Our GAAP flash is making a comeback! It’s good to be back writing this flash and if you know my flashes and me, you know that I LOVE to talk about the “Big 3” accounting standards! I think every flash I ever wrote had at least one article on the Big 3 – whether it was talking about what to expect or how to prepare, I included an article if I came across it. So, because it’s been so long since our last edition, I’d thought we’d get re-acquainted with each other and talk about……you guessed it, the Big 3! Our format is going to be a little different from our last flash, but don’t worry, the content will still be spot on!

ASC 606, Revenue from Contracts with Customers, and ASC 842, Leases

I want to start this party off by talking about ASC 606, Revenues from Contracts with Customers, (yeah, my parties are pretty exciting!). Yes, I know that ASC 606 has already been adopted by public companies as of January 1, 2018, but private companies are not required to adopt ASC 606 until January 1, 2019. So, there is still time for private companies to learn from the process that public companies are going through (and to also start preparing if they haven’t done so). And not surprisingly, as noted in this recent article in Accounting Today, 30% of private companies recently surveyed by MorganFranklin, have not started the process of adopting ASC 606 (as a side note, 9% didn’t even know what ASC 606 was, so good luck to those companies!). There seem to be mixed results from adopting ASC 606, so private companies should take note. It’s also important to be prepared and consider what investors (or other users of the financial statements) should be looking for when it comes to adopting ASC 606, which this article discusses.

The MorganFranklin survey also noted that 49% of private companies surveyed have not started preparing for the adoption of ASC 842, Leases, which is effective for private companies as of January 1, 2020. Public companies are required to adopt ASC 842 as of January 1, 2019, so while there is still some time for both private and public companies, it’s important to understand what your company needs to do to prepare. As noted in this article from CFO.com, about 21% of surveyed companies are prepared to adopt ASC 842. The FASB has been trying to ease the pain of adoption by tweaking ASC 842 guidance by providing an option not to restate comparative periods, the ability to combine certain components, and providing a practical expedient relating to land easements, which we just wrote about in this blog!

ASC 326, Financial Instruments – Credit Losses

The FASB’s new standard on accounting for credit losses, ASC 326 (Financial Instruments – Credit Losses), will require some major changes for banks, particularly smaller ones, as well as many companies that provide loans. This current expected credit loss (CECL) standard requires companies to measure all of their expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts. For SEC registrants, this standard is effective in 2020 and for private companies, the standard is effective in 2021. I like this article, which provides a great overall summary on CECL and why it was adopted.

Just like with ASC 606 and ASC 842, companies need to prepare for adoption in advance and analyze the information that is required to be reported. This recent article in Accounting Today, discusses the importance of analyzing loan level data, specifically focusing on what types of data will be needed and what systems will be required to capture the data. Even though your current focus might be on ASC 842, don’t leave CECL behind as 2020 will be here before you know it!

Tell us what you think

Hopefully, this post has helped jog your memory of the “Big 3” standards and what is on the horizon! Over the next few editions of the flash, we will be providing you with additional resources to help with your transition (or audit) of the Big 3. But in the meantime, we’d like to hear from you! Tell us what you think of our new flash format and what you’d like to see in the future.

Disclaimer  

This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.