FASB Votes to Delay the Effective Dates of Certain Accounting Standards Including Leases and CECL
By Marc J. Giampaola, Director, Assurance Services
On July 17, 2019, the Financial Accounting Standards Board (“FASB”) voted to issue two proposals for public comment, which would delay the effective dates for certain major accounting standards affecting private companies, not-for-profit organizations, and certain smaller public business entities, by at least one year, including:
- Leases (Topic 842) (“Leases”).
- Financial Instruments – Credit Losses (Topic 326) (“CECL”).
- Amendments Made to Derivatives and Hedging (Topic 815) (“Derivatives”).
- Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“Insurance”).
The FASB will apply a two-bucket approach in order to stagger the effective dates for “major” accounting standards.
Bucket One would include Securities and Exchange Commission (“SEC”) filers, excluding Smaller Reporting Companies (“SRCs”) as currently defined by the SEC as either (a) companies with a public float of less than $250 million; or (b) annual revenues of less than $100 million and (i) no public float; or (ii) a public float of less than $700 million.
Bucket Two would include all other entities.
The proposed date to define an SRC would be as of the date a FASB standard (or amendment) is issued.
By applying a standardized two-bucket approach, SRCs and non-public business entities are expected to receive relief in the effective dates of certain new accounting standards of at least one year, and up to three years. One of these standards — CECL — has been a topic of concern for the American Bankers Association and lawmakers in the U.S. Senate and House of Representatives, which have introduced bills in recent months to delay CECL in order to conduct a study on the standard’s potential impact. The FASB didn’t discuss the possibility of a study at this meeting, and FASB spokeswoman Christine Klimek declined to comment about the possibility.
After discussing a two-bucket approach, the FASB proposed a delay in the effective date for the leases, CECL, derivatives, and insurance pronouncements, to be modified as follows (early adoption remains available for each pronouncement):
| Entity Type | Impact |
|---|---|
Public Business Entities (“PBE”) – Not-for-profit entities that have issued or are a conduit bond obligor for securities traded or listed, and employee benefit plans that file financial statements with the SEC. | No change to the leases and derivatives standards for these entities, including SRCs, as the adoption was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., calendar year-end entities have already adopted the standards). |
All Other Entities – Previously were required to adopt these standards effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. (Fiscal year December 31, 2020 ,for a calendar year-end entity, and quarterly periods beginning March 31, 2021). | All other entities are granted one additional year in the adoption of the leases and derivatives standards. The new effective date as proposed would be fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. (Fiscal year December 31, 2021, for a calendar year-end entity, and quarterly periods beginning March 31, 2022). |
| Current Effective Date | Proposed Effective Date – Bucket 1 Entities | Proposed Effective Date – Bucket 2 Entities | Summary Effect |
|---|---|---|---|
SEC Filers – Fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. (January 1, 2020, calendar year-end) | No change for SEC filers that are not SRCs; the effective date for these entities remains fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. (January 1, 2020, calendar year-end) | For SRC SEC filers, CECL will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. (January 1, 2023, calendar year-end) | SRCs will receive 3 additional years to adopt CECL, if approved. |
PBE – Fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. (January 1, 2021, calendar year-end) | Not Applicable | Fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. (January 1, 2023, calendar year-end) | PBEs will receive 2 additional years to adopt CECL, if approved. |
All Other Entities – Fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. (January 1, 2022, calendar year-end) | Not Applicable | Fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. (January 1, 2023, calendar year-end) | All other entities will receive 1 additional year to adopt CECL, if approved. |
| Current Effective Date | Proposed Effective – Date Bucket 1 | Proposed Effective – Date Bucket 2 | Summary Effect |
|---|---|---|---|
PBE – Fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. (January 1, 2021, calendar year-end) | SEC Filers that are not SRCs – The effective date for these entities extends to fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. (January 1, 2022, calendar year-end) | SRC SEC Filers – The effective becomes fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. (Fiscal year December 31, 2024, for a calendar year-end entity, and quarterly periods beginning March 31, 2025) | SEC filers that are not SRCs will receive 1 additional year to adopt Insurance, if approved. SRC SEC filers will receive 3 additional years to adopt Insurance, if approved. |
All Other Entities – Fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. (Fiscal year December 31, 2022, for a calendar year-end entity, and quarterly periods beginning March 31, 2023) | Not Applicable | Fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. (Fiscal year December 31, 2024, for a calendar year-end entity, and quarterly periods beginning March 31, 2025) | All other entities will receive 2 additional years to adopt Insurance, if approved. |
The proposals will be broken up into two separate amendments, one related to CECL, leases and derivatives, and a separate related to insurance. Each will undergo a 30-day public comment period. If the public’s comments are mostly favorable, the FASB will issue a final document on the decisions.
In closing remarks, FASB Chairman Russell Golden stated that FASB staff would be gathering data from companies that have already implemented leases and hedging, and those that implement CECL in 2020, where areas of these standards were confusing and require clarification, and to determine whether more cost effective implementation solutions may exist. The Board would then use this data to release additional guidance to help facilitate implementation for smaller companies.
ADDITIONAL CECL RESOURCES
To further assist with the CECL implementation, FASB issued a second question-and-answer document that addresses 16 frequently asked questions related to the CECL standard, including general CECL matters, use of historical loss information, reasonable and supportable forecasts, and reversions to historical loss information.
As always, we at Marcum are available to assist you through this process and to answer any questions you may have. Marcum will update this publication upon final FASB conclusions following the public comment period.
RESOURCES
FASB Meeting Handouts, July 17, 2019
CECL Second Q&A Document – July 2019
