Lease Accounting Standards Are Changing.
As you are probably aware, new leasing standards about to go into place. These standards are known as ASC 842 and IFRS 16, which require companies to place leases on the balance sheet. This includes a right of use asset and a lease liability. In addition, the lease expense will be made up of the interest expense and depreciation expense. Many companies are trying to figure out how they will track all of these new balance sheet items.
What Are My Options?
I have spoken with many clients about their needs. While many are looking for solutions specifically designed for the new standards, others are planning to use Excel and others are planning to simply use the fixed asset module of their ERP solution like Dynamics 365 or Dynamics AX.
However, there are some shortcomings to simply relying on your standard fixed asset module:
- What is the value of the asset? (You would need to manually calculate the Present Value of the Future Minimum Lease Payments)
- Fixed assets does not address the interest and liability side of the transaction.
- Depreciation for an operating lease is not straight line and does not use a traditional depreciation method.
- Many leases have options and purchase agreements, so they require adjustments in the future.
- Payment escalation and index based payments will need to be tracked in another system
While using your fixed asset module might seem like the easy solution, unless it has specific functionality for the new standards, you will probably find it does not meet all your needs.
At Crowe LLP, we recommend using a specific lease accounting solution. We have a solution built specifically for Dynamics AX and Dynamics 365. We would be happy to review your business needs and show you how Crowe Lease Accounting Optimizer can meet your needs.