Key Challenges in Modern Lease Accounting and How to Overcome Them

Top 6 Challenges in Modern Lease Accounting (and How to Solve Them)

1. Incomplete Lease Data Capture

The problem:

Many businesses , especially those expanding quickly , don’t have a central lease repository. Leases are stored in emails, local folders, or with operations, not finance.

The result:

Key terms like renewal options, escalation clauses, or embedded services are missed, leading to inaccurate lease classification and liability measurement.

How to fix it:

• Implement a centralized lease intake process
• Use lease abstraction templates to capture standard data points
• Work with outsourced bookkeeping companies for CPA firms to review and organize lease contracts

🛠️ Tools: Excel-based lease trackers, cloud contract management systems, AI-driven abstraction

2. Incorrect Lease Classification and Term Assessment

The problem:

Teams often misclassify leases (operating vs. finance), especially when renewal/termination clauses are vague.

Impact:

Incorrect classification affects both income statement presentation and balance sheet obligations.

Solution:

• Train staff (and outsourced teams) in ASC 842 and IFRS 16 requirements
• Involve compliance officers in grey-area interpretations
• Use standardized decision trees for classification

🌍 CPA firms outsourcing accounting to India can create SOPs and flowcharts to help remote teams apply lease rules consistently.

3. Calculating the Right Discount Rate

The problem:

Most private companies don’t have readily available incremental borrowing rates (IBRs) and guess or use inappropriate rates.

The risk:

A small change in the discount rate can significantly affect the lease liability and ROU asset values.

Solution:

• Use third-party IBR calculators or partner with valuation firms
• Document all assumptions
• Work with outsourced accounting service providers trained in financial modeling to apply consistent discount rate policies

4. Handling Modifications, Terminations, and Reassessments

The problem:

Lease terms change , frequently. But many finance teams aren’t equipped to handle mid-term changes properly.

Examples:

• Early termination of a lease
• Addition of space or services
• Reassessment due to triggering events

Impact:

Improper handling leads to inconsistent reporting, non-compliance, or auditor pushback.

Solution:

• Track modification triggers systematically
• Automate remeasurement calculations
• Assign a dedicated lease accounting team offshore to handle monthly updates and reclassifications

5. Complex Journal Entries and Schedule Management

The problem:

Lease-related journal entries involve amortization of ROU assets, interest expense, lease liability payments, and potential remeasurements , all while syncing to the general ledger.
Manual Excel sheets don’t scale and are highly error-prone.

Solution:

• Use lease accounting software or automation tools
• Outsource GL reconciliation, amortization schedules, and JE preparation to expert teams

✅ Many outsourced accounting firms in India now offer lease accounting support as part of financial accounting outsourcing services.

 6. Audit Readiness and Disclosure Compliance

The problem:

• ASC 842 and IFRS 16 require detailed footnote disclosures, including:
• Weighted-average remaining lease term
• Weighted-average discount rate
• Maturity analysis of future lease payments
• ROU asset rollforwards
• Getting this wrong can delay audits or trigger restatements.

Solution:

• Maintain detailed lease ledgers and support documentation
• Assign outsourced teams to prepare footnote schedules
• Keep a rolling checklist for quarterly and year-end disclosures