Companies that report according to K3 have an increased risk of incorrect reporting if they wait until the last minute to review their leasing agreements. To optimize reporting efficiency, companies should continuously review and update their leasing agreements regularly throughout the year, instead of waiting until the end of the financial year. By doing so, potential errors in reporting that can lead to problems later on can be avoided.
Richard Nilsson, founder of Leasify, explains that financial leasing agreements involve a liability that decreases through amortization and an asset that decreases through depreciation. This results in a temporary difference that needs to be recognized as a lease expense, and tax is then added to this expense. Keeping track of all these items can be a challenge for companies and their accounting teams.
Difficult to manage spreadsheet
– To handle a leasing agreement correctly, a company must make a monthly calculation of the lease payments, interest, and amortization. This means that at least 20 different calculations per lease agreement are required every month. Since many companies have hundreds of different leasing agreements to manage, it can be a time-consuming task to ensure accurate reporting.
To avoid incorrect K3 reporting, it is important to have a spreadsheet per lease agreement that is continuously updated with any changes. By having updated and accurate information, one can ensure that the financial reporting is correct.
Richard Nilsson emphasizes the importance of making continuous adjustments in each lease agreement. By having a file where all figures are consolidated, you can ensure that the reporting is accurate. This simple step can help companies optimize their accounting process and ensure that they have correct information.
– Although you have built a spreadsheet to manage leasing contracts, the file can still be sensitive. There are not always built-in automatic controls that can warn of imbalances, and therefore, one must still be careful when working with the file. So, if you have built a professional spreadsheet, it can still require time and resources to manage leasing agreements and ensure accurate reporting.