Accounting Standards Updates

August 31, 2020 | Article

By Kellen Garrison

One constant in accounting is change. The Financial Standards Accounting Board (FASB) is continually working with financial statement users and other stakeholders to improve accounting and financial reporting. Each year, the FASB issues new Accounting Standards Updates (ASU) to accomplish this goal.

It’s important that entities maintain an awareness of what’s new, what’s effective now and what’s on the horizon to ensure their accounting and financial statements continue to be in compliance with GAAP. The below summary presents the ASUs that are new in 2020, the ASUs that are effective for years ending December 31, 2020, and what’s on the horizon.*

Do you know what updates applies to your entity? Do you need assistance?

* Generally, FASB sets effective dates by segregating Public Business Entities (PBE) from all other entities. Occasionally, FASB will additionally segregate Smaller Reporting Companies (SRCs), Not-For-Profit entities (NFPs) that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-the-counter market, or employee benefit plans that file or furnish financial statements with or to the SEC. The effective dates included below are the dates applicable to both PBE and non-PBE entities. However, the non-PBE effective dates are used in determining which subject line heading they appear in.

What's new for non-public entities in 2020?
The FASB was active during the first half of 2020 and issued several ASUs. Fortunately, for accounting professionals, the updates are generally targeted at easing the transition to new guidance, reducing complexities in current guidance or clarifying existing guidance. Although the ASUs do not provide significant changes to standards, it is important for entities to be aware of the changes to ensure they are prepared to properly incorporate the updates in their accounting and financial reporting. Below is a summary of the 2020 ASUs, updated through August 2020, and their effective dates.

2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
Summary: FASB issued this ASU to simplify the accounting for convertible debt instruments as the current accounting guidance was determined to be unnecessarily complex and difficult to navigate. The ASU primarily does three things (1) eliminates unnecessary models, (2) allows more equity contracts to qualify for derivative scope exception and (3) improves the consistency of earnings per share calculations.

(1) The ASU eliminates the beneficial conversion feature model and the cash conversion model. The elimination of these models will result in more convertible instruments (convertible debt instruments or convertible preferred stock instruments) being reported as a single liability instrument. The ASU also makes targeted improvements to the related disclosures.
(2) The ASU eliminates certain settlement conditions that are required to qualify for derivative scope exception which will allow for less equity contracts to be accounted for as a derivative.
(3) The ASU aligns the diluted EPS calculation for convertible instruments by requiring the use of the if-converted method and requiring share settlement be included in the calculation when the contract includes an option of cash or share settlement.
Effective date for PBEs Fiscal years beginning after December 15, 2021
Effective date for all others Fiscal years beginning after December 15, 2023
Early adoption Fiscal years beginning after December 15, 2020 (Additional early adoption considerations for entities that have not adopted ASU 2017-11)
2020-05—Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities
Summary: FASB issued this ASU as a direct result of the effects of COVID-19 on organizations. The ASU allows for the deferral of the effective date for Topic 606, Revenue from Contracts with Customers, for all private entities that have not yet adopted the guidance. The ASU additionally clarifies that the deferral of Topic 842, Leases, is available for any nonprofit entity that has not yet issued its GAAP compliant financial statements or made those financials statements available for issuance, including those that have published financial information that reflects adoption of Topic 842 (for example, quarterly financial statements filed on EMMA).
Effective date for all entities Immediately
2020-04—Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Summary: The LIBOR reference rate is being phased out which will require entities to update their contracts to a new reference rate. FASB issued this ASU to ease the transition to new reference rates by allowing several optional expedients, which will reduce the cost and complexity of accounting for the change. The ASU affects all entities that have contracts, hedging relationships or other transactions that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform.
Effective date for all entities From March 12, 2020, through December 31, 2022 (There are limited transactions which may extend beyond 2022)
2020-03—Codification Improvements to Financial Instruments
Summary: FASB issued this ASU to make targeted improvements to the accounting standards for various financial instrument topics. The targeted improvements (1) clarify that all entities are required to provide certain fair value option disclosures, (2) clarify that certain nonfinancial items accounted for as derivates under Topic 815 can apply the portfolio exception under Topic 820, Fair Value Measurement, (3) clarify that certain disclosures in Topic 320, Investments – Debt and Equity Securities, also apply to Topic 942, Financial Services – Depository and Lending, (4) improve the understandability of the guidance by cross-referencing paragraphs within Topic 470, Debt, (5) improve the understandability of the guidance by cross-referencing paragraphs within Topic 820, Fair Value Measurement, (6) clarify that the contractual terms of net investment in a lease under Topic 842, Leases, should be the same as the term used to measure expected credit losses under Topic 326, Financial Instruments – Credit Losses and (7) clarify that an allowance for credit losses should be recorded when an entity regains control of a financial asset sold.
Effective date for PBEs Items 1, 2, 4, and 5 – Effective upon issuance of final update (issued 2/2020)
Item 3 – Fiscal years beginning after December 15, 2019
Items 6 and 7 – Adopt along with ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) during 2020.
Effective date for all others Items 1, 2, 4, and 5 – Fiscal years beginning after December 15, 2019
Item 3 – Fiscal years beginning after December 15, 2019
Items 6 and 7 – Adopt along with ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). If ASU 2016-13 has already been adopted, fiscal years beginning after December 15, 2019.
Early adoption Permitted for items 1, 2, 4, and 5
2020-01—Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force)
Summary: The ASU is a consensus of the Emerging Issues Task Force and it clarifies certain items related to ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU (1) clarifies that when an entity is either applying the equity method or upon discontinuing the equity method it should consider observable price changes in orderly transactions for the identical or a similar investment with the same issuer for valuing basis of the investment and (2) clarifies that when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.
Effective date for PBEs Fiscal years beginning after December 15, 2020
Effective date for all others Fiscal years beginning after December 15, 2021
Early adoption Permitted

