Labor Costs of Implementing New Accounting Standards

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