The time has finally come. What started as a joint project between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) in 2006 ended 10 years later with a new comprehensive standard for lease accounting and presentation.
The new standard was issued through Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), which added a new Topic (Topic 842, Leases) to the FASB accounting standards codification and replaced the prior lease guidance (Topic 840, Leases). In addition to ASU 2016-02, Leases, FASB has also issued several additional ASUs which address lease accounting and disclosures as part of its post-implementation review process.
Changes to the lease standards have been a frequent topic over the past several years, but it often wasn’t truly top-of-mind for many private company financial statement preparers and users as the new standard went through several delays. Topic 842, Leases became effective, for all entities that had not previously adopted the standard, for fiscal years beginning after December 15, 2021. This means that the new lease standard was effective January 1, 2022 for private companies with a calendar year-end.
For entities that were required to adopt the lease standard on January 1, 2022, it is now more important than ever to ensure your organization has a handle on the new lease standard and to ensure that leases are appropriately reflected in your interim and annual financial statements that are prepared in accordance with generally accepted accounting principles (U.S. GAAP).
- If you’re wondering where to start, check out our Leasing Standards page for helpful resources.
What ASUs Were Issued During 2022?
The new lease standard isn’t the only change that companies should be aware of. There are also several ASUs that are effective for private companies in 2022 and there were two ASUs issued in 2022 with effective dates beyond 2022. Starting the ASU summaries are the two ASUs that FASB issued in the first quarter of 2022. Following the ASUs issued in 2022 are summaries for ASUs that are effective for December 31, 2022* financial statements.
Generally, FASB sets effective dates by segregating public business entity’s (PBE) from all other entities. Occasionally, FASB will additionally segregate smaller reporting company’s (SRCs), not-for-profit entity’s (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 2022.
| 2022-02—Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures | |
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Summary: Since FASB issued Accounting Standards Update 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments) it has been conducting post-implementation review activities to gain insights from stakeholders and, when necessary, consider if further updates are needed. As part of its post-implementation review of credit losses, FASB has issued this ASU. The ASU addresses troubled debt restructurings by creditors (TDRs) and vintage disclosures of gross write-offs. TDRs – Stakeholders questioned the relevancy of the TDR designation and the usefulness of the related disclosures. This ASU eliminates the accounting guidance for TDRs for creditors who have adopted CECL and requires that those entities evaluate whether the modification represents a new loan or a continuation of an existing loan. Additionally, the ASU enhances certain disclosure requirements. Vintage Disclosures – Investors noted the amount of gross write-offs information by year of origination was an essential input to their analysis. This ASU adds a requirement that public business entities disclosure current-period gross write-offs by year of origination for financing receivables and net investments in leases. The amendments in this ASU should be applied prospectively. For the recognition and measurement of TDRs, entities have the option to apply a modified retrospective application. |
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| Effective date for entities that previously adopted ASU 2016-13 (generally PBEs) | Fiscal years beginning after December 15, 2022 (including interim periods within those fiscal years) |
| Effective date for entities that have not yet adopted ASU 2016-13 (generally non-PBEs) | Follows the effective date for ASU 2016-13 |
| Early Adoption | Permitted for entities that had adopted ASU 2016-13 |
| 2022-01—Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method | |
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Summary: FASB issued this ASU in response to questions and input from stakeholders when they implemented ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU is intended to better align hedge accounting with an organization’s risk management strategies. To address the stakeholder questions and input, this ASU:
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| Effective date for PBEs | Fiscal years beginning after December 15, 2022 (interim periods within those fiscal years) |
| Effective date for non-PBEs | Fiscal years beginning after December 15, 2023 (interim periods within those fiscal years) |
| Early Adoption | Permitted |
What's Effective for Non-public December 31, 2022 Financial Statements?
Do you know which standards updates you need to consider as you prepare 2022 interim and year-end financial statements? The following ASUs are effective for December 31, 2022 financial statements (applicable to all entities, unless otherwise noted).
