On July 17, 2019, the FASB Board voted to issue two exposure drafts proposing new effective dates for four major accounting standards issued in recent years. One exposure draft is expected to address the effective dates for accounting for leases, credit losses and hedging with a separate exposure draft addressing the effective dates for accounting for long-duration insurance contracts. Following approval by FASB, the proposed accounting standards updates (ASUs) will be issued with 30-day comment periods. Early adoption options will remain unchanged.
The FASB considered feedback from companies regarding the challenges of implementing the new revenue recognition standard as well as the other new rules on the near horizon, as the significant new accounting rules have created a considerable burden especially for private companies and smaller reporting companies.
The proposed effective dates for calendar-year-end companies follow:
- Lease accounting:
- Public business entities, employee benefit plans
and conduit bond obligors (no change) - Jan. 2019 - All other entities - Jan. 2021
- Public business entities, employee benefit plans
- Derivatives and hedging:
- Public business entities (no change) - Jan. 2019
- All other entities - Jan. 2021
- Accounting for credit losses:
- SEC filers, excluding SRCs - Jan. 2020
- All other entities - Jan. 2023
- Long-duration insurance contracts:
- SEC filers, excluding SRCs - Jan. 2022
- All other entities - Jan. 2024
The Board noted that the following challenges and related costs were considered in the decision to extend the effective dates:
- The availability of resources
- Timing and source of education
- Learnings from implementation issues encountered by larger public companies and SEC comment letters
- Application of difficult transition guidance often associated with a major standard
- Understanding and applying guidance related to additional standard-setting activities and education provided after a major standard is issued
- The development of sufficient information technology and expertise in developing and implementing new IT systems or system changes and effective business solutions and internal controls
It is important to stress that the intent of the proposed delay in the effective dates is to allow companies time to improve their implementation as well as post-implementation processes, educate stakeholders and employees, develop and/or evaluate vendor software solutions, and assess and revise related internal controls and business practices. Public companies which recently adopted the lease accounting standard have indicated that the implementation process was more time consuming and required more resources than originally anticipated. We encourage management to take this opportunity to fully assess implementation plans and resources for the new standards to allow for effective implementation.
