Today, nearly every local government, higher education, and similar kind of organization has some type of building, land, vehicle, or equipment lease. With a growing number of commercial leases nationwide, the lease accounting function is increasingly critical for small and large governments alike. Whether the lessor or the lessee, lease accounting paints a clear picture of the value of your organization’s assets and each leases’ impact on the business’ financial health.
Finance teams that use spreadsheets to maintain their leases have likely encountered how cumbersome and risky this method can be. Still, a 2018 study by the Institute of Management Accountants found that 69% of US companies with annual revenue below $25 million use spreadsheets. Because 9 out of 10 spreadsheets contain errors and more than half of mid-sized US companies use them, it’s safe to assume that relying on spreadsheets for lease accounting isn’t the best practice for organizations that want to have accurate data.
Below, we’ve outlined common myths of using spreadsheets for lease accounting and the risks your finance team and entire organization face by continuing to use them.
Myth #1: Spreadsheets are the only option for managing leases.
Today, many finance teams, particularly in local and state government, are slow or hesitant adopters of modern technology. For years, these teams have used spreadsheets to manage their leases and, despite the challenges and risks, are content with the fact that Excel “works”.
While maintaining the status quo may be tempting, some finance professionals and teams are simply unaware that lease management software even exists. Thus, they may not have necessarily sought new solutions for managing their leases.
Myth #2: Spreadsheets are the industry standard.
Admittedly, spreadsheets were indeed once the industry standard. However, amidst technological disruption and the rapidly approaching GASB-87 deadline, demand for modern tech solutions is shifting the industry’s norms. Leveraging a lease management software developed with GASB-87 in mind can drastically reduce the time, stress, and resources allocated to becoming compliant.
Modern fintech solutions are becoming increasingly commonplace as the industry progresses towards a 21st-century approach to lease accounting.
Myth #3: Spreadsheets have existed for decades so they are trustworthy and secure.
The common saying, “if it isn’t broken, don’t fix it” is not a concept that should be applied to the use of spreadsheets for your lease accounting. Although Excel has existed for years, the manual processes spreadsheets require coupled with a lack of data integrity and version control have caused data quality and security issues for innumerable organizations worldwide. Additionally, Excel doesn’t have audit functionality such as historical tracking and insights into which user made changes.
Myth #4: Spreadsheets are equipped to effectively handle complex finance tasks.
Complex finance functions are not easily managed in Excel due to major limitations. A typical spreadsheet has restrictions on the number of records it can handle, and does not allow users to link to other spreadsheets and documents. These limitations may not be suitable for performing a detailed analysis or making accurate forecasts about the lease. Excel is also mostly two-dimensional, which can limit your ability to incorporate multiple variables simultaneously.
Myth #5: Spreadsheets are easier for teams to learn than lease management software.
Lease accounting is complex and requires finance teams to manage their lease schedules alongside their debt and other long-term payment obligations in order to produce accurate financial reports and projections. To do this in spreadsheets, teams must learn to correctly and manually input the data.
Technology eliminates manual processes and the solution provider offers a dedicated client success team to help implement and onboard your team.
Risk #1: Non-Compliance with GASB-87
The new accounting standard, GASB-87, requires finance teams to gather their lease agreements, test each agreement to determine whether they’re subject to the new reporting standard, calculate lease beginning balances and schedules, and update their financial statements and note disclosures with this new information. Organizations that use spreadsheets for lease accounting will likely encounter issues such as upfront lease organization and data extraction, schedule creation, and ongoing compliance.
With lease management software, organizations can drastically reduce the time, stress, and resources allocated to achieve GASB-87 compliance. A lease management system can address all three phases of challenges faced by organizations looking to implement GASB-87:
- Upfront Lease Organization and Data Extraction
- Schedule Creation
- Ongoing Compliance
Risk #2: Underpaid or Overpaid Leases
Spreadsheets can make it difficult to effectively manage all of your obligations across your lease portfolio. Late payments, payment errors, inaccurate reporting, or missed milestones are common outcomes of relying on outdated tools for your lease accounting.
A lease management software solution provides your finance team with detailed, accurate debt and lease schedules and automatically notifies you of important dates, deadlines, milestones, and tasks so you never miss a payment.
Risk #3: Decentralized Lease Data
For most finance teams, lease data is scattered across multiple spreadsheets with different formats. Decentralized data creates additional opportunities for errors and siloed information (which can cause a slow down in reporting).
A centralized reporting system ensures that there is one set of accurate, up-to-date data to work from and creates an automatic checks and balance system within your team. Further, having a single source of truth makes it easier for your external team members to access the data when it comes to audit season, for example.
Risk #4: Incorrect, Missing, or Incomplete Data
Poor-quality data fosters mistrust - especially in industries like finance that are governed by strict regulations. Thus, incorrect, missing, or incomplete lease data is extremely risky for both internal and external stakeholders. A lack of accurate and complete data creates additional opportunities for error as teams come to accept (and even allow) careless mistakes and also negatively impacts the accuracy and transparency of your reporting. Just a single mistyped number, misplaced period, or incorrect formula can have significant impacts on your data and could ultimately have a snowball effect throughout your reports.
Cloud-based lease management software makes it easy to implement checks and balances to improve accuracy and eliminate opportunities for mistakes.
Risk #5: Lack of Data Security
As lease accounting becomes more critical to financial reporting, spreadsheets no longer provide adequate controls over data security and disaster recovery. Spreadsheet security is typically in the hands of individual users and spread across multiple computers, storage locations, and servers. As such, spreadsheets are frequently printed out, photocopied, emailed to others, and accessed through shared folders. Organizations that have financial programs and databases installed locally on individual computers and hard drives expose their critical financial data to potential cyber attacks.
Lease management software provides a password-protected system access that protects sensitive data and offers different levels of secure access depending on each user's roles and needs. You can even grant access to external team members such as your auditor, CPA, or financial advisor.