Getting Lease Accounting Audit-Ready Under ASC 842

The Challenge

This client had a headquarters lease handled the simplest way possible: expensed as paid, with nothing on the balance sheet. It matched how the bookkeeper had always done it, and no one had flagged it as a problem until the company scheduled its first audit as part of a Series B financing requirement.

The auditors flagged it immediately. Under ASC 842, operating leases require a right-of-use asset and corresponding lease liability on the balance sheet, not just an expense on the P&L.

What We Did

We calculated the right-of-use asset and lease liability using the appropriate incremental borrowing rate, built the amortization schedule, and recorded the initial and ongoing journal entries.

We then built lease accounting into the recurring month-end close process, so ROU asset amortization and interest expense on the lease liability are recorded automatically each period.

The Results

Right of use assets and lease liabilities are now correctly reflected on the balance sheet, and the audit closed with zero findings related to lease accounting. Lease amortization is fully automated within the monthly close, so the schedule stays current every period without a separate effort to maintain it.

Why It Worked

Lease accounting is one of the more mechanical corners of GAAP. Waiting until the audit is scheduled to deal with it is waiting too long.

Series K Financial gets ahead of it: we inventory every lease, apply the standard correctly the first time, and fold the ongoing schedule into your close so it never becomes a fire drill.

Not sure your leases are ASC 842 compliant?

Contact Series K Financial for a complimentary lease accounting review. We’ll inventory your lease agreements and flag anything that needs correction before your next audit.