Most companies reporting under Local GAAP wait until the end of the year to review their leasing agreements. However, the risk of inaccurate accounting increases if you wait until the last minute to go through what has happened in each agreement during the year.
In a financial leasing agreement, you have a liability side that decreases with amortization, and an asset side that decreases through depreciation. There is thus a temporary difference that must be reported as income in the lease - and a tax must then be added to it. There will simply be a lot of items to keep track of, explains Richard Nilsson, founder of Leasify.
Spreadsheets difficult-to-handle
The accounting becomes even more complex if an agreement, for example, is terminated prematurely or extended. Eventually, you will end up with a large and unwieldy spreadsheet, and it becomes a challenge to put everything together for a correct annual report.
For a single leasing agreement, you must make a calculation of the leasing fees month by month, and you must also determine what interest and amortization will be. So, it's about at least 20 different calculations per leasing agreement per month, and many companies have hundreds of different agreements to account for.
Update continuously
To avoid the risk of getting incorrect results in K3 reporting, you need to have a spreadsheet per agreement that is always updated when there is a change.
- It is important that you make these corrections continuously. By doing it in each agreement, while having a file where you combine all the figures, you can get it right, says Richard Nilsson.
- But the file you have built up will still be very sensitive. This is because, for example, it does not have any built-in automatic controls or warns if something does not balance. And even though you have built a professional spreadsheet, you still have to expect that it will be time-consuming to work in, he adds.
