FASB’s Post-Implementation Review of Leases (Topic 842): What Did We Learn?

Welcome back to the Genuine Learning Blog! Today, we’re diving into an important topic for anyone involved in accounting and financial reporting: FASB’s Post-Implementation Review (PIR) of the Leases standard, Topic 842.

Why the PIR Matters

As Melisa Galasso explains, every FASB standard goes through a post-implementation review to ensure it’s actually achieving its objectives. It’s a chance for FASB to look back, assess costs and benefits, and learn what worked and what didn’t. The idea is to continually improve the standard-setting process based on real-world feedback.

A Look Back: The Road to Topic 842

The review of leases isn’t something new—it’s been a long journey dating back to 2005, triggered in part by the fall of Enron and the need to address off-balance sheet financing practices. FASB and the IASB started a joint project, which included multiple discussion papers, exposure drafts, and extensive feedback from stakeholders. The result was Topic 842, issued in 2016, but implementation took time (and several adjustments) before public and private organizations finally adopted it.

Key Findings from the PIR

The review solicited input from more than 1,600 individuals through stakeholder meetings, advisory groups, and technical inquiries. Here’s what emerged:

• Enhanced Decision-Useful Information: The new lease standard brought significant improvements to both qualitative and quantitative disclosures within financial statements. Investors generally responded positively, noting that these disclosures improved their ability to make informed decisions.
• Addressing Regulatory Requests: Topic 842 directly responded to SEC concerns about off-balance sheet lease arrangements. Now, lease-related rights and obligations are front-and-center on the balance sheet, increasing transparency.
• A New Focus on Internal Controls: Many lessees found that implementing 842 required a deep dive into their leases and related processes—with procurement teams, legal, and accounting all needing to coordinate. This led to better understanding and stronger internal controls, a welcome byproduct.

The (Significant) Cost Factor

One of the consistent themes in the feedback was cost—both the initial implementation costs and the ongoing expenses tied to software, updated processes, and continued compliance. Many organizations underestimated the extent of system and process changes required, with lessees investing in specialized lease software and reevaluating contracts to ensure complete and accurate reporting.

Interestingly, for lessors, the impact was generally less dramatic, as the changes from the previous standard were more limited.

Areas of Ongoing Challenge

• Certain topic areas were more challenging than anticipated:
• Determining the appropriate discount rate
• Recognizing and measuring related-party leases
• Accounting for lease modifications
• Identifying embedded leases within existing contracts
• Sale and leaseback transactions
• Allocating costs between lease and non-lease components

The need for additional FASB guidance—for example, in related-party leases and modification accounting—highlighted the complexities some organizations faced.

So, Did the Standard Meet Its Goals?

Overall, Melisa reports that the PIR concluded Topic 842 met its primary objective: bringing greater transparency about leases to financial statements, as the SEC requested. Lessees and lessors now recognize their lease obligations, though the costs of implementation and ongoing compliance were higher than most anticipated.

FASB acknowledged the feedback and committed to applying these lessons—especially around system assumptions and process improvements—to future standards.

Key Takeaway for CPAs and Finance Professionals

• If you’ve implemented Topic 842 or are getting ready for your next round of staff training, pay close attention to:
• The importance of thorough contract review to identify ALL leases (including embedded ones),
• The need to coordinate documentation and internal controls across procurement, IT, and accounting, and
• The ongoing investment required in systems and staff education.

Continuous learning and adapting are key—not only to complying with Topic 842, but also to being ready for whatever comes next in the world of accounting standards.

Want to learn more or need support with staff training on leases or other standards? GLS is here to help you turn compliance into a valuable part of your practice!