Setting the Stage: Six Years Later
It’s been more than six years since ASC 842, Leases, took effect for public companies—and almost four for most private ones. We’ve all lived through the learning curve, the system changes, and the debates about cost versus benefit. Now the Financial Accounting Standards Board (FASB) has stepped back to evaluate how well the standard is working through its post-implementation review (PIR). The review confirms that ASC 842 achieved its goal of greater transparency and comparability, though at a higher cost than anyone expected.
What the PIR Is (and Isn’t)
Every major standard eventually goes through this kind of health check. The PIR is designed to answer three key questions:
1. Did the standard accomplish its purpose?
2. Do the benefits justify the cost of implementation and compliance?
3. What can the FASB learn for next time?
For a standard as sweeping as ASC 842, that’s a fair test. The process falls under the oversight of the FASB’s Board of Trustees and relies heavily on feedback from preparers, users, and auditors who live with the standard every day.
Listening to the Market
Between 2016 and 2025, the FASB and its staff conducted surveys, technical inquiries, outreach sessions, and academic reviews. A public roundtable on September 12, 2025 brought together preparers, investors, and auditors to discuss benefits, costs, and challenges. Then, at the October 22 Board meeting, the staff summarized findings and previewed a draft report headed to the Financial Accounting Foundation (FAF) for final review.
What’s Working: Transparency and Consistency
Most users agree ASC 842 did what it was intended to do. Lease obligations are finally visible, leverage metrics are more comparable, and off-balance-sheet structuring has largely disappeared. Investors now rely on reported operating-lease liabilities instead of 'eight-times-rent' estimates. Disclosures—particularly the breakdown of lease cost, weighted-average terms, and discount rates—have also improved dialogue between companies and users. For lessors, the message was simple: the accounting continues to reflect the economics of leasing without unnecessary disruption.
Where It Hurts: Cost and Complexity
Where the praise stops is cost. FASB originally assumed compliance would be routine once systems were in place. In practice, implementation was far more expensive and resource-intensive—especially for private companies. Identifying embedded leases, extracting data, calculating discount rates, and deciding which renewal options to include required more time and coordination than expected. Many preparers hired consultants, upgraded systems, and added staff to meet deadlines. Audit fees also climbed. While most agree ongoing costs have stabilized, the implementation phase was anything but simple.
The Ongoing Pain Points
Even after several clarifications, a few challenges persist:
• Embedded leases – still time-consuming to identify, particularly for smaller organizations.
• Incremental borrowing rate (IBR) – determining it remains judgmental; the nonpublic 'risk-free rate' election helped but often inflated liabilities when Treasury yields were low.
• Lease modifications – extensions, terminations, and re-measurements continue to generate confusion.
• Sale-leasebacks and related-party leases – areas where practice and theory still diverge.
Some stakeholders also question whether the disclosure requirements go too far, providing more volume than insight.
Private-Company Viewpoint
Private companies have been the most vocal critics. Many argue that the compliance effort outweighs the benefit, especially since their primary users—lenders and sureties—already consider lease commitments in credit analyses. Limited staff and system capabilities made adoption harder, and smaller entities felt the cost burden most. The Private Company Council (PCC) remains in active dialogue with the FASB on potential simplifications. While the PIR doesn’t call for major rewrites, targeted improvements—such as easing embedded-lease assessments or expanding discount-rate elections by asset class—appear likely.
What Comes Next
The FASB staff is preparing a full PIR report modeled on the prior Revenue Recognition review, summarizing outreach, benefits, costs, and challenges. The report is expected to be presented to the FAF Trustees before the end of the year, followed by public release shortly thereafter. Don’t expect a wholesale redo of ASC 842. The Board appears comfortable with the core model but open to targeted clarifications or simplifications, especially for private companies. Any next step will be incremental, not structural.
Implications for Lessors and Practitioners
For operating lessors, the takeaway is stability. The accounting works, but the lessee side continues to evolve. Customers are getting more sophisticated in measuring and disclosing lease obligations, improving comparability across industries. Still, those of us in long-lived-asset leasing—rail, auto, and ground-support equipment—should watch the next phase closely. Clarifications around modifications, renewal options, or residual-value assumptions could influence deal structures and pricing, particularly as ESOP and synthetic-lease strategies gain traction.
Bottom Line: What It Means
The FASB’s review of ASC 842 confirms what many expected: the standard achieved its transparency goal and leveled the playing field, but at a steeper-than-anticipated cost. The heavy lifting is done; now the focus shifts to refining and simplifying, particularly for private entities. For preparers, that’s a win. For users, it validates that the visibility gained was worth the effort. And for the leasing community, it’s a reminder that standards evolve long after implementation—one PIR at a time.
In Summary
• ASC 842 delivered on transparency and comparability.
• Implementation costs were far higher than expected.
• Embedded leases, discount-rate judgments, and modifications remain challenging.
• Private-company simplifications are likely next.
• No overhaul ahead—just fine-tuning.