Case Study
Building a Scalable Lease Accounting Process: Lessons from a CPA
By Melynda Love, CPA
About the Author
Melynda Love, CPA
Melynda is a Canadian CPA with over 15 years of experience in accounting, business, and technology. She began her career at MNP, LLP, where she provided assurance, tax, and IT consulting services to owner-managed businesses, non-profit organizations, Indigenous communities, government entities, and public companies.
In 2020, she relocated to California and joined Stripe, where for 5 years she designed scalable accounting processes across several corporate areas, including lease accounting, fixed assets, prepaid expenses, and operating expense accruals, while leading system implementations and designing effective SOX controls. She owned the Accounting workstream for the adoption of ASC 842 Leases and implemented Spacebase for lease accounting, partnering with the Real Estate team using the platform for lease administration.
Melynda returned home to Manitoba and now operates Love Accounting, an accounting and systems consulting firm focused on designing efficient, scalable accounting processes by implementing smart software, optimizing workflows, and leading operational change. Outside of her professional work, she serves as Treasurer for The GentleFolk, a non-profit organization with a mission to support local artists and musicians, and pursues her creative interests as a singer and songwriter with the band Ozconscious.
Executive Summary
As lease portfolios grow, many organizations discover their existing processes do not scale. The lease accounting standards ASC 842, IFRS 16, and GASB significantly increased the complexity, requirements, and operational burden of lease accounting. Transitioning to one of these standards or starting to report under them may introduce challenges and expose weaknesses in existing processes that, as volume and complexity grow, require either investment in time and effort or in a scalable lease accounting process.
Drawing on practical experience, this paper considers how to design a scalable lease accounting process which at its core is repeatable, accurate, and audit-ready. We will discuss common failure points, explain why scalability is important, and provide a framework for building a process capable of supporting even the largest, most complex lease accounting portfolios. While specific tools are referenced, the principles outlined apply regardless of the system selected.
"Ultimately, scalability in lease accounting can be summarized in one question: Can you add more work and it not be more work?"
Growing Without Growing Pains
Why Scalability Matters
As revenues grow, operating expenses increase to support the activities required to deliver products and services. Expanding operations requires additional headcount to carry out these activities, driving the need for resources such as leased office space, retail establishments, or manufacturing facilities. Real estate activity results in new leases, amendments, terminations, remeasurements, and renewals that require complex accounting. Accounting teams often absorb growing workloads with longer hours, increasing headcount, or extending close times to support inefficient and manual processes. Over time, this is unsustainable, costly, and risky.
True scalability is when transaction volume and complexity increase and the effort required to manage them does not increase at the same rate. If each new lease requires marginal additional effort, then the process is scalable.
Scalability stems from three fundamental attributes:
Repeatability
All period-end processes (monthly, quarterly, annual) follow the same defined process independent of individual contributors.
Accuracy
Correct formulas, calculations, and assumptions are applied pervasively across the lease portfolio, disclosures, and reporting requirements.
Audit-ready
Audit support and reporting is available at any time, resulting in cleaner audits, fewer adjustments and questions, and lower professional fees.
Successful audits build the confidence of investors, lenders, and board members, giving credibility to the financial statements. This may significantly impact the decisions of those stakeholders, such as raising capital, obtaining financing obligations to fund critical investments, or approving strategic opportunities. The impact of a scalable process extends far beyond day-to-day operations, as accurate data is a key driver in business decisions and ultimately, growth and sustainability.
Where Processes Break Down
Common Failure Points
Weak Cross-Functional Collaboration
The most significant failure point in a lease accounting process is lack of collaboration between Accounting, Real Estate, Legal, Finance, and Accounts Payable teams. In an environment where volumes continue to increase, cross-functional collaboration on a consistent, standardized basis is essential to scalability.
Lease accounting relies on the timely availability of complete and accurate real estate and leasing information. Real Estate may negotiate and sign complex agreements quickly, near or on a period-end, or without input from or collaboration with other teams. This results in a missed opportunity for stakeholders to perform due diligence, shape key terms, or prepare critical operations and analysis in advance, where:
- Accounting may need to research and document accounting treatment, prepare financial statement impact and disclosures, and conduct testing with external auditors in advance of recording a complex transaction. Without preparation, Accounting is forced to react quickly after the fact, risking financial statement errors, misstatements, and delays, while overwhelming limited team resources.
- Accounts Payable may not remit timely rent payments if the team is not aware of the payable. The company may not receive monthly invoices to action on, as the lease agreement is sufficient to create the obligation for payment without requiring a periodic invoice.
- Finance may inaccurately forecast lease expense and facilities costs, compromising cash forecasting and introducing risk into the decision making of executive leadership who rely on the accuracy of the data.
- Without proper due diligence, there could be legal ramifications and consequences upon entering the company into commitments, obligations, and agreements that may not have been appropriate.
