Shift from ASC 840 to ASC 842

Lease accounting has gone through some big changes in recent years — and if you're still navigating the move from ASC 840 to ASC 842, you're not alone. This shift has caused plenty of headaches, but it’s also opened the door to smarter, more efficient ways of handling lease data. Let’s break it down in plain English and explore how automation can help you stay ahead.

Why Lease Accounting Standards Matter

Lease accounting might not be the flashiest topic — but it’s one of the most important when it comes to understanding a company’s true financial picture. These standards guide how businesses record leases, and they affect everything from balance sheets to investor confidence.

With businesses operating across multiple locations, contracts, and currencies, it's more critical than ever to keep lease reporting accurate and transparent. That’s where the updated rules come into play.

A Quick Look Back: What Was ASC 840?

Under the old standard—ASC 840—leases were sorted into two buckets: operating and capital. If a lease didn’t meet certain criteria, it could be kept off the balance sheet and just mentioned in the footnotes. That meant some pretty major financial obligations weren’t fully visible.

This approach worked—for a while. But over time, it became clear that the lack of transparency was a problem. Stakeholders didn’t have the full picture, and comparing financials across companies was tough.

Enter ASC 842: Bringing Leases onto the Balance Sheet

To fix that, ASC 842 was introduced. The big change? Now, almost all leases longer than 12 months must be recorded on the balance sheet. That means companies have to track both a right-of-use asset and a lease liability—no more hiding big lease obligations in the fine print.

The goal is straightforward: increased visibility, improved comparability, and clearer financial statements.

What’s Different Between ASC 840 and ASC 842?

Let’s simplify the key differences:

In other words, ASC 842 shines a light on lease obligations that used to stay in the shadows.

What This Means for Your Financials

Bringing leases onto the balance sheet has ripple effects. You’ll likely see:

• Higher reported debt (because lease liabilities are now front and center)

• Shifted financial ratios, like debt-to-equity and return on assets

• Changed income statements, especially for finance leases

This can affect everything from loan covenants to executive KPIs. It's a good time to revisit how your metrics are calculated—and how your stakeholders interpret them.

Why Automation Makes All the Difference

Let’s be honest: manually collecting lease data from contracts, spreadsheets, and emails is a nightmare. That’s why more companies are turning to automation tools to handle the heavy lifting.

Automation can help you:

• Track leases across all locations and departments

• Calculate right-of-use assets and liabilities automatically

• Generate journal entries and disclosures with one click

• Stay compliant with evolving standards

  
  

The best tools also integrate with your ERP or financial systems, so you're not stuck re-entering data or juggling multiple platforms.

Real-World Lessons from the Field

Even the largest companies had a rough start with ASC 842 — mainly due to the massive data and system upgrades required. But once they brought in automation tools, things got smoother. They were able to:

• Centralized lease data

• Speed up reporting cycles

• Cut down on manual errors

• Keep audit trails clean and accessible

Even smaller organizations are seeing the benefits of using automation early. Some are partnering with consultants, while others are training internal teams to manage the transition confidently.

What Should You Do Next?

If you’re still on your journey to full ASC 842 compliance, here are a few practical steps:

1. Get a full inventory of your leases – You can’t automate what you haven’t tracked.

2. Evaluate your current tools – Spreadsheets won’t cut it long term.

3. Look into automation solutions – They save time and reduce risk.

4. Involve the right teams – Legal, procurement, and accounting should all be in the loop.

5. Plan for ongoing compliance – It’s not a one-and-done job.

Wrapping It Up

ASC 842 may feel like a burden — but it’s also an opportunity. It pushes companies to be more transparent, more organized, and more data-driven. And with automation on your side, the whole process can become a lot more manageable (and less painful).

Whether you’re mid-transition or already compliant, now’s the time to think bigger than just meeting the standard. It’s about using tech to make lease accounting faster, smarter, and future-ready.

Some FAQs

Q: What’s the main goal of ASC 842?
A: To bring all leases onto the balance sheet so financial statements are more accurate and transparent.

Q: Will ASC 842 affect my debt ratios?
A: Yes. Lease liabilities count as debt now, which may impact ratios like debt-to-equity and ROA.

Q: Can automation really help with compliance?
A: Absolutely. It can reduce manual work, improve accuracy, and make reporting way easier.