What's effective for non-public December 31,2020, financial statements
In addition to the new ASUs, entities should be aware of previously issued standards that are effective for their December 31, 2020, financial statements. The following ASUs are effective for all December 31, 2020, financial statements (applicable to all entities, unless otherwise noted). Look to see if there are any changes you need to make to your 2020 financial statements.

2019-08—Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer
Summary: This ASU requires companies to measure and classify (on the balance sheet) share-based payments to customers by applying the guidance in Topic 718, Compensation—Stock Compensation. As a result, the amount recorded as a reduction in revenue would be measured based on the grant-date fair value of the share-based payment.
Effective date for PBEs Fiscal years beginning after December 15, 2019
Effective date for all others Fiscal years beginning after December 15, 2019
Early adoption Permitted but no earlier than an entity’s adoption of ASU 2018-07
2019-04—Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
Summary: This ASU clarifies certain accounting aspects related to credit losses (ASU 2016-13), hedging activities (ASU 2017-12), and financial instruments (ASU 2016-01). ASUs 2016-13 for credit losses and 2017-12 for hedging activities are discussed below. The significant updates related to financial instruments (ASU 2016-01) clarify (1) that non-public business entities are exempt from fair value disclosure requirements for financial instruments not measured at fair value on the balance sheet (i.e. held-to-maturity debt securities measured on an amortized cost basis), (2) the measurement alternative for equity securities without readily determinable fair values is a nonrecurring measurement and requires the applicable disclosures and (3) that equity securities without readily determinable fair values are subject to the measurement alternative at historical exchange rates and the rate used should be the acquisition date, unless there is a more recent fair value measurement date.
Effective date for all entities The updates related to financial instruments are effective for fiscal years beginning after December 15, 2019. The updates related to credit losses and hedging activities are closely related to the adoption dates for those ASUs.
2019-03—Not-for-Profit Entities (Topic 958): Updating the Definition of Collections
Summary:This ASU modifies the definition of the term collections and requires that a collection-holding entity disclose its policy for the use of proceeds from when collection items are deaccessioned (that is removed from a collection). If a collection-holding entity has a policy that allows proceeds from deaccessioned collection items to be used for direct care, it should disclose its definition of direct care.
Effective date for all entities Fiscal years beginning after December 15, 2019
Early adoption Permitted
2018-17—Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
Summary:This guidance in this ASU supersedes the private company alternative for common control leasing arrangements and expands it to all qualifying common control arrangements. A private company can make an accounting policy election to not apply VIE guidance to legal entities under common control (including common control leasing arrangements) when certain criteria are met. A private company electing the alternative is required to provide detailed disclosures about its involvement with, and exposure to, the legal entity under common control. This ASU also amends guidance relating to whether a decision-making fee is a variable interest, and it requires organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety.
Effective date for PBEs, NFPs, and employee benefit plans Fiscal years beginning after December 15, 2019
Effective date for all others Fiscal years beginning after December 15, 2020
Early adoption Permitted
2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
Summary:This ASU includes significant disclosure changes for Level 3 investments. Other changes relate to disclosures for transfers between Level 1 and Level 2 investments and investments in certain entities that calculate net asset value.
Effective date for all entities Fiscal years beginning after December 15, 2019
Early adoption Permitted
2018-08—Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made
Summary:This ASU provided a more robust framework for accounting for contributions for resource recipients and resource providers. While contribution accounting is more significant to not-for-profit entities, the ASU is applicable to all entities, including business organizations, that receive or make contributions of cash or other assets.
Effective date for PBEs – (resource recipient/contributions received) For transactions in which an entity is either a public business entity or an NFP that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market and serves as a resource recipient, the amendments are effective for contributions received for annual periods beginning after June 15, 2018, including interim periods within those annual periods.
Effective date for all others – (resource recipient/contributions received) All other entities should apply the amendments for transactions in which the entity serves as the resource recipient to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2019.
Effective date for PBEs – (resource provider/contributions made) For transactions in which an entity is either a public business entity or an NFP that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market and serves as a resource provider, the amendments are effective for contributions made to annual periods beginning after December 15, 2018, including interim periods within those annual periods.
Effective date for all others – (resource provider/contributions made) All other entities should apply the amendments for transactions in which the entity serves as the resource provider to annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020.
Early adoption Permitted
2018-07—Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
Summary:This ASU expands the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services, resulting in alignment of the accounting for share-based payments to nonemployees and employees.
Effective date for PBEs Fiscal years beginning after December 15, 2018
Effective date for all others Fiscal years beginning after December 15, 2019
Early adoption Permitted but no earlier than an entity’s adoption date of Topic 606
2017-11—Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
Summary:This ASU simplifies the accounting for certain financial instruments with down round features.
Effective date for PBEs Fiscal years beginning after December 15, 2018
Effective date for others Fiscal years beginning after December 15, 2019
Early adoption Permitted
2017-08—Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
Summary:This ASU shortens the amortization period for certain callable debt securities held at a premium to require the premium to be amortized to the earliest call date. There is no change to securities held at a discount.
Effective date for PBEs Fiscal years beginning after December 15, 2018
Effective date for all others For all entities for Fiscal years beginning after December 15, 2019
Early adoption Permitted
2016-02—Leases (Topic 842) (the following are updates related to Leases) 2020-05—Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities; 2019-10—Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates; 2019-01—Leases (Topic 842): Codification Improvements; 2018-20—Leases (Topic 842): Narrow-Scope Improvements for Lessors; 2018-11—Leases (Topic 842): Targeted Improvements; 2018-10—Codification Improvements to Topic 842, Leases; 2018-01—Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842
Summary: This ASU is a comprehensive change to the accounting for leases. The ASU results in two types of leases: financing and operating. Financing leases accounting will be similar to capital leases under prior guidance. Entities will see a significant change related to operating lease accounting since under prior guidance operating leases were “off-balance sheet.” Under the new guidance, entities will record a right-to-use (ROU) asset on the balance sheet.
Effective date for PBEs Fiscal years beginning after December 15, 2019 (if they have not yet issued financial statements, or made available for issuance, reflecting the adoption of Leases)
Effective date for conduit debt NFPs Fiscal years beginning after December 15, 2019 (if they have not yet issued financial statements, or made available for issuance, reflecting the adoption of Leases)
Effective date for all others Fiscal years beginning after December 15, 2022
Early adoption Permitted

