Accounting EZLease

Lease Accounting Compliance – Pitfalls to Avoid

Sponsored by EZLease

With lease accounting projects, it’s critical to learn from the challenges other organizations had. Get insights into why these pitfalls matter and actions you can take to achieve sustainable compliance.


Now that it’s time to start your lease accounting and compliance project, it makes sense to leverage the experience of those who have already implemented. The first wave of adoption for the lease accounting standards began with ASC 842, IFRS 16 and public companies a few years ago. Since then, many private companies have already adopted to get ahead of the requirements and make the transition easier. And, government organizations are also starting to evaluate what it will take to become compliant with GASB 87.

As they each executed their plans, these organizations realized that their compliance project had a few hidden challenges and pitfalls. From ensuring the quality and completeness of lease portfolio data, to redefined policies and processes, each of these challenges can derail the journey to sustainable compliance. So, let’s walk through the key pitfalls and consider potential mitigation strategies. 

Pitfall 1: Incomplete lease portfolio

Why this matters – Most organizations who are adopting the lease accounting standards for the first time have never had a complete view of what they are leasing. Even smaller organizations discover pockets of leases that they weren’t aware of when they started their discovery process. Whether it’s because of the nature of transient equipment leases that are spread around locations, the work required to get a current view of real estate leases that may have changed significantly since they began, or identifying and analyzing embedded leases, getting the full picture isn’t always easy.

Actions you can take:

  • Give yourself plenty of time to go through the portfolio and lease discovery process, especially if your team is decentralized.
  • Remember that not everyone in your organization realizes what leases are – e.g., rental = lease!
  • Use internal systems like purchasing and accounts payable to find clues like recurring payments which might indicate “hidden” lease contracts.  

Pitfall 2: Poor policy documentation

Why this matters – A foundational component of a sustainable process is having the right policies in place. Being consistent in setting and applying policies around IBRs and materiality thresholds for leases, along with monitoring how leasing decisions are made in the first place are cornerstones of a sustainable process. Your auditor will want to know how you arrived at the IBR and the justification behind it. And, before any leases start, using a centralized lease vs. buy process ensures that everyone is using the same metrics for decisions.  

Actions you can take:

  • Work with your treasury department or your bank to build out an IBR policy and stick to it. Describe how and when changes will be made and the process for making those updates.
  • Set up a process to make lease vs. buy decisions based on a standard set of criteria.

Pitfall 3: Using spreadsheets to manage more than 10 leases

Why this matters - In a time crunch, many teams turn to quick and dirty solutions to meet deadlines, thinking that choosing and implementing the right tool will take too long. Almost everyone starts lease accounting with spreadsheets, but these are missing key functions that organizations need in order to become compliant, especially when lease counts go above 10. Without features like data validation, centralized storage of documents, automated journal entries, and pre-built reporting, organizations will find it hard to implement, and just as important, maintain accurate lease accounting.

Actions you can take:

  • Look for simple, easy lease accounting software that provides bulk import for leases, automated reporting, and self-service lease management.
  • Consider the cost of the time and risk spreadsheets bring when building the business case for software.

Pitfall 4: Treating the first audit like it’s your last

Why this matters – With new lease accounting requirements, it can be intimidating to prepare for the first audit. However, the first audit – and, more importantly those thereafter – can be easier with the right solution in place. Each audit will build on all the initial work done, from establishing complete and accurate lease data and documenting policy requirements, to showing comprehensive accounting. The automation that software and technology offer will make future audits relatively painless and just as accurate as the first.   

Actions you can take:

  • Work with your auditors ahead of time to understand what they require for the new standards.
  • Use technology to ensure your work is repeatable from period to period to make ongoing audits easier.

Pitfall 5: Leaving the project to the last minute

Why this matters – There is no shortage of important projects competing for your time. However, there are a few reasons not to procrastinate in adopting the lease accounting standards. It may take you longer than expected to get control of your lease data, a common problem faced by decentralized teams. Starting later means less time to test and confirm the accounting is correct, increasing the chances of difficult restatements. And, the consulting and advisory firms may not have bandwidth to help.

Actions you can take:

  • Build time into your project to identify and load leases.
  • Consider choosing technology that has a short implementation timeline.
  • For ongoing compliance, keep the auditor’s “provided by client” list in mind throughout each financial period to avoid the last-minute rush.


With your limited time and resources, it’s critical to make every milestone count in a lease accounting compliance project. Like many other projects, getting compliant with the lease accounting standards requires thinking ahead and planning for common hurdles like the ones above. By keeping these potential issues in mind from the beginning, it will be easier to beat the deadlines, keep costs down and ensure long-term compliance.