ASC 842 has earned a reputation as one of the more difficult accounting standards to fully understand and implement. Nearly all organizations face or have faced challenges with it. It’s not just the complexity of the rules that creates friction — it's the significant workload involved in managing them. In this article, we’ll look at the key difficulties companies face with ASC 842 lease accounting and how to overcome them.

Generating reports

In accounting and finance, reports are essential. They’re the primary source of insight for management and boards, showing how a company is performing and whether it’s on the right track. Reports must be easy to generate, accurate, and able to process large volumes of data.

Here’s the problem: many companies still generate reports manually or rely on outdated software. Some experts recommend switching to dedicated ASC 842 lease accounting software when a company has about 50 leases, but in reality, the threshold is often much lower. If you manage 20–30 leases, you’ll already benefit from software automation.

Excel-based calculators no longer meet ASC 842 reporting requirements. With new demands around lease population, value inputs, and compliance, dedicated software becomes essential. To improve reporting accuracy and efficiency, your business should:

• Define the needs of management and stakeholders

• Eliminate manual work wherever possible

• Keep lease data organized and accessible across platforms

• Continuously review and improve reporting processes

These steps can be your foundation for creating accurate and audit-ready reports under ASC 842.

Calculating ASC 842-specific rates

If you’re using a spreadsheet instead of software, you’re probably struggling with calculations — particularly discount rates. One of the most complex components under ASC 842 is determining the incremental borrowing rate. This is essential for present value calculations and remeasurements.

Dedicated software like SOFT4Lessee stores and manages discount rate information, allowing quick recalculations if your lease terms change or if an agreement requires updates after a certain period. Without this functionality, even small changes can result in major rework.

Calculating these rates can also involve other departments. Legal, finance, or procurement teams often hold key information needed to finalize rate assumptions. While this can extend the process, involving the right people ensures the results are accurate and compliant.

Since discount rates vary between companies and situations, external benchmarks or past experiences often aren't enough. Internal policies and contract-specific terms dictate these rates — which is why having centralized data and purpose-built tools is critical.

Lease identification and categorization

Another major challenge in ASC 842 lease management is identifying leases and classifying them correctly. The line between what qualifies as a lease and what doesn’t is now less clear than under previous standards. This makes proper identification essential to successful implementation.

Start by creating a clear, phased timetable to evaluate all existing contracts. Assign sufficient resources to ensure you catch every potential lease. Don’t overlook anything.

The biggest hurdle is embedded leases — lease components hidden within service contracts. You’ll need to review all vendor agreements, especially recurring services, to determine whether any portion qualifies as a lease.

So, how can you identify an embedded lease? Focus on control and exclusivity. If a contract grants your business exclusive use of a specific asset, and you can’t substitute or exchange it for a similar one, it may be a lease. For example, if you’re using a forklift and can control its daily usage and timing, that’s often classified as an operating lease. Under earlier accounting standards, this level of detail wasn't required — but ASC 842 demands it.

Handling lease identification company-wide

Continuing with lease identification, US GAAP lease classification often requires involvement from multiple departments. To get a clear picture, involve team members who manage:

• Subscriptions

• Rent agreements

• Equipment leases

• Service contracts

• Recurring vendor payments

Start by building a complete list of contracts and recurring invoices. This will help you catch embedded leases and ensure full compliance with ASC 842. Proper classification is essential not only for reporting accuracy but also for long-term risk management.

Final thoughts

ASC 842 introduced a new level of complexity to lease accounting — from classifying leases to calculating rates and producing compliant reports. Many companies underestimate the scope of these changes until they are well into implementation.

Solutions like SOFT4Lessee help businesses overcome these challenges by automating calculations, streamlining lease identification, and simplifying report generation. Whether you're just starting or already working under ASC 842, leveraging software and interdepartmental collaboration is the best way to stay compliant and efficient.