Lease accounting software keeps a record of every lease a company holds, as lessee or lessor, and turns the terms of each one into the numbers the accounting standards require: a right-of-use asset, a lease liability, a schedule of how both change each month, and the journal entries and disclosures that follow. It sits between the people who negotiate and administer leases and the accountants who book them.
What it does
Under IFRS 16, a lessee recognises assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value: a right-of-use asset for its right to use the leased asset and a lease liability for its obligation to pay. The standard took effect for annual periods beginning on or after 1 January 2019. The vendors listed below name the other standards they support on their own pages, most often ASC 842 and GASB 87.
The software takes in each lease's dates, payments, options and discount rate, often by reading the contract itself, and calculates the present value of the payments, the liability's unwinding and the asset's amortization. It posts or exports the journal entries each period, recalculates when a lease is modified, impaired or ended early, and produces the roll-forwards and maturity tables auditors and the notes to the accounts ask for. Lease administration, the other half of most products, tracks critical dates such as renewal and termination notices, and the rent actually paid.
Who uses it
Technical accounting and the controller's team own the calculations. Real estate, fleet and procurement teams keep the lease records current. Auditors review the schedules, often through read-only access.
The parts a typical product has
- A lease register with the contract and its key terms
- Contract reading that extracts terms from lease documents
- Calculation of the asset, the liability and the schedules under each standard
- Journal entries, posted to the ledger or exported for it
- Modifications, impairments, remeasurements and terminations
- Critical date tracking and rent payments
- Disclosure reports, roll-forwards and an audit trail
Where it meets other categories
Journal entries go to the ERP, and the lease schedules are reconciled in the close. Rent payments are made through accounts payable. Lease disclosures feed financial reporting, and the liabilities feed cash forecasts in treasury and FP&A. Auditors test the schedules as part of the audit.
Questions to ask a vendor
- Which standards do you calculate under, and can one lease be reported under two at once?
- How do you handle modifications, remeasurements and early terminations?
- Which ERPs do you post journal entries to directly, and which by export?
- Can you read terms from our lease contracts, and how is each extracted term checked?
- How do you track embedded leases found in service contracts?
- What do auditors see, and what reports do you produce for the notes?