Nearly a decade after issuing the lease accounting standard, the Financial Accounting Standards Board (FASB) is now taking stock of the lessons learned from the project, with compliance costs exceeding expectations becoming a focus of attention.

The standard, known as Accounting Standards Codification (ASC) 842, requires operating leases to be presented on the balance sheet as both assets and liabilities, consistent with the treatment of capital leases. Previously, operating leases were disclosed only as expenses in the income statement and in the notes to the financial statements. This change aims tohighlight the risks that leases may pose。

At Wednesday's meeting, FASB staff summarized the results of the post-implementation review (PIR). The review solicited feedback from more than 1,000 stakeholders, including investors and preparers. Staff reported that there is currently no need for fundamental changes to the lease standard, and investors generally recognize the new rules.

However, the review process also revealed deficiencies in the cost-benefit analysis conducted by the board when deciding whether to proceed with this standard change. Staff noted that both the initial implementation costs and ongoing application costs of the standard were "significantly higher" than expected at the time of issuance, as companies needed to adjust systems and processes to adapt to the new requirements.

Board member Christine Botosan said there was conflicting information about whether the dual accounting model adopted by the standard would be less costly, but in hindsight it was not. One lesson she emphasized was that the board should not focus only on the initial implementation costs of a new standard.

"Implementation costs are one-time, while ongoing costs will persist until the standard changes again," Botosan said at Wednesday's meeting. "Perhaps in weighing these factors, too much emphasis should not be placed on the direct costs that everyone can think of upfront... A multiplier needs to be applied to ongoing costs."

According to data from the iLeasePro blog on September 8, the average cost of implementing the new standard is approximately$450,000 per company, with many companies paying between $7,000 and $35,000 annually for compliance software.

Beyond costs, board member Joyce Joseph noted that the review process also demonstrated the benefits of the new lease accounting for investors in terms of comparability and transparency. She said the review also revealed how these rules affect businesses beyond financial reporting.

"The PIR helps reveal the potential real-world impact of accounting changes on companies' business decisions," Joseph said, noting that companies might shorten lease terms, incorporate more variables into lease payments, or abandon certain transactions altogether. "This is not just about financial statements; it actually affects how companies operate their leasing."

Staff also noted lessons learned from the impact of the transition period, which saw the effective date delayed twice for private companies in 2019 and 2020. Since then, the FASB has adopted new processes to better estimate the time needed for transition periods.

Board member Susan Cosper pointed out that the board may have gone too far in accommodating stakeholders. "Too much of a good thing can be a bad thing," Cosper said at the meeting. "I think the board had good intentions in trying to ease the burden, but sometimes it complicates things."