Accounting Update on New Standards in First Quarter 2021

April 19, 2021 | Article

By Kellen Garrison

What started out as a slow quarter for accounting standards updates (ASUs) ended with a bang with a significant change to goodwill evaluations for certain entities.

During the first quarter of 2021, the Financial Standards Accounting Board (FASB) issued three new ASUs. What is certainly appreciated by accounting and finance professionals is that each of the three 2021 ASUs provided accounting relief to entities. The first two ASUs issued in 2021 provide relief to recently effective accounting guidance for reference rate reform and revenue recognition for franchisors. The third ASU issued in 2021 establishes a new private company GAAP alternative related to the evaluation of goodwill for impairment triggering events.

In addition to assessing the impact of the new ASUs on your financial statements, you’ll likely be continuing to assess the impact of the COVID-19 pandemic and certain government programs that were created in response to the pandemic. On December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act 2021 (CRRSAA) was enacted and provided an additional allocation of funds to help both first round and second round Paycheck Protection Program (PPP) borrowers.

The CRRSAA also expanded the Employee Retention Credit (ERC). PPP and ERC are both unique government programs that have provided needed lifelines for entities struggling through the pandemic. The uniqueness of the programs has raised numerous questions on how to treat the programs from an accounting perspective and how the programs should be disclosed within financial statements and footnote disclosures. 

Here's what you need to know about accounting and presentation of the PPP and ERC

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 if they are applicable for 2021.

What's New in 2021?

2021-03—Intangibles—Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events
Summary: FASB received feedback from stakeholders that the cost and complexity of monitoring and evaluating triggering events throughout the reporting period outweighed the benefits to the financial statement users. The stakeholders noted these challenges were exacerbated by the COVID-19 pandemic, but the challenges were not exclusively related to COVID-19. This ASU provides relief to private companies and not-for-profit entities within the scope of the update by establishing a new private company accounting alternative for goodwill impairment triggering event evaluation. Under the new accounting alternative, entities can perform an evaluation of goodwill impairment triggering events as of the end of the reporting period, rather than monitoring for goodwill triggering events throughout the reporting period. If an entity elects to use the new accounting alternative, they should apply it on a prospective basis for fiscal years beginning after December 15, 2019, but they should not retroactively adopt the amendments in this update for interim financial statements already issued in the year of adoption.
Effective date for PBEs N/A – Not available to PBEs
Effective Date for All Others Fiscal years beginning after December 15, 2019
Early Adoption Permitted for interim and annual financial statements that have not yet been issued or made available for issuance as of March 30, 2021.
2021-02—Franchisors—Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient
Summary: This ASU modifies the guidance applicable to franchisors under the revenue recognition standards by adding a practical expedient that allows non-PBE franchisors to account for pre-opening services provided to a franchisee as a distinct performance obligation that is separate from the franchise license. To qualify for the new practical expedient, the pre-opening services need to be consistent with the predefined list within the standards. The ASU also allows franchisors the ability to recognize the pre-opening services as a single performance obligation.
Effective date for PBEs N/A – Not available to PBEs
Effective Date for All Others If ASC 606 has not been adopted, entities will follow the ASC 606 transition guidance. If ASC 606 had previously been adopted, the ASU is effective for interim and annual periods beginning after December 15, 2020.
Early Adoption Permitted but must be applied retrospectively to the date ASC 606 was adopted.
2021-01—Reference Rate Reform (Topic 848): Scope
Summary: In 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting to address the accounting implications of the phase-out of LIBOR and resulting reference rate reforms. FASB issued ASU 2021-01 to clarify that certain optional expedients and exceptions in Topic 848 related to contract modifications and hedge accounting apply to derivatives that are affected by discounting transition. The clarifying guidance applies to derivative instruments that use an interest rate for margining, discounting or contract price alignment that is modified as a result of 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)

What's Effective for Non-Public December 31, 2021, Financial Statements?

Do you know which standards updates you need to consider as you are preparing 2021 interim and year-end financial statements? The following ASUs are effective for December 31, 2021, financial statements (applicable to all entities, unless otherwise noted).

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
2020-04—Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (the following update is related to Reference Rate Reform): 2021-01—Reference Rate Reform (Topic 848): Scope
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)
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.
2019-02—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 All 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 60
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 All PBEs Fiscal years beginning after December 15, 2019
Effective Date for All Others Fiscal years beginning after December 15, 2020
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 All 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
2018-16—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 Purpose
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 All 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): Customer’s 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 All 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 All 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 (the following updates are related to Derivatives and Hedging): 2019-04—Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments; 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: This ASU makes several updates to the accounting for hedging activities with the intention of simplifying and better aligning the accounting of hedging relationships with entities’ risk management activities.
Effective Date for All PBEs Fiscal years beginning after December 15, 2018
Effective Date for All Others Fiscal years beginning after December 15, 2020
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 All 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

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