FAQ SERIES: IS SOFTWARE CONSIDERED A LEASE?
Updated: Mar 26, 2020
Many companies enter into arrangements with the right to use intangible assets like licensing agreements for software. But are these arrangements considered a lease?
Fortunately, under ASC 842 there is a clear, short answer: no. The right to use intangible assets is outside of the scope of ASC 842 (see ASC 842-10-15-1). Instead, companies should use the guidance in ASC 350 when accounting for arrangements including intangible assets like software.
IFRS 16 is a little more complicated. A lessee is permitted, but not required to apply IFRS 16 to leases related to intangible assets, including software. These leases were previously considered to fall within the guidelines of IAS 17, so the IASB decided to permit companies to account for intangible leases under IFRS 16. The IASB concluded that a more comprehensive review of the accounting for intangible assets (like software) is necessary before requiring that these leases be accounted for under the new standard.
Bottom line: you should always talk with your auditors to figure out how to handle software at your company.
NetLease is a complete lease accounting and management tool developed to operationalize compliance with ASC 842 and IFRS 16 standards. It supports lease reporting throughout the entire lease lifecycle and includes functionality like push-button reporting for FASB and IFRS disclosures, full lease automation, integrated AP management, a robust audit trail, lease modification management and lease detail and document storage. Unlike other solutions on the market, NetLease is ready and currently deployed by public, private, and international companies.
About the authors:
Adam Riches, CPA is the Managing Partner at Netgain Solutions
Nathan Smart, CPA is a Partner at Netgain Solutions
For more information on automating your lease accounting, schedule a conversation with one of our CPAs.