The Financial Accounting Standards Board (FASB) issued the report on Post-Implementation Review: Leases (Topic 842).
The Post-Implementation Review (PIR) process is an important quality control mechanism built into the FASB’s standard-setting process to evaluate whether a standard is achieving its objective by providing investors and other financial statement users with relevant information in ways that justify the cost of providing it.
“We recognize our stakeholders’ commitment to undertake a high-quality implementation of a major accounting standard and the level of effort necessary for stakeholders of varying sizes to undertake a significant accounting change,” stated FASB Chair Richard R. Jones and Technical Director Jackson M. Day in their opening letter. “While the Leases PIR process is complete, the FASB’s work supporting the application of the leases standard is not. We will continue to monitor and, if appropriate, make improvements to the standard.”
The report discusses how the FASB staff conducted the Leases PIR process, which included outreach with more than 1,600 individuals from diverse backgrounds and implementation support provided throughout the adoption of the leases standard. Using what was learned during the PIR process, the report describes improvements that were made to the leases standard and, more broadly, areas of improvement for future standard-setting.
The report observes that, overall, the leases standard achieves the objective of providing investors and other financial statement users with more useful information about a lessee’s leasing activities. However, the initial costs to implement the lessee requirements along with the ongoing costs to apply those requirements were significantly higher than the Board expected at issuance, primarily because entities’ existing systems and processes were often not able to account for operating leases on the balance sheet.
The report observes that investors are generally satisfied with the information provided under the lessor accounting requirements. Most lessor entities did not incur significant costs to either initially implement the lessor accounting requirements or apply the requirements on an ongoing basis.