| 2021-10—Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance | |
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Summary: U.S. GAAP has not historically had explicit guidance for the recognition, measurement, presentation, and disclosure of government assistance by business entities. As many business entities received government assistance due to the COVID-19 pandemic, there was diversity in the accounting, presentation, and disclosure of government assistance in financial statements. The amendments in this ASU require certain disclosures about transactions with governments that are accounted for by applying grant or contribution accounting models by analogy to other accounting guidance. For example, a business that accounts for government grants by applying Subtopic 958-605, Not-For-Profit Entities – Revenue Recognition or by applying IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. Disclosure requirements for these entities include (1) information about the nature of the transactions and the related accounting policy used to account for the transactions, (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item, and (3) significant terms and conditions of the transactions, including commitments and contingencies. The amendments apply to business entities other than those that are within the scope of the following Topics:
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| Effective date for all entities | Fiscal years beginning after December 15, 2021 |
| Early Adoption | Permitted |
| 2021-07—Compensation—Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards (a consensus of the Private Company Council) | |
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Summary: The Private Company Council received feedback from private companies that determining the fair value of private company share-option awards at grant date or upon a modification to an award is often costly and complex due to challenges in estimating the current price input. In response to those concerns, ASU 2021-07 was issued and provides a practical expedient to nonpublic entities which allows them to determine the current price input of equity-classified share-based awards, that are issued to both employees and nonemployees, using the reasonable application of a reasonable valuation method. The practical expedient in this ASU is not available for liability-classified awards. The practical expedient lays out several characteristics of a reasonable application of a reasonable valuation method. The same characteristics are used in the Treasury Regulations (related to Section 409A of the U.S. Internal Revenue Code) to describe the reasonable application of a reasonable valuation method for income tax purposes. As a result, a reasonable valuation performed in accordance with the Treasury Regulations is an example of a way to achieve the practical expedient. Nonpublic entities can elect the practical expedient on a measurement-date-by-measurement-date basis, meaning the practical expedient must be applied to all share-based awards that are within the scope of the practical expedient that have the same underlying share and the same measurement date. The practical expedient is effective prospectively for all qualifying awards granted or modified on or after the date of adoption. |
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| Effective date for PBEs | N/A – Not available to PBEs |
| Effective date for non-PBEs | Fiscal years beginning after December 15, 2021 (interim periods within fiscal years beginning after December 15, 2022) |
| Early Adoption | Early adoption is permitted for financial statements that have not yet been issued or made available for issuance as of October 25, 2021. |
| 2021-04—Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force | |
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Summary: FASB issued this ASU to address diversity in how issuer’s accounted for modifications or exchanges of freestanding equity-classified written call options (e.g., warrants) that remain equity classified after modification or exchange. Prior to issuance of the ASU, some modifications or exchanges were being accounted for as adjustments to equity while others were being accounted for as an expense. The ASU requires entities to treat a modification of the terms or conditions as an exchange of the original investment for a new investment. The modification or exchange is measured as the difference between the fair value immediately before and after the modification or exchange. Additionally, the ASU provides guidance on how to recognize the effect of the modification or exchange, which depends on substance of the transaction and is treated as if cash had been paid as consideration. The amendments in the ASU do not apply to modifications or exchanges of financial instruments that are within the scope of other Topics (e.g., Topic 718 for stock compensation). The amendments in this ASU should be applied on a prospective basis to modifications or exchanges occurring on or after the date at which the entity adopts the ASU. |
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| Effective date for all entities | Fiscal years beginning after December 15, 2021 (interim periods within those fiscal years) |
| Early Adoption | Permitted |
| 2020-10—Codification Improvements | |
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Summary: This ASU makes technical corrections to the codification through two sections. Section A was removed from the ASU and addressed in a separate ASU. Sections B and C are included in this ASU and are discussed below. 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:
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| Effective date for PBEs and conduit debt NFPs | The amendments in Sections B and C of this ASU are effective for fiscal years beginning after December 15, 2020 (interim periods within those fiscal years) |
| Effective date for all others | The amendments in Sections B and C of this ASU are effective for fiscal years beginning after December 15, 2021 (interim periods within fiscal years beginning after December 15, 2022) |
| Early Adoption | Permitted |
| 2020-08—Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs | |
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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. |
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| 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 | |
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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:
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| Effective date (only applicable to NFPs) | Fiscal years beginning after June 15, 2021 (interim periods within fiscal years beginning after June 15, 2022) |
| Early Adoption | Permitted |
| 2020-04—Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting | |
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| 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) |
| 2020-01—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 FASB Emerging Issues Task Force) | |
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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. The amendments included in the ASU should be applied prospectively at the beginning of the interim period that includes the adoption date. |
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| 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 those fiscal years) |
| Early Adoption | Permitted |
| 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes | |
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Summary: This ASU aims to simplify the accounting for income taxes. The ASU removes several exceptions to the general principles in Topic 740, Income Taxes 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. Depending on the portion of the ASU that is applicable, the amendments in this ASU should be applied either retrospectively, through a cumulative-effect adjustment, or prospective. See the ASU for specific application guidance. |
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| 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 | Permitted |
| 2016-02—Leases (Topic 842) (the following are updates related to Leases) 2021-09—Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities; 2021-05—Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments; 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 | |
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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. See our Lease Standards page for additional information on the new lease standards. The amendments include in the ASU should be applied either (1) retrospectively to each prior period presented (Topic 842, Leases presented for all periods) or (2) retrospectively at the beginning of the period of adoption (Topic 842, Leases presented only for the period of adoption). |
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| 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) (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 |
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