Updated Accounting Standards You Need to Be Aware Of

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.

Summary: FASB received feedback that the COVID-19 pandemic had a significant impact on the ability of insurance entities to implement the amendments in ASU 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. In response to the challenges of implementing ASU 2018-12, this ASU delays the effective date and provides additional options for early adoption of ASU 2018-12.

Summary: This ASU makes technical corrections to the codification. Technical corrections include items such as “conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements”.

One section of the ASU updates the Disclosure Sections of certain Topics where it was noted that the disclosure requirements or options to present information on the face of the financial statements or in the financial statement footnotes were not previously included in the Disclosures Sections. These changes are not expected to result to changes in current GAAP.

The ASU also makes other codification improvements including:

1. Removes the Master Glossary definition of “cash balance plan” and moves the fact pattern from that definition to other sections of Topic 715, Compensation.
2. Makes various minor wording updates throughout the codification.
3. Corrects various paragraph references throughout the codification.

The amendments in this ASU should be applied retrospectively to the beginning of the period that includes the adoption date.

Summary: The Securities and Exchange Commission (SEC) issued release No. 33-10762 which makes amendments to the disclosure requirements applicable to debt offerings that include credit enhancements. In response to the SEC release, this ASU was issued to update various SEC paragraphs in the codification.

Summary: In 2017 FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities which 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. This ASU clarifies that an entity should reevaluate whether a callable debt security that has multiple call dates is within the scope of paragraph 310-20-25-33 for each reporting period.

The amendments included in the ASU should be applied on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities.

Summary: GAAP has historically required certain disclosures related to contributed services but has not required specific disclosures for other in-kind contributions. This ASU updates the presentation and disclosure of nonfinancial assets and will result in a significant increase in disclosure requirements for NFPs that receive contributions of nonfinancial assets such as fixed assets, use of fixed assets or utilities, materials and supplies, services, or unconditional promises of those assets.

Updated requirements include the following:

1. Present contributed nonfinancial assets as a separate line item in the statement of activities. This separate line will not include contributions of cash or other financial assets.
2. Present the disaggregated detail of the amount included as contributed nonfinancial assets in the statement of activities by category that depicts the type of contributed nonfinancial assets.
3. For each category in (2) above, the NFP is required to disclose:
1. Qualitative information about whether the contributed nonfinancial assets was monetized or utilized during the reporting period and, if utilized, a description of the programs or other activities those assets were used for;
2. Policy (if any) for monetizing rather than utilizing;
3. Description of any donor-imposed restriction;
4. Description of the valuation techniques and inputs used to arrive at the initial fair value;
5. The principle or most advantageous market used to arrive at fair value if it is a market in which the NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.

 The amendments included in the ASU shall be applied retrospectively to all periods presented.

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.

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).

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.

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.

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.