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FASB Proposes Delay in Major Accounting Standards

July 31, 2019

The FASB has proposed delaying effective dates for four key accounting standards including the lease standard and the derivative/hedge accounting standard. Learn more.

Attention private companies, nonprofit organizations and small reporting companies, the Financial Accounting Standards Board (FASB) has proposed delaying effective dates for four key accounting standards (accounting for leases, credit losses, hedging and long-duration insurance contracts). With the recent implementation of the complex revenue recognition standard, the FASB feels that the numerous new rules have created significant difficulties, especially for private companies who do not have the financial reporting staff to accomplish compliance.

This is consistent with FASB’s contemplation of a revised philosophy of pushing effective dates for such entities to two years past the public company effective dates for major standard changes, giving one additional year for companies to get enhanced processes in place.

Lease accounting- ASC 842

Check out our blog, written in February 2016 (when the changes were first introduced) for a detailed description of the changes to lease accounting.

The new leasing standard presented dramatic changes to the balance sheets of lessees, set to take effect January 1, 2019. These changes include….

  • New requirement for companies to record all leases as “right-to-use” assets with corresponding liabilities (no distinction between operating and capital leases is made on the balance sheet under the updated guidance)
  • Leases with terms less than 12 months may be exempt from being capitalized (to capitalize a lease means to record a lease obligation as an asset on the balance sheet).

What new effective date has been proposed?

For non-public business entities, the new effective date for calendar year end preparers would be January 1, 2021 if the proposed delay goes through. For calendar year end public business entities, employee benefit plans and not-for-profit conduit bond obligors, the effective date remains unchanged at January 1, 2019.

Derivatives and hedging- ASC 815

FASB issued a new standard in 2017 that is intended to make hedge accounting simpler for financial statement preparers and easier for financial statement users to understand.

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

  • Better align accounting rules with a company’s risk management activities.
  • Better reflect the economic results of hedging in the financial statements.
  • Streamline hedge accounting treatment.

The standard was originally set to take effect for public companies after December 15th, 2018 and for private companies, December 15th, 2019. The delay for the lease accounting standard also applies to derivatives and hedging. For calendar year end public business entities, the effective date remains unchanged at January 1, 2019. For calendar year end preparers (not public business entities) would be extended one year to January 1, 2021.

Why the delay?

The FASB says various factors led to the reconsideration of effective dates. This includes:

  • Not enough resources available
  • Not enough time to educate employees
  • The delay will offer the opportunity to learn from implementation issues described in large public company filings and Securities and Exchange Commission (SEC) comment letters
  • Difficult to apply transition guidance
  • Challenges in the development of IT system solutions, IT expertise and effective business solutions and internal controls
  • Preparers and users found hedge accounting rules burdensome

What’s next?

The proposal will be subject to a 30-day public comment period in August 2019 and is expected then to pass without hesitation, resulting in the FASB issuing final standards. We’ll keep you posted as guidance becomes available.

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