By Colin Hannifin, Business Assurance & Advisory Services Manager
Update: On Wednesday, June 3, 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2020-05, which granted a one-year delay on the required implementation dates of the new lease and revenue recognition standards for certain entities.
Unanimous Decision Approving the Delay of Three Major Accounting Standards for Private Companies
On Wednesday, October 16, 2019, the Financial Accounting Standards Board (“FASB”) unanimously approved the proposal to delay the effective dates for three new major accounting standards.
In August, FASB formally proposed the delay of three new Accounting Standards Updates (ASUs):
- Accounting for Leases (ASU 2016-02);
- Accounting for Derivatives and Hedging (ASU 2017-12); and
- Accounting for Credit Losses (ASU 2016-13).
What are the Delayed Accounting Standard Updates?
As a result of the vote, the new lease standard will be delayed for one year and will now be effective for private companies and not-for-profits for annual reporting periods beginning after December 15, 2020 (2021 calendar year).
Accounting for Derivatives and Hedging (ASU 2017-12)
The new guidance on derivatives and hedging will be similarly delayed. Affected private companies and not-for-profits with a calendar year-end will be required to implement the standard in January 2021. This is one year later than the original effective date.
Accounting for Credit Losses (ASU 2016-13)
Accounting for credit losses will receive the most significant delay. For private companies and not-for-profits, the standard will now go into effect in 2023, a delay of two years. For smaller reporting companies (as defined by the SEC), the standard will also go into effect in 2023, a delay of three years.
The FASB also voted to align the effective date of new guidance aimed at simplifying the test for goodwill impairment (ASU 2017-04) with the new effective date for the credit loss standard.
Proposal to Delay Implementation of ASU 2018-12
The FASB also separately finalized a proposal to delay the implementation of ASU 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements of the Accounting of Long Duration Contracts. For private companies and not-for-profits, this standard will now be effective in 2024, a delay of two years.
The delays are intended to allow for private companies, not-for-profits, and smaller reporting companies to learn from the implementation of these standards at large public companies that can leverage more resources.
The delays also reflect a greater shift in FASB’s philosophy around the implementation dates of new standards, one aimed to give organizations with smaller accounting departments and fewer resources more time to learn and implement new standards.
FASB has directed its staff to prepare a new ASU that will officially change the effective dates. This ASU will then be subject to a written ballot by the board. The vote and finalization of the new ASU is expected in mid-November.
Additional Lease Accounting (ASC 842) Resources:
- Appropriate Discount Rates for Leases Under ASC 842
- Delay in Implementation of New Lease Standard?
- How Does ASC 842 Impact Construction Companies?
- What Construction Companies Should Consider When Implementing ASC 842
- Accounting for Office Leases under ASC 842
- FASB Reissues Targeted Improvements to Leases Standard
About the Author
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.