Back in November 2019, the FASB issued ASU 2019-10 which made headlines in the accounting world. The big news was that the effective dates for the new accounting standards on hedging, leases, and the current expected credit loss model were extended for private, and even a few public, entities. We wrote a blog about it when it was still in proposal phase; If you missed it, here is a summary of the extended effective dates (please note that the chart assumes calendar year-end reporting and the red text indicates no change):
In case you were wondering, an “SRC” is a “Smaller Reporting Company”. We’ll talk more about those in a minute.
With all the excitement around the extended effective dates, another part of ASU 2019-10 went unnoticed by many. That was the announcement of the simplification of effective dates for future major standards by instituting a “two bucket” approach. So, ASU 2019-10 contained even more good news as compliance with new standards going forward should also be easier! This simplification was the result of feedback obtained from stakeholders and the FASB’s own implementation monitoring program. Through these efforts the FASB realized the challenges faced by private companies, not-for-profits, and smaller public companies with implementing major new standards. The resulting “two bucket” simplification can be summarized as follows:
As you can see, the first bucket includes public business entities that are SEC filers, with the exception of smaller reporting companies. The FASB’s master glossary defines public business entities and SEC filers. The SEC defines Smaller Reporting Companies (SRCs), and to be eligible to be an SRC, an entity cannot exceed specific levels of public float, annual revenue, or both. You can find the exact definition here. In addition to effective dates, SRCs receive other accommodations from the SEC, but that is a topic for another post! The second bucket includes all other entities, which includes entities eligible to be SRCs, all other public business entities, and all nonpublic business entities (private companies, not-for-profits, and employee benefit plans). For bucket 2 entities, the FASB will generally require an effective date at least two years after bucket 1 (with early adoption allowed in most cases)!
With all this good news, there are a few things to consider, however. The first is determining whether an entity is eligible to be an SRC. While the SEC guidance is clear, SRC determination is made on the last business day of the most recent second quarter; consideration needs to be given to situations where the entity may lose its SRC eligibility in the near future. Another consideration is the impact on entities filing an initial registration statement. The SEC has clarified that an entity in the process of an IPO may follow the bucket 2 effective dates in its registration statement, but as soon as the registration statement is declared effective, it must begin following the bucket 1 effective dates. This is certainly a big consideration if a major new standard is effective for bucket 1 entities, but not yet for bucket 2, and an entity is in the process of an IPO. There are other important considerations for Emerging Growth Companies (EGCs) and entities that are public business entities only because their financial statements are included in a filing with the SEC. Deloitte's Heads Up Volume 26, Issue 26 provides more insight and a few examples of all of these considerations.
While there are some things to consider surrounding the new approach to effective dates, it is overall good news as many entities will have effective dates for most major new standards at least two years after those of public business entities that are not SRCs. In addition, they will know what to expect when major new standards are proposed as a result of the establishment of this new approach.
Are you interested in learning more about the new standards tied to these effective dates? Don't miss our FREE webinar on ASUs Effective in 2020 on May 7! Prefer to facilitate an in-classroom training at a location of your choosing instead? Contact us today to discusss one of our most popluar offerings: The Essential U.S. GAAP Update.
How about an interest in other SEC reporting matters? Tune into our SEC Update and Hot Topics webinar on June 11. This webinar will cover recent SEC speeches, regulations, comment letters, and enforcement actions and how they influence accounting and reporting.
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