The Financial Accounting Standards Board, or FASB, posted an update regarding the Leases project. Post-Implementation Review on Leases: PMAC members provided feedback on the benefits and costs of Accounting Standards Update No. 2016-02, Leases (Topic 842), and related amendments (collectively, the leases standard). PMAC members, including investor members, generally stated that the leases standard achieved its primary objective of providing more transparent information to investors by requiring the recognition of operating leases on the balance sheet.
In addition, certain preparer members and an academic member observed that adopting the leases standard improved some entities' overall management of leases contracts. Some preparer members noted that initial implementation costs, including the costs to identify leases within their contracts and set up processes and controls, were significant and higher than anticipated. Those members also commented that ongoing compliance costs to apply the leases standard are minimal. Some members identified aspects of the leases standard that could be challenging, such as identifying leases embedded in contracts, determining and ongoing reassessment of the discount rate required to measure (or remeasure) a lease liability, and evaluating the classification of a lease.
Our Thoughts
The FASB’s update reflects a common trade-off seen with major accounting standards: significant up-front effort and cost in exchange for long-term benefits in transparency and process improvement. Requiring operating leases to be on the balance sheet has clearly achieved its main goal—giving investors a fuller, more accurate picture of a company’s financial commitments. This added transparency is a meaningful win for users of financial statements, who can now better assess a company's true liabilities and future obligations.
It’s also encouraging to see that, after the initial learning curve and higher-than-expected setup costs, most organizations are finding ongoing compliance to be manageable and not overly burdensome. This suggests that, while disruptive at first, the standard ultimately becomes part of the routine finance function.
That said, the reported pain points—like identifying embedded leases, determining the appropriate discount rate, and reclassifying leases — should not be overlooked. These challenges can lead to inconsistencies or errors if not addressed with proper training, technology, and controls. The standard may need further clarification or best-practice guidance in these areas to support preparers.
Overall, the FASB’s update highlights the positive impact of ASC 842 on financial reporting and lease management, but also points to the need for ongoing support to ensure consistency and efficiency in application. The feedback underscores the importance of careful implementation planning whenever a major new standard is introduced.
