According to the report, in response to ASC 842, the new lease accounting standard issued by the Financial Accounting Standards Board (FASB), the technology sector experienced a substantial increase in overall balance sheet liabilities, driven primarily by the recognition of lease liabilities. Exacerbating the trend, outside of a few pockets within the technology sector (e.g., semiconductors), most companies do not have sizable capital expenditures, resulting in “cleaner” balance sheets with fewer overall liabilities. However, now that companies have transitioned to comply with ASC 842, the annual percentage change in average lease liabilities for the technology sector has been less significant than in recent years, with only 15.7% growth.
“As more companies have adopted the new standards into their operational processes, it’s not surprising that we saw a less notable change in lease liabilities this year,” Justin Smith, CFO of LeaseQuery, said. “We expect this trend to continue, especially for companies that utilized a lease accounting software to navigate their post-transition audit, making it easier to immediately identify any hidden leases and unnecessary expenses.”
According to LeaseQuery’s recent post-ASC 842 survey, approximately one-third of companies used a lease accounting software for their first post-transition audit, and many of the respondents expressed how advantageous a software solution was during their transition to the new accounting standard. Furthermore, the data revealed in the company’s Lease Benchmark Report highlights the critical role of software in facilitating compliance and reducing spending, ultimately affecting a company’s bottom line.
As technology companies seek additional ways to reduce spending by investing in software, new challenges lie in the hidden costs associated with effectively managing spending related to software subscriptions and other contracts. LeaseQuery’s most recent brief emphasizes the critical role of a comprehensive software-as-a-service spend management strategy as the key to unlocking efficiency and regulatory compliance and reduced spending in the technology sector.
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