On August 15, 2019, the Financial Accounting Standards Board (FASB) issued a proposed accounting standards update to amend the dates when several major standards will become effective for private companies, not-for-profit organizations, and smaller reporting companies (SRCs). The proposal effects recently issued updates related to the following topics:
- Financial Instruments—Credit Losses, Topic 326
- Leases, Topic 842
- Derivatives and Hedging, Topic 815
The board will address amendments to the effective date for the recently issued update to Insurance, Topic 944 in a separate project.
During the July 17, 2019, board meeting, the FASB discussed how the challenges encountered in implementing a major standard are often magnified for smaller public business entities (PBEs) and nonpublic business entities.
As a result, the board voted in favor of developing a new two-bucket philosophy to stagger the effective dates of major standards between larger public companies and other entities.
- Bucket One: SEC filers, excluding SRCs as defined by the SEC.
- Bucket Two: All other entities—all other PBEs including SRCs, private companies, not-for-profit organizations, and employee benefit plans.
Under the two-bucket philosophy, a major update would first be effective for bucket one entities. The FASB would then consider a staggered effective date of at least two years after bucket one for all other entities included in bucket two.
It’s generally expected that early application would be permitted for all entities under this approach.
Proposed Effective Dates
Consistent with the new effective date philosophy, the proposed update seeks to amend the effective dates for recently issued updates related to Credit Losses, Leases, and Hedging to be for fiscal years beginning after the following dates:
For credit losses, determining whether or not an entity is eligible to be classified as an SRC would be based on an entity’s most recent determination in accordance with SEC regulations when the final update is issued. For example, it’s anticipated the determination date will be June 30, 2019, for calendar year-end companies.
The proposed update is open to a 30-day comment period, with comments due by September 16, 2019.
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Implementing a major standard can be a time-intensive process. For more information on how these proposed changes may affect your business and how you can best implement the standards, contact your Moss Adams professional.