The Impact of FASB Delays on Financial Institutions

November 4, 2019 | Article

The Financial Accounting Standards Board (FASB) recently announced a delay in the effective dates of four major accounting standards, including two with significant impact on the financial institutions industry (CECL and Leases). Many institutions breathed a sigh of relief with the announcement, as these standards introduce substantial changes and will be very difficult to properly implement.  The final standard formalizing the announcement was released on November 15.

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:

  • SEC Filers
  • Smaller reporting companies (SRC)
  • Public business entities (PBEs)
  • Nonpublic business entities (NonPBEs)

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:

  • SEC filers
  • Stock traded OTC
  • Beginning of the year assets greater than $500 million, unless:
    • S corporation
    • Holding Company

Definition of a SRC Entity

Triggers for SRC status include:

  • Public float of less than $250 million
  • Less than $100 million of annual revenues and
    • No public float, or
    • Public float of less than $700 million

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:

  • Bucket 1 - SEC filers, excluding SRCs have early adoption.
  • Bucket 2 - All other entities will have deferred adoption dates.

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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