The ASC 842 Compliance Guide: What Every Commercial Real Estate Accountant Needs to Know

Lease accounting under ASC 842 is more than just a reporting update—it’s a shift in how businesses manage lease liabilities, financial disclosures, and compliance. If you’re still juggling spreadsheets or struggling to finalize year-end reports, this guide will walk you through the critical steps to get your lease portfolio audit-ready before closing the books.

Why ASC 842 Compliance Matters

ASC 842 fundamentally changes how companies account for leases, requiring most leases to be recorded on the balance sheet. This means:
- Greater financial transparency – No more off-balance sheet leases.
- Stronger controls & audit readiness – More detailed disclosures, including lease liabilities and right-of-use (ROU) assets.
- A shift from reactive to proactive lease management – Compliance isn’t just an annual check; it’s an ongoing process.

Missing key compliance steps can lead to inaccurate financial reporting, regulatory risk, and last-minute audit surprises. Let’s make sure that doesn’t happen.

✅ Step 1: Gather & Organize Lease Data

Your ASC 842 compliance starts with data accuracy. Here’s what to review:

• Identify all active leases – This includes embedded leases hidden in service contracts. If a contract includes the right to use an asset, it may be classified as a lease.
• Collect key contract details – Start and end dates, payment terms, renewal options, escalation clauses, and discount rates.
• Confirm lease classifications – ASC 842 differentiates operating leases vs. finance leases, and incorrect classification can skew financial statements.
• Track modifications, terminations, and extensions – Lease changes need to be updated in financial reports in real time.

💡 Pro Tip: The biggest compliance issue for commercial real estate teams? Not identifying embedded leases. If a vendor contract grants control over a physical asset, it could qualify as a lease under ASC 842.

✅ Step 2: Calculate Lease Liabilities & Right-of-Use (ROU) Assets

ASC 842 requires lessees to recognize lease liabilities and ROU assets on the balance sheet. Here’s what to calculate:

• Present value of lease payments – Apply the correct discount rate to determine liabilities.
• Lease liability & ROU asset values – These must be reported on financial statements.
• Amortization schedules – Finance leases require separate amortization of the ROU asset and interest expense, while operating leases use straight-line expense recognition.

💡 Why it matters: Incorrect discount rates can inflate or undervalue lease liabilities, leading to material misstatements in financial reports.

✅ Step 3: Ensure Proper Recognition & Disclosure

ASC 842 requires detailed footnote disclosures to provide transparency into lease obligations. Make sure your reporting includes:

• Total lease liabilities – Broken down by finance and operating leases.
• Weighted-average discount rates and remaining lease terms – Essential for investors and auditors.
• Maturity analysis of lease obligations – Future cash flows should be clearly outlined.

💡 Pro Tip: Cross-check lease accounting reports with financial statements to ensure consistency. Discrepancies between lease schedules and balance sheet reporting are a common red flag in audits.

✅ Step 4: Identify Common Pitfalls to Avoid

Many teams assume they’re compliant—until an auditor finds gaps in lease reporting. Avoid these common mistakes:

❌ Missing embedded leases – This is one of the biggest compliance risks under ASC 842.
❌ Incorrect lease classification – Misclassifying finance leases as operating leases (or vice versa) affects financial ratios.
❌ Using outdated discount rates – A slight miscalculation can throw off liabilities.
❌ Inconsistent lease data – Lease details scattered across spreadsheets lead to errors.

💡 Fix it now: Run an internal audit before year-end to catch and correct these issues proactively.

✅ Step 5: Automate & Streamline Compliance

ASC 842 isn’t a one-time project—it’s an ongoing compliance requirement. The easiest way to stay compliant? Eliminate manual tracking.

• Use lease accounting software – Centralizing lease data reduces errors and ensures calculations stay accurate.
• Automate lease liability and ROU asset calculations – No more manual spreadsheets or misapplied formulas.
• Schedule regular audits – Ensure compliance updates are reflected in financial reports.
• Consult with auditors proactively – Get ahead of issues before financial close.

💡 Why it matters: A single spreadsheet error could lead to material misstatements. Automating lease tracking ensures compliance stays airtight.

Stay Audit-Ready Year-Round

ASC 842 compliance doesn’t have to be overwhelming. With the right systems in place, you can eliminate manual errors, streamline lease reporting, and stay audit-ready—without scrambling at year-end.

Need a smarter way to manage leases? Spacebase automates lease tracking, calculations, and reporting—so your team can focus on strategic finance decisions.

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Brooke Colglazier

Marketing Manager