Lease accounting in the public sector is often complex and resource-intensive, requiring government entities to manage large portfolios of leased assets, ranging from office spaces and vehicle fleets to IT equipment and public service facilities. With AASB 16 compliance requirements in place, councils and government organisations in Australia must maintain accurate financial reporting, track lease liabilities, and ensure complete data transparency.
However, many public sector entities struggle with lease data management, reporting accuracy, and classification issues, leading to inefficiencies, financial misstatements, and compliance risks. Unlike the private sector, where lease decisions are often profit-driven, government entities must balance financial responsibility with public service delivery. Without the right tools and processes in place, this balancing act becomes increasingly difficult.
Fortunately, technology is transforming lease accounting and lease management, helping government organisations streamline compliance, reduce risks, improve data accuracy, increase operational efficiency, and enhance financial decision-making. This article explores the top challenges in lease accounting for the public sector and explains how technology-driven solutions can help overcome these obstacles while promoting compliance with AASB 16 standards.
Poor data management and lack of centralisation
One of the biggest issues public sector faces in lease accounting is disorganised and fragmented data. Lease agreements are often spread across multiple departments, stored in spreadsheets, emails, or outdated systems that do not integrate with each other. This makes it difficult for finance teams to track lease obligations, update key lease terms, and maintain compliance with AASB 16. Inconsistent or missing lease data can lead to financial misstatements, missed payment deadlines, and poor audit preparedness.
To address this challenge, government entities should implement a centralised lease management platform that consolidates all lease data into a single system. Lease accounting software like Nomos One enables councils to store, track, and manage all lease agreements in a structured and easily accessible format. With real-time updates, automated data entry, and cloud-based storage, finance teams can eliminate manual tracking, reduce human errors, and ensure lease data remains complete, consistent, and audit-ready.
Accurate lease reporting and compliance
Government entities are subject to strict financial reporting and compliance standards, often requiring detailed disclosures on lease obligations. AASB 16 mandates that organisations recognise lease liabilities and ROU assets on their balance sheets, which can be challenging when lease data is fragmented or inaccurate. Errors in lease reporting can lead to financial misstatements that affect budget allocations, audit failures leading to increased scrutiny from regulators and oversight bodies, and non-compliance penalties, damaging the organisation’s credibility.
The best way to enhance reporting accuracy and maintain compliance is by adopting lease accounting software with built-in AASB 16 reporting capabilities. A robust system can automatically calculate lease liabilities and ROU assets, helping ensure precise financial reporting, generate standardised reports, including balance sheets, income statements, and cash flow statements, and provide audit-ready documentation, making it easier to meet regulatory requirements. With automated lease reporting, public sector finance teams save time, reduce errors, and ensure full compliance with AASB 16 regulations.
Managing lease renewals, modifications, and expirations
In the public sector, missing lease renewal deadlines or failing to track lease modifications can result in unexpected financial liabilities, legal issues, or operational disruptions. Without an automated tracking system, councils may overpay for leases that should have been renegotiated or terminated, miss important renewal deadlines, leading to service disruptions, or fail to account for lease modifications properly, causing compliance issues.
To avoid these risks, public sector organisations should leverage lease management software with automated alerts and renewal tracking. A comprehensive software solution has the capabilities to send automated notifications for critical lease milestones (renewals, terminations, or renegotiations) and track lease modifications in real time so changes are accurately reflected in financial statements, which enables better contract negotiations, as organisations can proactively assess leasing needs before renewal deadlines. By automating lease lifecycle management, government entities gain control over their lease portfolio, reducing financial risk and improving operational efficiency.
Inefficient audit preparation and risk management
Government agencies are frequently audited, and lease accounting is a key focus area. However, poor documentation, missing lease records, and inconsistent reporting practices can make audits stressful and time-consuming. Many councils scramble to compile lease data at the last minute, leading to delays, errors, and potential regulatory fines.
Using audit-ready lease accounting software helps public sector organisations establish strong internal controls and maintain complete, well-documented lease records. Features such as automated audit trails, digital contract storage, and AASB 16 compliance tracking enable finance teams to generate detailed lease reports on demand, ensuring a smooth and efficient audit process. Additionally, risk assessment tools help identify compliance gaps, allowing councils to take proactive measures to mitigate risks before audits occur.
Lack of transparency and cross-departmental collaboration
Lease management in the public sector involves multiple departments, including finance, legal, operations, and procurement. However, when lease data is inaccessible or inconsistently recorded, departments may work in silos, leading to poor decision-making due to incomplete lease insights, inefficient lease negotiations, increasing costs, and compliance failures due to a lack of oversight.
Cloud-based lease accounting platforms allow multiple stakeholders to access, update, and review lease data in real time. This enhances collaboration by ensuring finance teams have accurate lease data for budgeting and compliance, providing legal teams with instant access to lease agreements for contract review, and allowing procurement teams to evaluate lease terms and negotiate better deals. With centralised, cloud-based lease management, government teams work together more effectively, improving overall lease governance.
Leveraging technology for AASB 16 compliance
Public sector lease accounting presents unique challenges, from complex classification and financial reporting to compliance risks and inefficient manual processes. Traditional methods of lease tracking—such as spreadsheets and disparate systems—are no longer sustainable in an era of increasing regulatory scrutiny and financial accountability. That is why public sector must modernise their approach to stay compliant and efficient. The challenges of data management, lease classification, and reporting accuracy can no longer be managed manually. By investing in lease accounting technology, councils and government organisations can simplify compliance, improve financial accuracy, and enhance decision-making—ultimately leading to better financial stewardship and improved public service delivery.
By leveraging modern lease accounting software, public sector organisations can:
- Centralise lease data for better collaboration and data accuracy
- Automate lease classification and calculations, reducing compliance risks
- Generate real-time financial reports, improving transparency and decision-making
- Streamline lease modifications and adjustments, ensuring financial statements remain accurate
- Enhance audit readiness, reducing the risk of non-compliance and penalties.
Nomos One provides a tailored lease accounting solution for government entities, offering full AASB 16 compliance, automation capabilities, and real-time financial reporting. By adopting technology-driven lease management, councils and public sector agencies can increase efficiency, reduce errors, and maintain public trust through financial integrity and transparency.
If your organisation is looking for a better way to manage lease accounting, Nomos One is here to help. Contact us today to learn how our AASB 16-compliant lease management software can streamline your processes and ensure regulatory compliance.
