Since the introduction of modern lease accounting standards like IFRS 16 and FRS 102 (Section 20 updates), businesses have been forced to rethink how they manage and report right-of-use (ROU) assets. What was once a straightforward operating lease entry has evolved into an ongoing accounting challenge—one that demands precision, automation, and careful compliance.

Understanding Right-of-Use Assets

A right-of-use asset represents a company’s right to use a leased asset—whether it’s a building, equipment, or vehicle—over the term of the lease. Under new lease accounting standards, businesses must record both the ROU asset and its corresponding lease liability on their balance sheets. This approach provides transparency but also adds layers of complexity to financial reporting.

Many businesses are now required to continually reassess lease terms, variable payments, and renewal options. Each modification—such as extending or shortening a lease—can impact the valuation of the ROU asset and must be accurately captured to ensure compliance.

Ongoing Management and Adjustments

Unlike traditional fixed assets, ROU assets require constant recalibration. Companies must adjust their records for:

• Changes in lease terms, such as renewals or early terminations.
• Revaluations, especially for property leases impacted by market fluctuations.
• Lease modifications, which can alter the asset’s carrying value and corresponding liability.
• Depreciation and interest expense recognition, ensuring both are properly split and reported.

To handle this, many finance teams are integrating lease management software that automates calculations and postings, minimizing human error and improving audit trails.

Leveraging Technology for Accuracy

The shift toward automation has been one of the most significant responses to the ongoing complexity of ROU asset management. Modern lease accounting software platforms—such as Trullion, LeaseAccelerator, and NetLease—help companies automate depreciation schedules, discount rate adjustments, and disclosure reports.

These tools also integrate with enterprise resource planning (ERP) systems like SAP, NetSuite, and Xero, ensuring seamless data flow between leasing, accounting, and financial reporting functions. This not only saves time but ensures that compliance obligations under IFRS 16 and FRS 102 are met accurately each reporting period.

Common Challenges Businesses Face

While technology helps, businesses still face ongoing challenges with ROU asset accounting. The most common include:

• Tracking multiple leases across international subsidiaries.
• Maintaining consistent discount rates and ensuring they reflect market conditions.
• Handling short-term and low-value leases, which may be exempt from capitalization.
• Balancing automation with manual oversight during audits.

Firms are addressing these issues through more robust internal controls, periodic reconciliations, and staff training to ensure that all finance teams understand how ROU assets flow through the books.

Strengthening Internal Controls and Audit Readiness

As businesses continue managing right of use assets, internal control frameworks have become essential for accuracy and transparency. Companies are now implementing standardized review cycles to verify that lease entries, depreciation schedules, and interest expenses remain correct throughout the reporting period. Internal audits often focus on testing these processes, ensuring the data feeding into lease accounting software matches actual contractual terms. Firms are also building audit-ready documentation, which includes detailed records of lease modifications, assumptions behind discount rates, and system-generated calculations. This ensures that when external auditors review financial statements, every adjustment to ROU assets can be justified and traced back to its source data.

Aligning Finance and Operations for Better Visibility

One of the biggest shifts in modern lease accounting is the need for cross-departmental collaboration. Finance teams are now working closely with procurement, facilities, and operations departments to keep lease data accurate and up to date. This alignment ensures that when a new lease is signed, renewed, or terminated, the financial implications are recorded immediately—preventing discrepancies and missed liabilities. Some organizations have gone a step further by introducing centralized lease management policies, requiring departments to report changes through standardized digital workflows. This not only improves compliance but also gives CFOs clearer visibility into the company’s lease obligations and long-term asset utilization trends.

The Future of ROU Asset Accounting

As lease accounting continues to evolve, the future lies in real-time tracking and AI-driven automation. Businesses are beginning to adopt predictive models to estimate the financial impact of lease renewals and modifications before they occur. This proactive approach allows for better decision-making and more accurate financial forecasting.

Ultimately, effective management of right-of-use assets is no longer just about compliance—it’s about maintaining transparency, controlling costs, and gaining strategic insight into a company’s leased portfolio. The businesses that invest in robust processes and modern software today will be best equipped to handle the ever-changing demands of tomorrow’s accounting landscape.