Software Lease Accounting: A New Approach to Lease Management.

Introduction

Most businesses require equipment and vehicles to run their core operations. To procure these assets without incurring capital expenditure is a tool organizations adopt. Lessors are providing equipment and vehicles on lease programs to address this need.

Financial and regulatory compliance is increasing for both lessors and lessees. New accounting standards IFRS 16 and ASC 842, have made compliance mandatory regarding recognition on the balance sheet.

Software lease accounting solutions help lessors simplify, standardize, and automate their processes. In addition, it helps them ensure compliance and generate real-time financial analytics.

Understanding Software Lease Accounting for Vehicle and Equipment Lessors

1. What is Software Lease Accounting?

Manage and automate activities related to accounting for a lease using software lease accounting. Lessors track assets on a lease, comply with regulations, manage cash flow, and generate financial reports.

Without these tools, accountants manually calculate amortization schedules, sending bills, recording receipts, and accounting for assets and liabilities. These solutions help lessors comply with IFRS 16 and ASC 842, which are complex accounting standards.

2. Key Features for Vehicle and Equipment Lessors

• Asset management: track and maintain assets through asset lifecycle during and after the lease.
• Accounting: lease classification, compliance with standards, accounting for lease and assets
• Income and cash management: generate and manage income and payment schedules.
• Real-time visibility: real-time information for critical decision-making
• Mid-life changes: manage leases and asset modifications like extensions, early terminations, etc.

Impact of Technology on Vehicle and Equipment Lease Management

1. Automating Lease Workflows

Managing high volumes of leases through their lifecycle can be time-consuming and error-prone. Using lease accounting software to automate workflows like billing, payments, modifications, and accounting free up valuable resources to perform strategic activities.

2. Enhancing Compliance with Regulatory Standards

As regulators identify issues, they institute standards. For example, IFRS 16 and ASC 842 require software lease accounting solutions to remain compliant. 

3. Real-Time Data for Asset Management and Financial Decision-Making

Lessors need to optimize performance for leases and assets to meet their goals. Software lease accounting provides real-time insights to help them with this objective. 

Challenges and Future Directions for Lessors

1. High Initial Investment

For vehicle and equipment lessors, the cost of initial implementation of  software lease accounting can be a deterrent particularly for small and medium-sized lessors. Not only are costs high, but time of key personnel is an invisible cost.

2. Continuous Updates to Accounting Standards

As accounting standards evolve, lessors require constant changes to their lease accounting software to remain compliant. 

Conclusion

Vehicle and equipment lessors need to adopt innovative software lease accounting solutions that are both efficient and compliant with modern accounting standards.

As technology evolves, lessors expect AI-driven insights and predictive analytics to remain competitive in this dynamic market.