In July 2019, the Financial Accounting Standards Board (FASB) unanimously approved to propose delaying the effective date for a number of significant accounting standards for private companies and nonprofit organizations. Included in these proposed changes is Accounting Standards Update (ASU) No. 2016-02, Leases, 2016-13 Credit Losses and 2017-12 Hedging.
FASB began considering the delays in response to concerns from overwhelmed preparers. Many of those concerns were voiced in a letter the American Institute of Certified Public Accountants Technical Issues Committee sent FASB in May requesting a delay in the effective date for private companies for the lease accounting standard.
After a comment period, FASB finalized the new effective dates October 16, 2019. FASB plans to issue formal documents on the changes in mid-November. The new leases standard is to be effective for private companies for annual reporting periods beginning after December 15, 2020 (2021 calendar year). This is a one-year deferral of the effective date. The new hedge accounting standard is to be effective for private companies for annual reporting periods beginning after December 15, 2020 (2021 calendar year). This is a one-year deferral of the effective date. The new credit losses standard is to be effective for private companies for annual reporting periods beginning after December 15, 2022 (2023 calendar year). This is a two-year deferral of the effective date. Early adoption remains unchanged.
The standard change will impact not only the financial reporting but management should also consider the internal tracking of the leases and the impact the accounting change will have on existing and future debt covenants. We have been working with our clients to assist with implementing these new standards. This additional time can provide great benefits to companies that were struggling with how to implement multiple standards at the same time, including the new revenue recognition standard. Even though additional time has been provided, companies still need to be prioritizing this implementation. The time and resources it will take can easily be underestimated.
If you have concerns, questions, or would like help with implementation of any of these standards, please give us a call today.