What's the horizon for the 2021 and beyond for non-public entities? There are several ASUs that are effective in 2021 and beyond. A widely applicable update is ASU 2016-13 related to credit losses. While the ASU will have a significant effect on financial institutions, its affects will also reach non-financial institutions, as most businesses have certain financial instruments (including trade receivables) that are included in the scope of the update. The ASU shifts away from current GAAP of waiting until credit losses are probable to a model based on expected losses. There are also several updates that will be applicable to several entities and industries, including ASUs related to pensions and income taxes. Below is a summary of upcoming ASUs listed by their effective year.

Fiscal years beginning after December 15, 2020 (December 31, 2021 calendar year-end financial statements)

2019-02—Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials (a consensus of the Emerging Issues Task Force
Summary: This ASU addresses the changing production and distribution models in the entertainment industry by eliminating diversity in the accounting requirements for content production. The ASU aligns the accounting for TV series production costs with film production costs. The ASU also updates impairment, write-off and monetization strategy considerations.
Effective date for PBEs Fiscal years beginning after December 15, 2019
Effective date for all others Fiscal years beginning after December 15, 2020
Early adoption Permitted
2018-18—Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606
Summary: This ASU provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard and provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants.
Effective date for PBEs Fiscal years beginning after December 15, 2019
Effective date for all others Fiscal years beginning after December 15, 2020
Early adoption Permitted
2018-16—Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes
Summary: LIBOR has historically been one of the most widely used reference rates. Due to fraud and collusion concerns, LIBOR will be phased-out by the end of 2021. With the phase-out of LIBOR, some countries are adopting their own reference rate replacements and in the United States the Federal Reserve Bank selected the Secured Overnight Financing Rate or SORF as its preferred replacement reference rate. In ASU 2018-16, FASB added the Overnight Index Swap rate which is based on the SORF as an allowable benchmark for hedge accounting purposes.
Effective date for PBEs Effective concurrently with ASU 2017-12 (see below). If entities have already adopted ASU 2017-12, the effective date is years beginning after December 15, 2018.
Effective date for all others Effective concurrently with ASU 2017-12 (see below). If entities have already adopted ASU 2017-12, the effective date is years beginning after December 15, 2019.
Early adoption Permitted if ASU 2017-12 has been adopted
2018-15—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)
Summary: This ASU provides guidance for the accounting of implementation costs related to a hosting arrangement that is a service contract and aligns the accounting with the accounting for implementation costs incurred to develop or obtain internal use software that is not a service contract.
Effective date for PBEs Fiscal years beginning after December 15, 2019
Effective date for all others Fiscal years beginning after December 15, 2020
Early adoption Permitted
2018-14—Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans
Summary: This ASU is part of the disclosure framework project and is aimed at improving employer pension disclosures. The ASU removes several required disclosure items, adds disclosures related to the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and adds disclosures of the reasons for significant gains and losses related to changes in the benefit obligation. The ASU also clarifies certain items that are required to be disclosed for the projected benefit obligation and the accumulated benefit obligation.
Effective date for PBEs Fiscal years ending after December 15, 2020
Effective date for all others Fiscal years ending after December 15, 2021
Early adoption Permitted
2017-12—Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
Summary: This ASU makes several updates to the accounting for hedging activities with the intention of simplifying and better aligning the accounting of hedging relationships to better align them with entities’ risk management activities.
