Company context — and why ASC 842 spreadsheets eventually break
The client is a US multi-location services business at $85M revenue, operating from 32 locations across 14 states. The lease portfolio is 60+ active operating leases: 32 real-estate leases (offices, clinical sites, distribution points), 18 equipment leases (medical equipment, IT hardware, fleet vehicles), and 10+ smaller leases. Total undiscounted lease payments approximate $48M over remaining terms. ROU asset balance: ~$31M. Lease liability: ~$30M.
ASC 842 became effective for private companies in fiscal years beginning after December 15, 2021. This client adopted on the effective date with a homegrown spreadsheet that worked through Year 1, started cracking in Year 2, and produced material audit findings in Year 3. The spreadsheet was a 280-row, 15-column workbook that one senior accountant maintained personally. When she went on parental leave in Q3 of Year 3, the lease close ran 11 days into the next quarter and the auditor raised four findings.
- 60+ active operating leases across 14 states
- ~$48M undiscounted future lease payments
- ~$31M right-of-use asset balance
- ~$30M lease liability balance
- ~12 lease modifications per year (extensions, terminations, expansions)
- Annual external audit with debt-covenant compliance reporting
- PE sponsor running quarterly portfolio review
Before automation — a single 280-row spreadsheet
The lease workbook had grown organically. Each lease was a row, each future month a column. Discount rates were entered manually. Modifications required rebuilding the row from scratch and pasting in the new schedule. The auditor's three findings in Year 3:
- Three leases had inconsistent discount-rate methodology (incremental borrowing rate not properly documented)
- Two modifications were treated as new leases when they should have been remeasurements
- One lease termination was recorded prospectively when ASC 842 requires accelerated derecognition
- Disclosure schedule (5-year payment maturity) didn't tie to the underlying lease detail
The senior accountant maintaining the workbook spent ~30 hours per quarter on lease accounting and ~2 days per year on disclosure prep. When she went on leave, no one else could operate the workbook end-to-end.
What Ledger Summit implemented
An ASC 842 engine sitting on top of Sage Intacct, with documented logic for classification, measurement, modification handling, and disclosure preparation. Lease data lives in a structured database with full version history; postings flow to the GL via Sage Intacct's API.
- Lease classification engine (operating vs. finance) per ASC 842 criteria
- Initial measurement: ROU asset and lease liability calculation per lease
- Discount rate library (IBR by lease term, refreshed quarterly with documented methodology)
- Subsequent measurement: monthly liability accretion, ROU amortization, single lease cost
- Modification handling: extension, expansion, termination, partial termination, blend-and-extend
- Remeasurement triggers (variable rate change, residual value guarantee change, term assessment change)
- Lease incentive accounting (TI allowances, free-rent periods)
- Disclosure pack: payment maturity, weighted-average term, weighted-average discount rate, ROU/liability roll-forward
- Per-lease evidence pack with reviewer sign-off on every modification
ASC 842 mechanics — what the engine handles
ASC 842 has five core areas. Each requires deterministic calculation logic, not spreadsheet improvisation.
| Area | What it requires | How the engine handles |
|---|
| Lease classification | Operating vs. finance based on five criteria (ownership transfer, purchase option, lease term, present value, specialized asset) | Documented classification per lease at inception with reviewer sign-off |
| Initial measurement | Lease liability = PV of future payments at IBR; ROU asset = liability + prepaid + initial direct costs − incentives | Formulaic per ASC 842-20-30; documented IBR per lease |
| Subsequent measurement (operating) | Single lease cost on straight-line basis; liability accretes; ROU amortizes plug | Monthly journal entry generated per lease with full trace |
| Subsequent measurement (finance) | Interest expense (effective rate) + amortization expense (straight-line over useful life) | Monthly entries split by component |
| Modifications — same lease | Remeasure liability at new IBR; corresponding adjustment to ROU asset | Remeasurement engine with three branches: adjust ROU, gain/loss to P&L, partial termination |
| Modifications — separate lease | Treat as new lease with separate measurement | New lease record with separation logic and reviewer sign-off |
| Termination — full | Derecognize ROU and liability; gain/loss to P&L | Termination workflow with calculation and reviewer approval |
| Termination — partial | Reduce liability proportionally; ROU adjustment with corresponding gain/loss | Partial termination workflow with documented methodology |
| Variable lease payments | Recognize as incurred unless tied to index or rate (then in-substance fixed) | Variable payment classification engine; index-based payments remeasured |
| Lease incentives (TI allowance, free rent) | Reduce ROU asset; rent-free period reflected in straight-line | Incentive engine with allowable methodologies |
| Short-term leases | Optional exemption (≤12 months); recognized as expense as incurred | Short-term election tracked per lease; disclosure handled |
| Disclosure schedule | 5-year payment maturity, weighted-avg term, weighted-avg discount rate, ROU and liability roll-forwards | Auto-generated quarterly with full tie-out to lease detail |
Modification scenarios the engine covers
Modifications are where ASC 842 spreadsheets break first. The engine handles each modification scenario with deterministic logic and reviewer routing for judgment cases.
- Lease extension — same lease modification; remeasure liability at current IBR, adjust ROU correspondingly
- Lease shortening (term reduction) — same lease modification; remeasure with new term, gain/loss to P&L for difference
- Premise expansion (more sq ft) — assess separate lease vs. modification: separate if commensurate increase in payment + standalone use
- Premise contraction (less sq ft) — partial termination; reduce liability and ROU proportionally with gain/loss
- Rent abatement — separate from modification; recognize as variable lease payment in period
- TI allowance adjustment — adjust ROU asset; if before commencement, reduce ROU; if after, separate accounting
- Lease blend-and-extend — multi-step: terminate old, originate new, with each step's accounting
- Index-based payment increase — remeasure liability when index changes; ROU adjustment
- Residual value guarantee change — remeasure liability; ROU adjustment
- Termination for cause — full derecognition with gain/loss; potential lease termination penalty handled
- Sublease initiation — separate accounting for original lessee position; sublease treated as new lease
- Sale-leaseback — assess sale criteria; if sale, derecognize asset and recognize lease; if not sale, financing accounting
Alternatives considered — build vs. buy at 60 leases
| Option | Time to live | 3-year cost | Strengths | Weaknesses at this scale |
|---|
| LeaseQuery (dedicated lease product) | 3–4 months | $220K–$340K | Purpose-built, deep modification handling | Heavy implementation; license overhead at 60 leases |
| Visual Lease | 3–5 months | $180K–$280K | Strong real-estate focus; abstraction tools | Implementation depth same as LeaseQuery |
| Nakisa Lease Administration | 4–6 months | $280K–$420K | Enterprise-grade; SAP/NetSuite integration | Over-scoped for 60 leases |
| Sage Intacct native lease module | 2 months | $80K–$140K | Already in Intacct; one-vendor | Limited modification handling depth |
| Build on existing stack (selected) | 8 weeks | $110K–$170K | Right-sized; full ASC 842 control; auditor-friendly | Maintenance load on internal team |
For lease portfolios above 200 leases or with material foreign-currency lease exposure, a dedicated product is usually right. Below that threshold, the build pattern delivers comparable audit posture at a fraction of the cost.