Perspectives

FASB tentatively changes effective dates for new accounting standards

This issue discusses the FASB’s recent tentative decisions to change the manner in which it staggers effective dates for major standards and to amend the effective dates in some of its recently issued or amended major accounting standards to give implementation relief to certain types of entities.

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Introduction

At its July 17, 2019, Board meeting, the FASB tentatively decided to change the manner in which it staggers effective dates for major standards and to amend the effective dates in some of its recently issued or amended major Accounting Standards Updates (ASUs) to give implementation relief to certain types of entities. Specifically, the Board tentatively decided to change the effective dates of standards on topics in the FASB Accounting Standards Codification (ASC) as follows:

  • Derivatives and Hedging (ASC 815): Defer the effective date for nonpublic business entities (non-PBEs) by one year.
  • Leases (ASC 842): Defer the effective date for non-PBEs by one year.
  • Financial Instruments — Credit Losses (ASC 326): Defer the effective date for (1) smaller reporting companies (SRCs) by three years, (2) non-SEC filer PBEs by two years, and (3) non-PBEs by one year.
  • Financial Services — Insurance (ASC 944): Defer the effective date for (1) SEC filers, excluding SRCs, by one year, (2) non-SEC filer PBEs and SRCs by three years, and (3) non-PBEs by two years.

For calendar-year-end entities, the changes can be summarized as follows:

Standard
Affected Group Effective Date as Issued Tentative Effective Date
Derivatives and Hedging (ASC 815) Non-PBEs January 1, 2020 January 1, 2021
Leases (ASC 842) Non-PBEs January 1, 2020 January 1, 2021
Financial Instruments — Credit Losses (ASC 326) SRCs January 1, 2020 January 1, 2023
  Non-SEC filer PBEs January 1, 2021 January 1, 2023
  Non-PBEs January 1, 2022 January 1, 2023
Financial Services — Insurance (ASC 944) SEC filers, excluding SRCs January 1, 2021 January 1, 2022
  Non-SEC filer PBEs and SRCs January 1, 2021 January 1, 2024
  Non-PBEs January 1, 2022 January 1, 2024


Details about the Board’s decisions and the affected ASUs are discussed below.

Volume 26, Issue 15 | July 18, 2019

Overview

At its May 2019 meeting, the FASB directed its staff to perform research and outreach on how the effective dates of certain recently issued major accounting standards would affect private companies, not-for-profit organizations, and smaller public companies. As discussed in the July 17, 2019, meeting handout, the Board learned that “although large public business entities (PBEs) may encounter difficulties in transitioning to a new standard, the challenges are magnified for smaller PBEs and nonpublic business entities (generally, private companies, not-for-profit organizations, and employee benefit plans).”

As a result of the FASB staff’s research and outreach, the Board tentatively approved a new “two-bucket” approach for determining the effective dates of major accounting standards. Under this approach, the buckets would be defined as follows:

  • Bucket 1 — All PBEs that are SEC filers (as defined in U.S. GAAP), excluding SRCs (as defined by the SEC).
  • Bucket 2 — All other entities, including SRCs, other PBEs that are not SEC filers, private companies, not-for-profit organizations, and employee benefit plans.

The FASB tentatively decided that a major accounting standard would become effective for entities in Bucket 2 at least two years after the effective date applicable to entities in Bucket 1 (subject to the Board’s discretion). Further, the FASB indicated that entities in Bucket 1 would apply the new accounting standard to interim periods within the fiscal year of adoption while entities in Bucket 2 would apply it to interim periods beginning in the fiscal year after the year of initial adoption.

Connecting the Dots

Historically, the FASB has issued standards with different effective dates for (1) PBEs and (2) all other entities. PBEs that adopted a major new accounting standard generally were required to apply the standard to interim periods within the year of adoption. Under the proposed two-bucket approach, certain PBEs (e.g., SRCs and non-SEC filers) would be included in Bucket 2 and therefore would not be required to apply the new standard in interim periods until the fiscal year after the year of adoption.

Note that the Board’s tentative decisions would not affect the relief granted under SEC rules related to the adoption of new accounting standards by emerging growth companies.

Next Steps

The FASB plans to issue two proposed ASUs that incorporate its decisions: one on the amended effective dates for the credit losses, derivatives and hedging, and leases standards and one on the insurance standard. Each proposed ASU is expected to have a 30-day comment period.

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Heads Up is a periodic newsletter that analyzes important accounting developments, such as new FASB and IASB pronouncements or exposure drafts.

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