You’ve likely heard about the lease accounting standard issued by the FASB, as it continues to shape how companies large and small record and report their lease agreements. We’re talking about ASC 842, or Topic 842, which governs how entities account for leases. The standard applies to public and private entities, including nonprofits, and it has been in effect for years. The urgency now is less about a first-time deadline and more about whether your processes, data, and systems are strong enough for ongoing compliance, clean reporting, and audit readiness.

There are many helpful, thorough resources on the Web to help you understand the intricacies of ASC 842, so we won’t try to replicate those here. Instead, we offer a high-level overview plus action steps finance teams should be reviewing now.

Why Lease Accounting Still Matters

ASC 842 closed a long-standing accounting gap that allowed many operating leases to stay off the balance sheet. Companies in industries such as aerospace, retail, and real estate could previously structure arrangements in ways that limited visibility into lease obligations. The standard requires most leases to be recognized on the balance sheet as right-of-use assets and corresponding lease liabilities, improving transparency for investors, lenders, and leadership.

Post-implementation reviews have found that ASC 842 largely delivered on its goal of greater transparency and comparability. At the same time, implementation and ongoing compliance costs have been significantly higher than originally expected, largely because companies had to change systems, gather complete lease data, and maintain more complex calculations over time.

What Finance Teams Should Review Now

The simplest and most effective way to sustain compliance with ASC 842 is a disciplined lease management and accounting process, often supported by purpose-built software. It is possible to manage compliance without a dedicated lease accounting application, but it can be time-consuming and risky, especially as lease volumes, modifications, and multi-entity structures grow. When we speak with clients about lease accounting, we typically recommend dedicated lease accounting capability once a company moves beyond a small number of straightforward leases.

A strong approach provides a central repository to track each of your leases. It then helps you manage those leases throughout their lifecycle by producing journal entries, amortization schedules, and the quantitative disclosures required for compliance. Useful capabilities include extensive reporting, critical date reminders, a clear audit trail, and the ability to store lease-related documents in one place.

Equally important is ongoing process quality. Areas that still challenge many teams include identifying embedded leases in service contracts, applying consistent discount rates, handling modifications and remeasurements, and keeping data complete across entities and locations. These are the issues that tend to surface during audits and period-end close if they are not managed throughout the year.

Keep the Process Sustainable

Lease accounting is no longer a one-time conversion project. As the business grows, opens new sites, renegotiates leases, or completes acquisitions, the lease portfolio changes. Finance teams need a process that can absorb those changes without recreating spreadsheet risk every quarter.

That means clear ownership of the lease inventory, consistent policy decisions, reliable inputs for calculations, and reporting that supports both internal decision-making and external disclosures. When lease data lives in disconnected files or depends on a few people who “know how it works,” readiness erodes quickly.

Take Stock Before the Next Close Cycle

If you have leases, it is worth reviewing your current state now rather than waiting for the next audit finding or close crunch. Confirm that your inventory is complete, that modifications are being captured, that disclosures can be produced reliably, and that the process can scale with growth.

If you have questions about lease accounting readiness or how to strengthen the supporting systems and processes, talk to our experts at BT Partners.