Labor Costs of Implementing New Accounting Standards

51 Pages Posted: 18 May 2022 Last revised: 14 Jun 2022

See all articles by Luminita Enache

Luminita Enache

University of Calgary

Zhongwei Huang

Fudan University - School of Management

Rucsandra Moldovan

John Molson School of Business, Concordia University

Anup Srivastava

University of Calgary - Haskayne School of Business

Date Written: June 11, 2022

Abstract

While much research focuses on the informational benefits of new accounting standards, the costs of implementing new standards remain unclear. We examine the adoption of two new major standards: lease accounting and revenue recognition. We find increase in the number of accounting job postings, related to those standards, in standards’ issuance years. Firms most affected by new standards, measured by accounting complexity and early adoption behavior, post higher number of accounting jobs. We estimate incremental labor costs at about 30 percent of median audit fees for each standard for the most affected firms. These costs, as a percentage of their total employee cost, are higher for smaller firms, indicating greater regulatory-compliance burden. We provide large-sample evidence on the direct labor costs, and thus on the lower bound of implementation costs associated with new accounting standards. Our findings should interest standard setters as they evaluate cost-benefit tradeoffs before issuing new standards.

Keywords: financial reporting standards, Topic 606, Topic 842, job postings, labor costs, implementation costs

JEL Classification: J23, M41, M51

Suggested Citation

Enache, Luminita and Huang, Zhongwei and Moldovan, Rucsandra and Srivastava, Anup, Labor Costs of Implementing New Accounting Standards (June 11, 2022). Available at SSRN: https://ssrn.com/abstract=4110558 or http://dx.doi.org/10.2139/ssrn.4110558

Luminita Enache

University of Calgary ( email )

Calgary, Alberta
Canada

HOME PAGE: http://haskayne.ucalgary.ca/haskayne_info/profiles/luminita-enache

Zhongwei Huang

Fudan University - School of Management ( email )

670 Guoshun Road
Shanghai, 200433
China

Rucsandra Moldovan (Contact Author)

John Molson School of Business, Concordia University ( email )

Montreal, Quebec H3G 1M8
Canada
+1-514-848-2424 ext 2528 (Phone)

HOME PAGE: http://www.concordia.ca/jmsb/faculty/rucsandra-moldovan.html

Anup Srivastava

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

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