There is no mystery to the way that leases are accounted for except that some of the accounting standards have changed more recently, and these are ones related to accounting for leases. It is a constant demand on finance departments that they need to keep up-to-date with these types of changes.
While training is ongoing, it can also be worthwhile to learn about the different types of software that can account for leases correctly. Additionally, it pays to seek out lease compliance software when you want to make accounting for leases easier.
Let us then take a look at these accounting standards and what they mean.
Taking Note of Certain Accounting Standards
Accounting standards are important because they can ensure that financial statements from many companies will always be comparable. This is something money lenders and investors will rely heavily upon. It also means that companies can better compare themselves with their competition when it comes to profitability and growth. It is always useful to compare ourselves with the wider picture to see if we are making progress.
Investors will want, for instance, to differentiate between a firm that is better or not to invest in. It is all about risk and a greater risk will be taken when an investor is not privy to the full facts due to a lack of transparency with a set of accounts. This is no longer left to chance because of constant revisions to accounting standards.
What are the Latest Accounting Standards?
IFRS (International Financial Reporting Standards) are of vital world importance because they regulate and contribute to economic efficiency. They are what will allow investors to identify opportunities and global risks. This will improve capital allocation. IFRS 16 is the accounting standard that will concern all those involved in companies that are connected in any way with leases. This is the accounting standard that will note that a single model for lease accounting will require lessees to identify their assets and liabilities in respect of all leases that they deal in, as long as they are over 12 months in duration.
Other accounting standards include ASC 842 and GASB 87. In brief, they are about the following:
- ASC stands for Accounting Standards Committee. ASC 842 is a new accounting standard that has been published by FASB (Financial Accounting Standards Board). It had to be adopted by public companies in 2019, and then by private companies in 2020. It is about these companies accounting for nearly all leases as assets and liabilities on the balance sheet.
- GASB stands for Governmental Accounting Standards Board. GASB 87 is about the leasing of capital assets. This includes land, buildings, and equipment, and where the agency is the lessor or lessee. Statement No. 96 then expands the requirements to being subscription-based IT arrangements that begin in the 2023 fiscal year.
How Software Assists with Leases
Software available online will handle the recording and accounting side of leases. It is about keeping track of dates and figures when you manage leases, and the more in your portfolio, the harder the task becomes.
An effective accounting package can handle the deadlines and figures that need to be taken into account to comply with the above accounting standards. We cannot risk fines and ending up the subject of a lengthy and unsettling tax investigation because we ignored the investment opportunity that is accounting software.
Investing in new accounting software that is specific to help with leases will provide us with the peace of mind that we are doing things correctly and keeping in the good books of the tax authorities. Any other approach risks reputation and business survival.
Staff will be receptive to training when the software makes life easier in terms of compliance. Accountancy software is known for this.
When accounting for leases, then, we should be aware of these new accounting standards and how they affect the recording of leases. What might seem harder to comprehend at first is likely to seem easier when we have the right software to guide us through the intricacies of modern lease accounting.