Lease Accounting Services
ASC 842 (IFRS 16) compliance: Identifying and accounting for all your lease obligations
ASC 842 transformed lease accounting, requiring most leases to appear on your balance sheet. Whether you’re reviewing your lease population for initial accounting compliance for an audit or assessing new leases or amendments as they occur, you may discover that your lease obligations are more extensive—and more complex—than you realized.
Common Lease Accounting Gaps
The challenge begins with identification. ASC 842 defines a lease as any contract conveying control of an identified asset for a period of time in exchange for consideration. For certain contracts identifying a lease is a relatively straight-forward assessment, for other contracts it might not be apparent that an agreement contains an embedded lease.
Hidden leases you might be missing:
- Equipment in outsourced manufacturing agreements
- Dedicated server space in cloud contracts
- Property rights embedded in service arrangements
- Long-term storage or warehouse arrangements
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Traditional Lease Complexities
Even standard office and equipment leases require detailed analysis:
- Lease classification: Operating versus finance lease determinations
- Discount rates: Determining appropriate incremental borrowing rates for present value measurements
- Lease terms: Evaluating non-cancellable periods and renewal options
- Variable payments: Accounting for contingent rent and other variable considerations
- Leasehold improvements and tenant allowances: Proper capitalization and amortization treatment
- Termination options: Impact on lease term and liability calculations
- Lease amendments: Identifying when a change represents a separate contract versus a modification, reassessing discount rates and lease terms, and remeasuring the ROU asset and liability accordingly
The Audit Readiness Reality
Companies preparing for audits often discover incomplete or non-compliant ASC 842 applications. Perhaps you’ve only identified obvious real estate leases while missing embedded leases. Or you’ve made classification determinations without proper documentation. These gaps create audit findings that can cause delays and control deficiencies.
Our Lease Accounting Process
to identify all arrangements meeting the lease definition, including those embedded leases that aren't immediately obvious. We review service contracts, manufacturing agreements, and other arrangements where you might control the use of specific assets.
determining classification, calculating the lease liability using appropriate discount rates, establishing the right-of-use asset, and documenting the lease term including assessment of renewal and termination options. We handle complex scenarios including sale-leaseback arrangements, subleases, and significant leasehold improvement accounting.
in Excel or utilize specialized lease accounting software for automation, depending on your volume and complexity. Our deliverables include technical memorandums supporting your conclusions, implementation schedules showing historical and go-forward impacts, and journal entries to properly record all lease obligations.
Ongoing Lease Management
ASC 842 compliance doesn’t end with implementation. Contract modifications, remeasurement events, and new lease agreements require ongoing analysis. We can provide continuous support to keep your lease accounting current or conduct periodic reviews to identify changes requiring accounting attention. Contact us to address your lease accounting needs.
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