LeaseAccelerator developed a testing application called the Lease Accounting Validator that automates the testing of leases under the new ASC 842 and IFRS 16 standards, as well as frozen GAAP.
With the initial deadlines passed on January 1st, 2019, public companies need to know that the lease accounting software they selected works for their specific portfolio and not just for a handful of generic or illustrative examples.
When the combinations of rent, classifications, financial variables, fiscal calendars and contract options are considered, there are almost 100 billion possible scenarios that can occur in real estate and equipment leases. Examples of the various elements which drive the different scenarios include the timing and frequency of payments, rent and contractual modifications as well as the planned and actual end-of-term options.
The Lease Accounting Validator analyzes each lease in a customer’s portfolio to identify the permutations of lease terms and fiscal periods as well as the expected and actual events that occur during the life of a lease. It then automatically executes the processes and reporting needed to calculate and then validate the accuracy of all of the journal entries throughout the lease from the initial commencement to the end of term. The Validator also automatically analyzes test results to ensure that the calculations tie out.
Without an automated testing system, customers, partners and software providers alike would need to hire staff to perform time-intensive test planning and execution activities. Test plans and scripts would need to be updated periodically as the composition of the lease portfolio changes and new use cases emerge. Test results would also need to be manually validated to ensure that account balances tie out when expected and that calculation results are accurate.
“This is a game-changing innovation for our clients”, said Michael Keeler, CEO of LeaseAccelerator. “The Lease Accounting Validator provides quantified evidence of the accuracy of our accounting calculations, which gives our clients and their auditors the transparency and confidence they need. LeaseAccelerator is the only vendor in the market able to meet this critical audit requirement for ASC 842 and IFRS 16 quality assurance metrics, which is why many companies have switched to LeaseAccelerator,” noted Keeler.
The new lease accounting standards, which began to take effect for some public companies at the end of 2018, change the way public companies report leases in their quarterly and annual financial statements. Many real estate and equipment lease obligations, previously only disclosed in the financial statement footnotes, will now be capitalized on corporate balance sheets. The International Accounting Standards Board estimates that over $2.2 trillion in assets and liabilities will transfer onto corporate balance sheets in the coming years.
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