Effective date for PBEs Fiscal years beginning after December 15, 2018
Effective date for all others Fiscal years ending after December 15, 2020
Early adoption Permitted

Fiscal years beginning after December 15, 2021 (December 31, 2022 calendar year-end financial statements)

2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
Summary: This ASU aims to simplify the accounting for income taxes. The ASU removes several exceptions, including exceptions related to certain intraperiod tax allocations, equity method investments, and calculating income taxes in an interim period. Additionally, the ASU updates the accounting for certain franchise taxes, considerations of step-up in the tax basis goodwill, process of allocating current and deferred tax expense among consolidated entities, requiring the effect of tax law or rate changes be reflected in interim periods, and making other minor Codification Improvements.
Effective date for PBEs Fiscal years beginning after December 15, 2020
Effective date for all others Fiscal years ending after December 15, 2021
Early adoption Permitted
2017-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment; 2019-10—Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates
Summary: This ASU simplifies the accounting for goodwill impairments by eliminating Step 2 from the goodwill impairment testing. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with its carrying amount. Under the new guidance, entities will perform their annual, or interim, impairment test by comparing the fair value of a reporting unit with its carrying amount. The ASU also aligns the impairment assessment for reporting units with a zero or negative carrying amount with the impairment assessment for all other reporting units.
Effective date for PBEs Fiscal years beginning after December 15, 2019, refer to ASUs for additional details on effective dates
Effective date for SRCs Fiscal years beginning after December 15, 2022, refer to ASUs for additional details on effective dates
Effective date for all others Fiscal years beginning after December 15, 2022, refer to ASUs for additional details on effective dates
Early adoption Permitted
2016-13—Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (the following updates are related to Credit Losses)
2019-11—Codification Improvements to Topic 326, Financial Instruments—Credit Losses; 2019-10—Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates; 2019-05—Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief; 2019-04—Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments; 2018-19—Codification Improvements to Topic 326, Financial Instruments—Credit Losses
Summary: This ASU is a comprehensive change to the accounting for credit losses. The ASU requires entities to measure all expected credits losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.
Effective date for PBEs Fiscal years beginning after December 15, 2019
Effective date for SRCs Fiscal years beginning after December 15, 2022
Effective date for all others Fiscal years beginning after December 15, 2022
Early adoption Permitted

Fiscal years beginning after December 15, 2023 (December 31, 2024 calendar year-end financial statements)

2018-12—Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts; 2019-09—Financial Services—Insurance (Topic 944): Effective Date
Summary: This ASU makes significant changes to the accounting and disclosure of long-duration insurance contracts issued by insurers and reinsurers. The amendments do not apply to policyholders or noninsurance entities. The ASU makes several changes to the accounting and reporting of long-duration contracts, including (1) updating the measure of the insurance liability by requiring entities to review and update, if there is a change, the assumptions used to measure cash flows and to update the discount rate assumption at each reporting date, (2) requiring market risk benefits to be measured at fair value and changes in credit risk to be recognized in other comprehensive income, (3) simplifying the amortization of deferred acquisition costs and (4) requiring enhanced disclosures.
Effective date for PBEs Fiscal years beginning after December 15, 2021
Effective date for SRCs Fiscal years beginning after December 15, 2023
Effective date for all others Fiscal years beginning after December 15, 2023
Early adoption Permitted

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