Accounting Standards Updates Effective for Fiscal Years Beginning After Dec. 15, 2022

As we start the new year, it’s time to look at the many changes in Accounting Principles Generally Accepted in the United States (GAAP) that are effective for 2023 calendar year-ends. The following information summarizes Accounting Standards Updates (ASUs) recently issued by the Financial Accounting Standards Board (FASB) which are effective for fiscal years beginning after Dec. 15, 2022 for most nonpublic companies. These ASUs apply to all entities reporting under U.S. GAAP.

• ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and Related ASUs
• ASU 2021-01, Reference Rate Reform (Topic 848): Scope and ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848
• ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
• ASU 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations

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ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and Related ASUs

Topic 326 updates are commonly referred to as the Current Expected Credit Loss Model, or CECL. CECL applies to all financial assets (or a group of financial assets) measured at amortized cost. The CECL model replaces the incurred loss model and results in three key pillars used to calculate the estimate of credit losses. The three pillars are historical experience, current conditions, and reasonable and supportable forecasts. This ASU also expands disclosure requirements related to the allowance for credit losses. The guidance requires a modified-retrospective adoption approach, which will result in a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period the standard is adopted.

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ASU 2021-01, Reference Rate Reform (Topic 848): Scope and ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848

ASU 2021-01 clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Additionally, it amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

ASU 2022-06 impacts all entities that have contracts, hedging relationships, or other transactions that reference LIBOR. The guidance extends the use of reference rate reform under Topic 848 through Dec. 31, 2024.

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ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

The guidance in this ASU removes the second step of the two-step quantitative goodwill impairment test, which required the calculation of the implied fair value of goodwill. The amendments require the company to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, if any, not to exceed the total amount of goodwill allocated to the reporting unit. The guidance is not applicable if an entity is amortizing goodwill. Early adoption was permitted; therefore, many entities have already adopted this guidance.

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ASU 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations

This ASU applies to entities reporting under U.S. GAAP which participate in supplier finance programs. Supplier finance programs are arrangements where suppliers are paid by a third party in advance of the invoice date. This ASU expanded disclosure requirements and now requires that a company that uses a supplier finance program in connection with the purchase of goods or services disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. There are no disclosure requirements for suppliers, but buyers have the following additional disclosure requirements:

• Key program terms:
  • Payment timing and the basis used for its determination
  • Guarantees or pledged assets
• For obligations buyer has confirmed as valid:
  • Confirmed amount outstanding
  • Where obligations are presented on the balance sheet
  • Roll forward of obligations during the period

This ASU does not change recognition, measurement, or financial presentation of obligations and is applied retrospectively to each period presented, except for roll forward information which is to be applied prospectively.

If you have any questions or need additional information on how these ASUs may impact your entity, please contact a KSM advisor or complete this form.