As public sector entities across New Zealand prepare for the adoption of IPSAS 43, many finance and property teams are reevaluating their tools and systems for managing leases. Traditionally, spreadsheet tools like Excel have been the go-to solution for tracking lease agreements and calculating payments. However, IPSAS 43 introduces a level of complexity and ongoing compliance that makes relying solely on Excel risky, inefficient, and ultimately unsustainable. In this article, we examine why spreadsheets fall short under IPSAS 43 and why investing in dedicated lease accounting software becomes a compliance necessity.
Changes introduced by IPSAS 43
The introduction of IPSAS 43 signals a fundamental shift in lease accounting. Under this new standard, public sector lessees are required to bring almost all leases onto the balance sheet. This means recognising both a right-of-use (ROU) asset and a corresponding lease liability, something that was not required under the previous framework for many lease types. The standard also introduces nuanced requirements around initial recognition and measurement, the remeasurement of lease liabilities following modifications, and the use of appropriate discounting methods such as the incremental borrowing rate (IBR). Additionally, IPSAS 43 mandates detailed disclosures in financial statements, including roll-forward schedules and reconciliations. For public sector entities managing a large number of lease arrangements, often across departments and agencies, this significantly increases the volume and complexity of lease accounting tasks. Managing these tasks manually in Excel poses numerous limitations and risks.
The hidden risks and limitations of Excel
Spreadsheets are inherently manual tools, and this reliance on manual data entry and formula-based calculations introduces various risks. Errors in formulas, copy-paste mistakes, broken links, and version control issues are all common occurrences that can lead to material misstatements in financial reports. In the context of IPSAS 43, where precise calculations of lease liabilities and asset amortisations are critical, even a small error can compromise compliance.
One major shortcoming of Excel is its inability to handle lease modifications efficiently. Leases often evolve over time through renewals, scope changes, terminations, or renegotiated payment terms. Each of these events requires lease liabilities and ROU assets to be remeasured, an arduous and error-prone process if done manually in spreadsheets. Furthermore, ensuring these changes are correctly reflected in financial reports and audit trails becomes a time-consuming challenge.
Another issue is that Excel lacks any built-in compliance controls or safeguards. There are no system-enforced validation rules for key assumptions like the IBR, no workflows to standardise classifications, and no audit trail to track who made changes and when. This lack of visibility and control makes it extremely difficult to demonstrate compliance with IPSAS 43 to auditors and regulators.
Additionally, Excel is not designed for enterprise reporting. Preparing the necessary disclosures under IPSAS 43, such as lease maturity analyses, reconciliation of lease liabilities, or impact assessments, requires complex manual work that is not scalable. Consolidating lease data across departments, generating consistent journal entries, and producing audit-ready reports quickly becomes overwhelming without the aid of automation and integration.
The case for dedicated lease accounting software
To meet the demands of IPSAS 43 efficiently and accurately, public sector entities should consider transitioning to a dedicated lease accounting solution. Unlike Excel, these systems are purpose-built to manage lease data across its full lifecycle, from initial recognition to modifications and eventual termination, while ensuring compliance with complex accounting requirements. A robust lease accounting platform automates key calculations such as present value discounting, depreciation of ROU assets, interest expense on lease liabilities, and remeasurements. These platforms also centralise lease data in one secure, easily accessible repository, creating a single source of truth for all stakeholders involved in lease management and reporting. Critically, dedicated systems offer detailed audit trails, user permissions, and change tracking to support internal controls and external audits. They also allow organisations to model different scenarios, such as changes in lease terms or discount rates, before finalising entries in the general ledger. And when it comes to reporting, lease accounting software can generate IPSAS 43-compliant journal entries and financial statement disclosures at the click of a button, significantly reducing the time and effort required to close reporting periods. Furthermore, these solutions are built to scale, making them ideal for entities managing a high volume of leases or operating across multiple locations or agencies.
The long-term cost of staying with Excel
At first glance, continuing to use Excel may seem like the budget-friendly option, particularly for smaller teams. However, the long-term consequences of this decision can be costly. The time required to perform manual calculations, fix recurring errors, consolidate reports, and respond to audit queries adds up quickly. More importantly, the risk of non-compliance, whether due to inaccurate reporting, missed deadlines, or failed audits, can have serious reputational and financial repercussions for public sector entities. On the other hand, investing in lease accounting software not only reduces risk and increases accuracy but also enables finance teams to operate more efficiently and confidently. By freeing staff from tedious manual processes, these systems allow them to focus on higher-value activities like analysis, planning, and strategy.
IPSAS 43 represents a turning point in public sector lease accounting, bringing with it higher expectations for transparency, consistency, and control. While spreadsheets may have served well in the past, they simply cannot keep up with the demands of the new standard. For public sector entities looking to future-proof their compliance and improve their lease governance, now is the time to move beyond Excel. A dedicated lease accounting solution offers the automation, control, and scalability needed to meet IPSAS 43 requirements and to do so with confidence.
Book a demo with Nomos One to learn how our dedicated lease accounting solution can help your organisation prepare for IPSAS 43 implementation and support your lease accounting processes!
