheet, can take over an hour for an accountant to accurately interpret and communicate. Lease accounting software can perform the same task in minutes. Tasks performed by these tools might include:

• Conversion of lease information into general ledger entries.
• Calculation of the impact of lease interest rates over the accounting period.
• Presentation of the information in an attractive, user-friendly format.
• Provision of an audit trail to auditors for full transparency.

One recent piece of software introduced to the market takes this to a new level. Trullion uses a combination of AI and OCR (optical character recognition) to read lease contracts in pdf, Word, or Excel format, and extract the relevant data into workflows and reports. Auditors can click on data in financial statements or reports and be brought directly back to the relevant contract, creating a hitherto unknown level of transparency and efficiency for lease accounting.

Who is Lease Accounting Software For?

The short answer to this question is: The more operating leases your company has, the more relevant tools like Trullion and others like it become. Because of the throwaway manner in which operating leases were treated until the introduction of ASC 842, there’s a good chance that most American companies had paid little regard to the finer details of their operating lease contracts.

In financial services too, lease accounting software is set to become a mainstay. External auditors responsible for ensuring that leases are being property interpreted under the new changes face the biggest deluge of work in the months ahead. Faced with interpreting not just one company’s set of operating leases, but those of all their clients, the auditing profession will welcome the arrival of Trullion and others like it.

The Age of Automation

The long-awaited changes to the accounting standard ASC 842 will intensify the workload for everybody in the accounting profession. With trillions of dollars worth of assets ‘appearing’ on the balance sheet globally, it’s no exaggeration to say that accountants find themselves in a new paradigm. The good news is that leasing accounting software is now available that can ease the transition, providing increased levels of efficiency and transparency as accountants adapt to the new environment.