Similarly, without a defined lease accounting policy, a company cannot effectively communicate Accounting’s requirements cross-functionally, leaving other teams unaware of how their activities impact the financial statements. The lease accounting policy establishes underlying assumptions and serves as a guide for interpreting lease-related balances and disclosures presented in the financial statements. Incorrect or inconsistent assumptions such as the application of practical expedients for ASC 842 adoption, discount rate methodology, or financial reporting and disclosure decisions, can result in miscommunications, misstatements, forecast inaccuracies, and audit findings.
Fragmented Data
Decentralized lease records spread across emails, shared drives, and disconnected systems compounds the impact of weak cross-functional collaboration. Without a centralized lease repository and system for sharing that information, it is challenging to assert the completeness and accuracy of the data which informs the lease accounting. Complex agreements where even one legal document was not read by the Accounting team may have significant reporting and compliance impacts.
In instances where a lease is renegotiated and amended, sometimes numerous times, complete information is paramount to establishing the treatment of the lease modification, particularly under ASC 842 where the accounting impact varies significantly in different circumstances. For example, if the amended lease agreement extends the term of an existing right of use asset and also grants the company the right to use an additional asset not included in the original contract (and the increase to the lease payments is consistent with the standalone price for the additional asset), the modification should be accounted for as a separate contract. If the lease agreement consists of multiple documents and the additional right of use is overlooked, Accounting may fail to account for the modification as a separate contract, resulting in flawed assumptions, incorrect calculations, and potentially material misstatements.
Spreadsheet Dependency
Despite the complexity of the lease accounting standards, many companies still rely on manual calculations in electronic spreadsheets. Excel was designed as a powerful, complex numerical analysis tool, not as a lease administration and accounting software. Common risks include formula errors, broken links, and manual data entry mistakes, making even the simplest of accounting leases challenging to calculate.
Poor version control and inconsistent naming conventions further exacerbate minimal cross-functional collaboration and decentralized lease data, compromising the integrity of audit support. In the current world of modern, cost-effective financial systems utilizing AI and automation, managing leases in spreadsheets is inefficient and an unnecessary risk.
Building for Scale Before You Need It
Components of a Scalable Process
The most successful lease accounting transformations are proactive, not reactive. Design for scale before you need it. The following sections outline the core components of a scalable lease accounting process.
Centralized Lease Repository
In partnership with the Real Estate team, implement lease administration software that serves as a centralized lease repository. Establish a structured intake and abstraction process that transforms all legal documents and agreements into a standardized format applied consistently across the lease portfolio. When amendments occur, ensure there is a simple and efficient process for timely uploads into the system, so changes are visible and accessible by all teams. A good system has appropriate access controls, encryption, auditability, and security to protect sensitive information.
Lease Accounting Policy
To effectively communicate Accounting's requirements across the organization, write a Lease Accounting Policy and obtain approvals from Accounting & Finance leadership. This policy defines the underlying assumptions that drive accounting treatment and serves as a guide for interpreting lease-related balances and disclosures presented in the financial statements. The policy should include transitional guidance and the application of practical expedients, a discount rate methodology, financial statement presentation and disclosures, and any other definitions needed to clarify how the company accounts for leases. Consulting with external auditors to validate the decisions in this policy is wise. A concise, cross-functional summary or "one-pager" should be written to support understanding and direct communication between teams.
Cross-Functional Collaboration Framework
Establish a foundation for cross-functional communication by formally defining the lease accounting life cycle and the responsibilities of each team. Below are critical activities to building a foundation of collaboration:
- Document the end-to-end process in a shared resource, using visual aids or process maps where helpful, clearly defining the roles and activities of Real Estate, Accounting, Legal, Finance, Accounts Payable, and any other stakeholders who either provide information or rely on it. If you’re a public company or working towards public-company readiness, you’ll need this documentation to build effective SOX controls.
- Assign one direct responsible individual per team and obtain formal acknowledgement or sign-off of the documented responsibilities. Designate a secondary representative per team to remain informed and participate when the primary person is unavailable.
- Schedule recurring meetings on a defined cadence, supported by rolling agendas and meeting minutes. Live discussion is extremely valuable, as it can surface contextual or peripheral information that may materially affect lease administration or accounting treatment.
The systems supporting the lease process should facilitate and support cross-functional collaboration. My team chose Spacebase, which offers an integrated platform including Lease Administration, Lease Accounting, Payments, Headcount, and Transactions modules, allowing all stakeholders to contribute within a shared environment where data and information flows seamlessly across functions.
- Real Estate, Legal, and Finance evaluate leasing opportunities in the Transactions module.
- When Real Estate creates a new Lease and uploads all of the relevant documentation, Accounting is notified to create the Accounting Lease, which builds the amortization schedule, journal entries, and relevant reports for financial reporting and compliance.
- Accounts Payable initiates periodic rent payments in the Payments module which two-way syncs with the accounting software (ERP) through a custom integration. Lease administrators approve the payments and lease accounting ensures accurate journal entries.
- Finance leverages Headcount for planning and forecasting.
Regular cross-functional meetings reinforced by system-driven workflows ensures alignment, promotes accountability, and supports informed planning for future lease-related activity.
