The Top 5 Limitations in Excel When Adopting ASC 842

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With Excel being an accountant’s best friend, it’s no surprise that spreadsheets are the go-to for many companies when it comes to corporate finance. Despite its many, diverse functions developed and updated over the past 30 years it has been in use, when it comes to the new ASC 842 lease accounting standard, Excel might not be enough to keep companies compliant. While it can be considered a relatively flexible solution to collect and manage data, it can be considered rather limited against the complexities that come with the ASC 842 standards. Moreover, if your lease portfolio is greater than 5-10 leases, you are better served by a lease management software solution that is less manual, more accurate, saves time and improves accounting accuracy.

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Lease Management Software Explained: What It Is & Why It Matters

So, as much as accountants may want to stick to what they know best for reporting leases, here are some limitations that show why Excel may not be the best solution going forward.

Can’t Ensure Data Integrity and Accuracy

One of the main reasons, and also one of the most important, for which Excel may not be ideal when adopting ASC 842 is related to its ability to ensure data integrity and accuracy. While it has proved to be an effective tool in delivering lease accounting reports, the fact that it relied on manual compliance strategies makes it extremely prone to inaccuracies due to human error. One wrong input in the spreadsheet can result in false data reports and inaccurate calculations that could throw off the entire lease accounting spreadsheet. Furthermore, since finance and accounting teams are not the only ones contributing to the spreadsheet, and that “track changes” isn’t much of an option in Excel, makes it extremely difficult to ensure data integrity across all teams involved and that the same data isn’t introduced twice or that it isn’t wrongly introduced. 

New Accounting Guidelines Too Complex

The purpose of the ASC 842 standard is to increase the level of accounting transparency by requiring companies to record all leases on the balance sheet, whether finance or operating leases, as well as the liabilities for the right and obligations created by those leases. As such, calculations regarding lease data are more complex, making it difficult to manage within an Excel spreadsheet. Among the challenges that come with ASC 842 compliance is determining the difference between lease and non-lease components and which of these needs to be combined or separated in the report. Unfortunately, this is something that can’t be done in an Excel spreadsheet using a function or formula, making it necessary for the accounting team to have to do all this manually, which is often based on misinterpretation.

Data Security and Risk Mitigation

When it comes to lease accounting data, data security is a key concern and priority for all companies. However, despite it being widely used by many companies, Excel doesn’t allow for more than a password-protected solution. And with spreadsheets being used by and shared across multiple teams within a company, having to also share the password leaves the spreadsheet prone to outside risk.

Furthermore, most of the knowledge regarding the overall structure and formulas used within the spreadsheet is usually the responsibility of one person. Meaning that if that person is to leave the company, all the knowledge regarding the lease accounting process for the company, leaves with them, making it tedious and difficult for the other teams involved to figure it all out. As such, with Excel unable to provide spreadsheets with the necessary security and mitigate risk, it’s simply not reliable in lease accounting.

Compliance and Audit Processes

With the ASC 842 standard, being able to track lease dates and terms, report key lease components and contract updates is necessary to ensure that key dates are never missed. However, an Excel spreadsheet makes it difficult to keep track of all due dates regarding costs, lease renewals, pre-payments and even contract provisions and maintenance schedules, which are all important and relevant to track to ensure compliance with the new standard. As such, spreadsheets may require more maintenance and extremely close monitoring to ensure the company never falls behind on any date, which can be extremely overwhelming and challenging for any person responsible for this.

Time and No Triggers to Review Spreadsheet

Creating a spreadsheet in excel requires a lot of time, sometimes even months, depending on the amount of data needed to be recorded and calculated. And unfortunately, given that it will more than likely not be error-free, more time will be required to not only fix the errors but first find them. As such, the entire process to create a spreadsheet can extend over a long period of time, sometimes making it hard to meet deadlines. Another pitfall of Excel spreadsheets is that people tend to rely on the same spreadsheets, rarely revising them or checking for accuracy or information that needs to be changed or updated. This can cause lease accounting reports to be inaccurate and in turn, require more manual work to be done to fix issues.

While Excel has definitely been an important software to have as an accountant, when it comes to lease accounting in corporate real estate, it might not be the solution for the future. Fortunately, there are new solutions available today that are meant to help accounting teams deliver lease information in an accurate, time-efficient, reliable and easily accessible solution. Lease accounting software not only allows for compliance with the new ASC 842 standard, but it makes accountants’ work easier and less tedious while centralizing all leases in a single platform that allows them to complete all calculations and provide all information required for reporting.

Yardi Corom is a simple and comprehensive accounting, lease and workplace management solution for CRE tenants. Our cloud-based software solution increases efficiency and accuracy across your entire lease portfolio: manage leases and subleases, track key lease data, centralize transactions and become FASB/GASB/IFRS compliant. To learn more, you can visit our website or schedule a meeting with our team.