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Step One

Embrace Lease Accounting Software

Move away from manual processes and spreadsheets. Opt for lease accounting software for efficiency, compliance, and informed decision-making. Software reduces risks and errors, especially with remeasurements and modifications. Choose a user-friendly solution with in-app guidance and deep lease standard knowledge.
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Step Two

Ensure Future-Readiness

Implement a program that helps you adapt to changing accounting regulations. Ensure new team members understand ASC 842. Provide resources for them familiarization. Next, document authorized signatories as part of your internal controls review. Evaluate how agreements undergo evaluation before signing. Something to contemplate before signing is if it’s logical to commit to a lease that adds a substantial Lease Liability to your balance sheet. 
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Step Three

Understand Lease Modifications

With the updated standards, managing leases involves potential remeasurements and reassessments. This could mean extending or shortening lease terms, adjusting assets or space, and changing lease payments.

Once a triggering event is identified, it’s crucial to ensure accurate accounting for new Right-of-Use (ROU) assets, determine appropriate discount rates, and establish effective dates. You may also need to reevaluate lease classifications. Remember, not every event requires written documentation. However, every modification impacts your contract’s original terms. 
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Step Four

Address Changes with Reassessments

Efficiently handle lease term reassessments and lessee purchase option adjustments. These events may stem from contractual obligations, new lessee decisions, or factors influencing the likelihood of extending the agreement.

During reassessment, reallocate consideration between remaining lease and non-lease components, adjust the discount rate to the remeasurement date, and reevaluate lease classification. If classification changes, adapt the remaining lease cost recognition accordingly.

For adjustments in amounts likely owed under RVG or resolution of contingencies, follow a similar process: reallocate consideration, use the pre-remeasurement discount rate, and adjust the ROU Asset without changing the classification.
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Step Five

Create a Sustainable Process

Build a systematic procedure to manage ongoing lease complexities:
  • check-circle-icon Stay proactive in managing lease complexities: Monitor updates, modifications, extensions, terminations, and impairments. Each requires different adjustments.
  • check-circle-icon Don’t overlook embedded leases within service agreements. New contracts should be reviewed and recorded correctly. Our embedded lease identifier can help.
  • check-circle-icon Stay accurate by reassessing assumptions about lease extensions and purchase options in response to triggering events.
  • check-circle-icon Account for any leasehold improvements during the reporting period and ensure proper accounting based on who funds them. If the lessee pays for improvements and the lessor provides some or all of the funds, it could be considered an incentive that should be included in the lessee’s ROU asset calculation.
  • check-circle-icon Bolster internal controls, data checks, and audit processes. Documenting procedures helps streamline audits and validating data regularly ensures leases are recorded accurately.

Read our resources and still don’t know where to begin?

Skip the school and the spreadsheets and go straight to software. LeaseCrunch’s accounting software tackles every aspect of accounting for leases while maintaining compliance with the various new accounting standards introduced every year. Get started today by signing up for a demo, or contact us with any lingering questions you may have.

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