Repeatable Close Process
With accurate data, cross-functional collaboration, and a well-defined lease accounting framework, design repeatable period-close accounting processes that absorb incremental lease activity without increasing close effort. New or modified leases should be prepared in the system with clear segregation of duties for review and approval documented within the platform rather than spreadsheets. Once approved, recurring monthly journal entries should be automatically generated and posted to the ERP. Month-end reconciliations should be automated to agree the trial balance from the accounting software to the system's ending balances. Periodic compliance disclosures, audit roll-forwards, and supporting schedules should be generated from the system on demand and present the same result regardless of when they are run. All periodic close activities remain consistent and fully automated as the lease portfolio increases.
Robust Internal Controls
For public companies or companies seeking public-company readiness, internal controls are necessary to ensure SOX compliance. The company must design, implement, and maintain robust internal controls over financial reporting to reasonably ensure the accuracy, completeness, and timeliness of financial information. It's important to define control ownership, segregation of duties, processes and policies, and preventative and detective controls. Regularly testing and evaluating these controls to remediate deficiencies reduces financial reporting risk.
When considering lease accounting software, review and understand the software provider’s SOC 1 report to gain comfort over their design and operating effectiveness of controls that are relevant to your company’s internal controls over financial reporting. Assess what complementary user entity controls may be required. Maintain an annual internal report assessing the vendor’s SOC 1 report and how your company addresses the user entity controls with links to support, testing, or formal reports.
For audit testing purposes, lease preparation, review, and approval should have clear segregation of duties recorded in a log within the platform. User permissions and controls over access should be easily managed by the Security, IT, or Financial Systems team with a system log of changes made, either in the lease software or in an IT-managed environment such as Jira or ServiceNow.
All audit related support and schedules should be accessible and generated on demand from the system. Any reports required for internal controls testing should have functionality to assert the completeness of the report. Roll-forwards and reconciliations can assert completeness of reports but often require more work to manually create. System-driven completeness methods are scalable, including row numbers or record counts, system-assigned unique identifiers for each row to ensure no missing records or duplicates, or comparing a preview of the report on the screen before export to the final exported report.
Design internal controls in parallel with repeatable close processes to maximize efficiency, audit success, and long-term scalability.
Technological Enablement
An overarching theme among all of the components is to have a technological solution to enable the scalable process. Excel is a powerful tool, but it doesn't facilitate cross-functional communication or provide assurance that the formulas or the numbers are accurate and compliant with any of the standards. Source a lease administration and lease accounting application for collaboration between teams and compliance with the required accounting framework and strong internal controls.
Maturity Model & Self-Assessment
Where Does Your Organization Stand?
Considering the components of a scalable lease accounting process above, take this diagnostic quiz to assess which stage of scalability your organization is in now.
Maturity Model of Scalability
Implementation Roadmap
A 90-Day Path to Scalability
Once you have identified your organization's current maturity stage, the next step is to define a clear path towards scalability. A 90-day phased approach with focused resources and disciplined prioritization can build the foundation for scalability within a fiscal quarter.
Centralize and Stabilize
Establish the core foundation by centralizing lease information, formalizing a lease accounting policy, and building a framework for cross-functional collaboration. For the centralized lease repository, consider integrated software that offers lease accounting and acts as a single source of truth with defined permissions and access controls for each user. Develop and formally approve a lease accounting policy defining assumptions, accounting treatments, and presentation and disclosures. Define roles across all relevant teams and implement appropriate controls. Schedule recurring cross-functional meetings to reinforce information sharing and accountability. This phase creates visibility, transparency, and trust in the data.
Standardize and Document
With accurate, reliable, and centralized lease data, build your lease accounting portfolio in the system. Integrate the system with your ERP to automate journal entries, reconciliations, disclosure reporting, and audit support. Standardize workflows for new leases, amendments, and terminations, ensuring that activity and approvals are captured and recorded in the system. Operate the new process in parallel with the existing accounting close process for at least one reporting cycle to validate accuracy, completeness, and control effectiveness before fully transitioning.
Automate, Monitor, and Measure
Shift focus to performance and continuous improvement. Track key success metrics:
- Data quality & completeness
- Close timelines & efficiency
- Controls & risks
- Lifecycle of a lease in days, from signing to recognition & reporting
Use these insights to refine workflows, strengthen controls, and address root causes of inefficiency or risk.
At any time, scalability and progress can be reassessed using the diagnostic quiz.
Conclusion
Scalability is demonstrated by accurate, repeatable, and audit-ready processes built on a foundation of components including cross-functional collaboration, strong data governance, and effective controls. When designed correctly, these processes allow organizations to absorb increasing lease volumes and complexity without increasing effort, and to instead, focus time and effort on continuous improvement, strategic opportunities, and business growth.
Technology is critical to enable a scalable process. Modern integrated lease accounting platforms such as Spacebase are built to centralize data, allow for collaboration between teams, and apply policies and controls across the lifecycle of the lease.
Ultimately, scalable lease accounting is not achieved by working harder, but by building systems and processes that allow the organization to grow with confidence and control.
Can you add more work and it not be more work?
The answer should be yes.