Updated Accounting Standards You Need to Be Aware Of

February 8, 2021 | 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 FASB issues new Accounting Standards Updates (ASU) to accomplish this goal.

Entities need to 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 comply with GAAP. The below summary presents the ASUs that were issued in 2020, the ASUs that are effective for years ending December 31, 2020, and what’s on the horizon.

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.

Do you know which accounting standards apply to your entity? Figuring out what affects your organization can be complicated.

What’s Effective for Your Non-Public Financial Statements for December 31, 2020?

Do you know which standards updates you need to consider as you go through the 2020 financial close process and begin preparing your financial statements? The following ASUs are effective for all December 31, 2020 financial statements (applicable to all entities, unless otherwise noted).

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, (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 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 For all entities for 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, 2018
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, 2021
Early adoption Permitted

Recap of standards updates in 2020

For many entities, the slate of ASUs issued in 2020 will not be as impactful to their financial statements as some recent updates (think ASC 606, Revenues from Contracts with Customers or ASC 842, Leases). While many of the 2020 ASUs did not make sweeping changes, they did provide some much needed relief to entities already struggling from the impacts of the COVID-19 pandemic through delays of effective dates. They also provided additional clarity or simplifications on items within the codification.  Ensure your entity is aware of the changes so you are prepared to properly incorporate the updates in your accounting and financial reporting.

One group that will have significant changes to their financial statements resulting from a 2020 update is NFPs. FASB issued ASU 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosure by Not-for-Profit Entities for Contributed Nonfinancial Assets which adds additional presentation and disclosure requirements for certain contributions received by NFPs. The ASU is effective for fiscal years beginning after June 15, 2021. Although the ASU isn’t effective immediately, NFPS should understand the impact of the standard prior to its effective date because it requires the updates to be applied retrospectively to all periods presented. Considering the effects of the changes will allow NFPs to begin accumulating the information needed to restate prior periods. 

Below is a summary of the 2020 ASUs and their effective dates.

2020-11—Financial Services—Insurance (Topic 944): Effective Date and Early Application

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.

Effective date See ASU 2018-12 below for effective dates
Early adoption Permitted
2020-10—Codification Improvements

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.

Effective date for PBEs and conduit debt NFPs Fiscal years beginning after December 15, 2020 (interim periods within those fiscal years)
Effective date for all others Fiscal years beginning after December 15, 2021 (interim periods within fiscal years beginning after December 15, 2022)
Early adoption Permitted
2020-09—Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762

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.

Effective date for PBEs January 4, 2021
Early adoption Voluntary compliance with the final amendments in advance of January 4, 2021 is permitted.
2020-08—Codification Improvements to Subtopic 310-20, Receivables–Nonrefundable Fees and Other Costs

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.

Effective date for PBEs Fiscal years beginning after December 15, 2020 (interim periods within those fiscal years)
Effective date for all others Fiscal years beginning after December 15, 2021 (interim periods within fiscal years beginning after December 15, 2022)
Early adoption Not permitted for PBEs. Permitted for all others for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.
2020-07—Not-for-Profit Entities (Topic 958): Presentation and Disclosure by Not-for-Profit Entities for Contributed Nonfinancial Assets

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.

Effective date for all others Fiscal years beginning after June 15, 2021 (interim periods within fiscal years beginning after June 15, 2022)
Early adoption Permitted
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 Option to defer is effective 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 on the horizon for 2021 and beyond for your non-public entity? We recently broke down accounting standards that could affect you.


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