ASC 842 was introduced to increase transparency by requiring companies to bring most leases onto the balance sheet. But in practice, the implementation has been anything but simple. In Episode 7 of The Beehive Podcast, “Mastering ASC 842: Navigating Lease Accounting Challenges,” we sat down with lease accounting experts Lord Gen Rilloraza and Gliezel David to explore how businesses are adapting to ASC 842—and what firms can do to help their clients stay compliant, audit-ready, and confident.
The Ongoing Challenges of ASC 842
From classifying lease components to uncovering embedded agreements, companies are still navigating ASC 842 with limited success. Some of the most pressing issues we have identified include:
- Distinguishing lease vs. non-lease components properly
- Measuring variable lease payments accurately
- Identifying embedded leases within broader contracts
- Accounting for lease modifications and business acquisitions
- Performing timely impairment assessments of ROU assets
These challenges can significantly affect financial statements, investor perceptions, and regulatory compliance. As Lord Gen notes, “Management should also pay extra attention to areas that require judgments and estimates,” emphasizing how small technical issues can quickly snowball if left unchecked.
Common Problems Encountered With ASC 842
Both Lord Gen and Gliezel shared that while most clients have implemented ASC 842 in form, applying it in substance is where they often fall short. Many missteps stem from underestimating the ongoing nature of lease accounting.
As Gliezel pointed out, “There are leases embedded within larger arrangements or contracts not explicitly tagged as leases,” such as equipment provided under service agreements or buildouts included in advertising contracts.
Another challenge arises with variable lease payments. According to Lord Gen, “Payments based on CPI are measured using the index or rate prevailing at lease commencement,” but companies often overlook this, leading to inaccurate liability recognition.
Furthermore, when it comes to changes in lease terms or business combinations, there’s a need for careful reassessment. “During acquisitions, the related leases will now be re-measured,” Gliezel explained, highlighting the importance of treating acquired leases as if they’re brand new under the acquiring entity’s accounting policies.
How Firms Can Turn ASC 842 Challenges to Strategic Opportunity
Rather than viewing ASC 842 as just another compliance checkbox, firms have the opportunity to turn it into a strategic advantage for themselves and their clients.
By providing targeted support, firms can:
- Help clients assess contracts holistically and flag embedded leases
- Advise on when to separate or combine lease components based on financial implications
- Guide accurate accounting for modifications and acquisitions
- Ensure impairment assessments are built into regular close processes
- Establish frameworks for internal controls and review mechanisms
ASC 842 will continue to evolve as new scenarios arise. But with the right processes and guidance in place, firms can help clients avoid costly missteps and turn compliance into opportunity.
As Gliezel aptly noted, “Although the new standards have been effective for a few years now, challenges still arise as we continuously comply.” That’s where advisors step in. Not just to interpret the rules, but to create clarity, build trust, and strengthen strategic decision-making.
Why Listen to Episode 7?
In this episode of The Beehive, you’ll learn about:
- How to identify lease and non-lease components effectively under ASC 842
- Key considerations for firms when dealing with variable lease payments
- The importance of identifying embedded leases in broader contracts
- Best practices for handling lease modifications and business combinations
- When and how to assess right-of-use (ROU) assets for impairment
- Strategies to strengthen your firm’s advisory capabilities while ensuring compliance
