Audit + Accounting: Summing It All Up

CPAs Calculating the Latest in Audit + Accounting News

A sigh of relief: accounting changes for leases

On July 17th, 2019, the FASB voted to give privately held companies until 2021 to follow the new lease standard, rather than having to implement it next year. Private companies can all let out a sigh of relief. The reasoning behind this decision comes down to the fact that changing from the old standard to the new standard is no small feat. Even public companies that could put teams of accountants together to work on adopting the new standard had difficulties implementing it. When it came down to it, private companies just don’t have the resources to make the changes as quickly, especially if you consider the resources already dedicated to implementing the major changes to revenue recognition that are effective this year.

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Although the biggest concern for private companies was the new lease changes, there were also other changes that were postponed for private companies, including the credit losses standard (Topic 326), and derivatives and hedging (Topic 815). When FASB met they discussed a two-bucket approach to implementing these new standards. The buckets are basically broken up into public companies and all other entities. The board decided that for these standards, any entity in bucket two will be afforded an effective date at least two years after the effective date of the bucket one (public) companies. See below for the new effective dates. Please note that these still need to go through the FASB’s standard exposure draft process before formal issuance of the changes, but it is expected that these should go through as is. It is also expected that FASB will provide a two-year effective date deferral for private companies when issuing future standards.

  • Credit Losses (Topic 326)
    • Public companies – Fiscal years beginning after December 15, 2019 (Calendar year end companies January 1, 2020)
    • All other entities – Fiscal years beginning after December 15, 2022 (Calendar year end companies January 1, 2023)
  • Derivatives and Hedging (Topic 815)
    • Public companies – Fiscal years beginning after December 15, 2018 (Calendar year end companies January 1, 2019)
    • All other entities – Fiscal years beginning after December 15, 2020 (Calendar year end companies January 1, 2021)
  • Leases (Topic 842)
    • Public companies – Fiscal years beginning after December 15, 2018 (Calendar year end companies January 1, 2019)
    • All other entities – Fiscal years beginning after December 15, 2020 (Calendar year end companies January 1, 2021)

Although the decision was made to postpone the implementation of this accounting change, do not procrastinate preparing for implementation! There are many different factors to consider and it will probably take more time than you think to implement the new standard. As you start to implement the new standard you will run into questions, concerns, missing information, and any number of other issues. It is important to find these issues early so you are not stressing out when the new deadline hits.

 

Travis McGee