Managing Change Case Study: Adapting to FASB 842 accounting guidelines

15 March 2025

Managing Change Case Study: Adapting to FASB 842 Accounting Guidelines

Adapting to FASB 842, the new lease accounting guidelines, can feel like steering a massive ship toward a distant harbor. The rules intend to bring leases onto the balance sheet, fostering greater transparency for investors and other stakeholders. For larger businesses with sprawling lease portfolios, however, the transition process demands careful coordination and robust data management.

Yet, amid the challenge lies opportunity: a well-executed transition can uncover inefficiencies in lease administration, enhance forecasting, and even prompt more strategic use of your company’s assets. The key is to approach the shift with structured planning and a willingness to rethink old processes. This case study in change management offers some insights into how to make adapting to FASB 842 as simple as possible.

Forming a Cross-Functional Transition Team

It’s tempting to leave the transition to your finance department, but a one-dimensional approach acan lead to overlooked details or mismatched data. Leases often hide in legal contracts, procurement files, and property management spreadsheets. By assembling a cross-functional team that includes representatives from accounting, IT, operations, and legal, you pool diverse perspectives on everything from renewal clauses to system upgrades.

This collaborative mindset helps ensure every facet of the company’s lease obligations is captured. You’ll likely need to track down everything from real estate leases for corporate offices to equipment leases for specialized machinery. A coordinated effort not only keeps you on track but also reveals pockets of redundancy or missed cost-saving opportunities that a single department might not spot.

Gathering Accurate Lease Data

Centralizing lease data is the linchpin of a successful transition. For decades, many large organizations have managed leases through a hodgepodge of paperwork and isolated databases. Under FASB 842, you’ll need specific details—such as term lengths, payment schedules, and renewal options—to properly calculate right-of-use assets and lease liabilities. Begin by auditing every department where a lease might live. This process can be tedious, but it sets the foundation for accurate financial reporting.

Digital tools can help automate aspects of data collection, scanning agreements for key terms and storing them in a centralized repository. Thoroughness here pays off later; once you have a single source of truth for your leases, generating monthly or quarterly disclosures becomes far smoother.

Adapting Systems and Software

Manual spreadsheets can only take you so far. Robust lease accounting software tailored to FASB 842 can handle complex calculations, automate entries, and generate vital reports. Look for platforms that integrate with your existing ERP or financial software, minimizing the risk of duplicate entries or mismatched data. Some solutions also offer analytics that highlight anomalies or potential savings.

Before you settle on a system, consult your IT and accounting teams – both must be comfortable with the software’s compatibility and functionality. Implementation might involve data migration, user training, and possibly custom configurations. While the upfront effort can be significant, a well-chosen tool can save countless hours down the line and ensure consistent compliance year after year.

Key Steps in the Transition

Any project designed to enable change is based on sound planning and following some key steps. Adapting to FASB 842 will be much simpler if you follow these 5 key stages in the transition process.This roadmap gives you an aerial view of how to tackle each step without getting lost in endless detail. While every business’s timeline and priorities differ, most will find themselves repeating these steps at least once, particularly if lease portfolios grow through acquisitions or expansion into new markets.

Communicating with Stakeholders

Major accounting changes can unsettle investors, auditors, and even frontline managers unfamiliar with the new reporting landscape. Keep these groups informed of your progress—make announcements when major milestones like completing the lease inventory are reached. Provide clear explanations of how your balance sheet and income statements will shift under FASB 842. If your company is publicly traded, you may need to devote sections in annual or quarterly reports to explaining any volatility in key ratios.

Transparency builds confidence and signals that your organization is handling the transition responsibly. Internally, periodic check-ins with department heads ensure that lease-related decisions (like whether to renew or terminate specific agreements) align with overall strategy and compliance goals.

Balancing Compliance and Strategic Benefits

It’s easy to view the move to FASB 842 as purely a compliance exercise, but businesses stand to gain strategically as well. With a clearer view of your lease commitments, you can better evaluate the cost-effectiveness of leasing versus buying, consolidate underused assets, and forecast cash flow more precisely.

Some companies discover that renegotiating certain leases—especially high-value, long-term contracts—can yield major savings. Others find that adopting a centralized lease management system unveils operational inefficiencies they can then streamline. Whether your leases pertain to aircraft, data servers, or office buildings, using the transition to refine your lease strategy can give your organization a competitive edge in the long run.

Planning for the Future

After you’ve successfully adjusted to FASB 842, the work doesn’t end. Keep your new lease database updated whenever new agreements are signed or old ones expire. Periodically revisit your reporting processes to confirm that calculations remain accurate, particularly if new guidance or amendments arise. It also pays to stay aware of industry best practices and evolving technologies that could simplify your lease tracking.

As the regulatory landscape shifts, a proactive stance keeps your company from scrambling at the last minute. In the end, managing lease accounting under FASB 842 offers both compliance clarity and a platform for better resource allocation—a dual win that can benefit any large enterprise seeking to optimize its financial and operational footing.

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