The Financial Accounting Standards Board (FASB) recently announced a
Lost in the shuffle of the announced delay was an underlying change which will alter how the effective dates for future major accounting standards will be staggered. The protocol for establishing staggered effective dates will significantly change the future compliance cost associated with various types of business entities, including:
What Does This Change Mean?
Prior to FASB’s announcement, the staggered effective date line was typically drawn between nonpublic business entities and all other entities.
Definition of a Public Business Entity
Triggers for Public Business Entity status include:
Definition of a SRC Entity
Triggers for SRC status include:
Only nonpublic business entities were given deferred adoption dates. This had negative impacts on PBEs that were not SEC filers, as they often scrambled to prepare for significant accounting standard changes.
This line will shift significantly with FASB’s proposal. Under this new guidance, there is now a two-bucket approach:
There is now a much larger bucket of organization types (SRCs, PBEs and nonPBEs that will not fall under the large SEC filer bucket) that will have a delayed adoption date on future major new accounting pronouncements.
Currently unclear is whether the same line will be re-drawn relative to expanded disclosure requirements that are often included in new pronouncements.
How Will This Change Impact My Financial Institution?
FASB’s decision to delay CECL was unexpected but welcome news to the industry as most institutions will not have to adopt until the beginning of 2023. Additionally, nonpublic business entities can delay adoption of the lease standard until 2021.
While these delays are certainly helpful, the concurrent adoption of the new two-bucket approach for future major standards is a longer-term win. This decision reverses a rule issued in 2013 by FASB which surprisingly lumped in many privately-held entities with SEC filers in the definition of PBE, resulting in earlier effective dates and enhanced disclosures for many non-SEC filers. The new two-bucket approach is a welcome and much needed realignment of these 2013 rules that will provide accounting relief for years to come.
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