Attention: Accounting Rule Delays In The Works

KPM A&A Update link to blog.

26 Jul Attention: Accounting Rule Delays In The Works

On July 17, the Financial Accounting Standards Board (FASB) voted to issue a proposal that would delay several landmark accounting rules for certain companies. If finalized, the deferral would apply to new guidance for reporting leases, hedging transactions, credit losses, and long-term insurance contracts.

Summary of the changes

The following table summarizes key implementation date changes that the FASB unanimously voted to propose:

Accounting Standards Update Types of entities affected by the proposed date changes Current effective date for calendar-year entities Proposed effective date for calendar-year entities
No. 2016-02, Leases Private companies & non-profits 2020 2021
No. 2017-12, Derivatives and Hedging Private companies & non-profits 2020 2021
No. 2016-13, Financial Instruments — Credit Losses Smaller reporting companies 2021 2023
Private companies & non-profits 2022 2023
No. 2018-12, Financial Services — Insurance Public companies 2021 2022
Smaller reporting companies, private companies, & non-profits 2022 2024

The term “smaller reporting companies” refers to those that have either 1) a public float of less than $250 million or 2) annual revenue of less than $100 million and no public float or a public float of less than $700 million.

Unexpected delays

Private companies and non-profits often receive an extra year to implement major accounting standards updates, compared to the effective dates that apply to public companies. In a shift in its philosophy for setting reporting dates on major new accounting standards, the FASB wants to give certain entities even longer to implement the changes.

Why are these delays needed? Many entities continue to struggle with implementing the new revenue recognition guidance that went into effect in 2018 for public companies and 2019 for other entities. A possible deferral of other new rules would also allow smaller entities to learn from public companies how to implement the changes and it would give accounting software providers extra time to update their packages to support the new reporting models.

Proposal is coming soon

The FASB is expected to issue its proposal as soon as possible. Then, it will be subject to a 30-day comment period.

These deferrals, if finalized, would be welcome news for many organizations. However, they are not an excuse to procrastinate. Depending on your industry and the nature of your transactions, implementing the changes and educating stakeholders could take significant resources. Contact us before the implementation deadline to come up with a realistic game plan.