FASB Formally Delays Effective Dates for Major Accounting Standards

The Financial Accounting Standards Board (FASB) has officially deferred the effective dates of new Accounting Standards Updates (ASUs) related to credit losses, leases, hedging, and long-duration insurance contracts with the issuance of ASU No. 2019-09, Financial Services—Insurance (Topic 944): Effective Date and ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates.

New Philosophy Regarding Effective Dates

The FASB has established a new philosophy regarding effective dates for major amendments to the Accounting Standards Codification, which will provide current and future relief to nonpublic entities in applying new ASUs. Major changes will first be effective for public business entities that are Securities and Exchange Commission (SEC) filers, excluding entities eligible to be smaller reporting companies (SRCs), as defined by the SEC. Going forward the FASB is expected to establish effective dates for all other entities that are generally at least two years after the larger public business entities. Early application will continue to generally be permitted for all entities.

The FASB’s new philosophy provides future relief to not-for-profit entities that are conduit debt obligors that have been required to adopt certain major ASUs, including ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and ASU No. 2016-02, Leases (Topic 842), at the same time as public business entities. It is anticipated that these entities will now be required to adopt ASUs at the later effective dates available to most nonpublic entities.

In addition, this provides future relief to other nonpublic entities as the effective dates of major standards will generally be staggered between the larger public companies and other entities by two years. This will allow nonpublic entities more time to analyze the impact of ASUs and implement new processes and systems, when required, to adopt major ASUs.

Finally, and likely of primary concern to entities currently, the new philosophy considered major ASUs with upcoming effective dates and identified certain ASUs in which to defer effective dates under ASU No. 2019-09 and ASU No. 2019-10 as detailed below.

ASU No. 2016-02, Leases (Topic 842)

• For all public business entities, not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and employee benefit plans that file financial statements with the SEC, ASU No. 2016-02 is already in effect, since the ASU was effective for fiscal years beginning after Dec. 15, 2018, and thus, the effective date remained unchanged.
• For all other entities ASU No. 2016-02 will be effective for fiscal years beginning after Dec. 15, 2020.

ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and, as a consequential amendment, ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

• For public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs, ASU No. 2016-13 and ASU No. 2017-04 are effective for fiscal years beginning after Dec. 15, 2019.
• For all other entities, ASU No. 2016-13 and ASU No. 2017-04 are effective for fiscal years beginning after Dec. 15, 2022.

ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

• For all public business entities, including SRCs, ASU No. 2017-12 was already effective for fiscal years beginning after Dec. 15, 2018. Therefore, the original effective date was retained.
• For all other entities ASU No. 2017-02 is effective for fiscal years beginning after Dec. 15, 2020.

ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts

• For public business entities that meet the definition of a SEC filer, excluding SRCs, ASU No. 2018-12 is effective for fiscal years beginning after Dec. 15, 2021.
• For all other entities, ASU No. 2018-12 is effective for fiscal years beginning after Dec. 15, 2023.

For questions on your entity’s eligibility for the deferred effective dates or how to implement these new accounting standards, please contact your KSM advisor.