How does Workday ensure compliance with ASC 842 for lease accounting?

Workday ensures compliance with ASC 842 by categorizing leases as operating or finance leases. This classification is crucial because ASC 842 fundamentally changes how leases are recorded on the balance sheet. Under this standard, companies are required to recognize a right-of-use asset and a lease liability for most leases, regardless of their classification as operating or finance. By accurately categorizing leases, Workday helps organizations track and report their lease obligations and associated assets, ensuring they align with the regulations set forth by ASC 842.

The other responses do not directly address the requirement under ASC 842. Recognizing leases merely as expenses does not meet the reporting standards set by this accounting principle, as it requires specific disclosures and treatment for both types of leases. Automatically expensing lease payments overlooks the necessary balance sheet entries that ASC 842 mandates. Generating tax reconciliation reports, although useful, does not pertain specifically to the compliance requirements of lease accounting under ASC 842.