August 27, 2019
Delaying Effective Dates for Leases, Hedging, and Credit Losses
Lease Standard (ASU 2016-02, Leases; FASB Accounting Standards Codification [FASB ASC] 842)
The FASB tentatively decided (subject to comments received on Exposure Draft) to defer the effective date for all other entities by an additional year. Therefore, the Lease standard would be effective for all other entities (which includes private companies, NFPs, and employee benefit plans (EBPs) not included in the paragraph below) for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. This would change the effective date for those entities from calendar year 2020 to calendar year 2021. Early application would continue to be allowed.
Because the Lease standard already is effective for public business entities (PBEs); NFPs that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-the-counter market; and EBPs that file or furnish financial statements with or to the SEC, the FASB retained the effective date for those entities, which is fiscal years beginning after December 15, 2018 (calendar year 2019).
Point of Emphasis: As indicated above, NFPs that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-the- counter market would not be granted a delay in the effective date for the Lease standard under the proposed ASU. Those NFPs would need to implement the Lease standard for calendar year 2019.
CPEA Observation: As discussed above, the FASB did not delay the effective date of the lease standard for those entities where the standard is already effective. This population of entities includes SEC registrants who, generally speaking, have already adopted the Lease standard for interim financial reporting. However, we note that this population of entities also includes entities that do not produce interim financial statements in accordance with U.S. GAAP and are less likely to implement the Lease standard (or even started implementation). These entities would include for-profit conduit debt obligors, some larger private financial institutions, broker-dealers, and NFP conduit debt obligors. The FASB could have chosen to delay the effective date for any entity that has not produced interim financial statements under the new Lease standard but did not choose to do so. Given the “unanticipated costs and complexities” of the Lease standard, we think commentators should consider requesting the FASB provide effective date relief to those entities that have not yet adopted the Lease standard in interim financial statements as well.
Credit Losses Standard (ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments; FASB ASC 326)
The Credit Losses standard currently is not effective for any entities; early application is permitted for fiscal years beginning after December 15, 2018. Its mandatory effective dates are as follows:
1. PBEs that meet the definition of an SEC filer for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years
2. All other PBEs for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years
3. All other entities (private companies, NFPs, and EBPs) for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years
Under the proposed ASU, the mandatory effective dates for the Credit Losses standard would be amended to the following:
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PBEs that meet the definition of an SEC filer, excluding smaller reporting companies (SRCs) as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years
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All other entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years
Hedging Standard (ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities; FASB ASC 815)
Because the Hedging standard already is effective for all PBEs, the FASB retained the effective date for those entities, which is fiscal years beginning after December 15, 2018 (calendar year 2019), including interim periods within those fiscal years.
The FASB decided to defer the mandatory effective date for the Hedging standard for all other entities by an additional year. Therefore, the Hedging standard would be effective for entities other than PBEs for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. This would change the effective date for those entities from calendar year 2020 to calendar year 2021. Early application would continue to be allowed.
New Effective Date Philosophy
In the proposed ASU, the FASB articulates a new philosophy that would extend and simplify how effective dates for major standards are staggered between larger public companies and all other entities, including private companies, smaller public companies, NFPs, and EBPs.
The philosophy calls for a major standard to take effect first for larger public companies, with the FASB considering requiring an effective date for other entities at least two years after the larger public companies’ effective date. Generally, early application would be expected to be permitted for all entities.
CPEA Observation: The proposed new effective date philosophy would prospectively move non-SEC registrant PBEs (such as for-profit conduit debt obligors, some larger private financial institutions, and broker-dealers) and NFP conduit debt obligors from the earliest required adopters to the latest required adopters along with most private companies. This proposal does not address current differences in recognition and measurements (such as PCC alternatives) and disclosure requirements (such as those required by FASB ASC 606) currently required of non-SEC registrant PBEs and NFP conduit debt obligors.
Responding to the Proposed ASU
The CPEA encourages its members to comment to the FASB on the proposed ASU. Comments can be submitted in one of three ways: using the electronic feedback form on the FASB website, emailing comments to director@fasb.org, or sending a letter to: “Technical Director, File Reference No. 2019-750, FASB, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116.”
Stakeholders are encouraged to review and provide comments on the proposed ASU by September 16, 2019.
