Spreadsheets are not the only option for companies with small lease portfolios
Will spreadsheets help in implementing the new leases standard? The general consensus seems to be no, but I still hear of organizations exploring the spreadsheet route — especially those with smaller lease portfolios who feel there isn’t a viable software option.
I’ve been to numerous industry conferences and regularly speak to CPA firms of all sizes. I often hear this debate about spreadsheets vs. software. Not surprisingly, I’m solidly in the camp that says spreadsheets are a risky and cumbersome way to implement this new standard.
Before you think, “This article doesn’t apply to me,” I would challenge you to keep reading because this applies to all companies that must comply with the new lease standard (and the CPA firms that serve them). It is more urgent for public and multinational companies that have completed their initial implementation using spreadsheets, which isn’t limited to organizations with a handful of leases. And even with the likely delay for nonpublic U.S. companies, I highly recommend getting started on your implementation now.
Let’s examine the challenges of spreadsheets related to the new lease standard:
- Complex calculations: I’ve heard people say, “But it’s just the present value of future payments. That’s perfect for a spreadsheet.” If that were the only required calculation, I would agree with them. If you look deeper, there are complicated aspects of the new standard, particularly with the quantitative footnote disclosures that include a weighted average discount rate and weighted average remaining term.
- Navigating nuances: Spreadsheets don’t have any built-in guidance to add context or provide help along the way. For example, the lease standard has specific guidance about how to handle lease revisions, which include impairments when vehicles are totaled or exercising a renewal term that previously wasn’t reasonably certain. Spreadsheets offer no assistance in these situations.
- Enormously time-consuming: Because there are no embedded calculations or processes in a spreadsheet, it is time-consuming to manage all the components of the new lease standard in that setting.
- Version and calculation control: When multiple departments and people are responsible for lease data, it can be difficult to share spreadsheets and have confidence that everyone is using the latest version. Conversely, if a single person is responsible for the spreadsheet, data can be lost if they leave the organization. It also requires the spreadsheet owner to be deeply aware of the new lease standard calculations to ensure accuracy.
- Lack of validation or security: A spreadsheet has no built-in validation and minimal security options. To quote an audit partner I recently spoke with: “We do not want to have to audit spreadsheets.”
Now let’s move on to the benefits of using lease accounting software to implement the new lease standard.
- Accuracy: One of the most important benefits of using software is the accuracy. All the calculations are built into the system, so there’s no second guessing or auditing each cell in a spreadsheet.
- Time saved: This is another obvious one. Software allows the implementation process to go much more quickly and smoothly.
- Security: Security and version control are essential. Of course, you need to ensure your software solution has optimum security features, but from there the process becomes less risky than attempting to rely on spreadsheets and worry about which version is the most recent.
- Processes and guidance: One of the biggest advantages of software over spreadsheets is the built-in processes, tooltips, templates, wizards and other functionality that help guide the user through the various nuances of the new lease standard. When viewing a software demo, one CPA told me, “Wizards are very helpful. Breaking things down in those bite-sized chunks makes a difference."
Obviously, there is more urgency for public companies who already need to comply. These firms, regardless of size, definitely shouldn’t rely on spreadsheets.
My recommendation is that private firms should also keep the new lease standard top of mind and begin the implementation process soon. Here’s why:
- Consider your banking relationships. For any organization that has to comply with debt covenants for a bank loan, adding a significant liability to the books can affect how a bank considers credit availability and borrowing rates. The best way to navigate changes to your banking relationships is through early communication regarding changes to your financial statements.
- Before the delay was announced, you likely had time set aside to work on the adoption. You might as well keep going so you aren’t left scrambling this time next year. The extra time will allow the process to be less painful, if it is utilized.
- You don’t know what the future holds for your organization or the industry. How will waiting on this affect your 2020 projects and goals?