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What You Need to Know About New 2024 Accounting Standards

June 6, 2024
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Key Takeaways

  • Updated guidance related to convertible debt and accounting for contract assets and liabilities in a business combination is now effective.
  • New examples are available to help evaluate whether profit interest awards should be accounted for under ASC Topic 718.
  • FASB 2024 standards include topics on supplier finance programs, business combinations, and common control leases.

With 2023 reporting behind us, it’s time to look ahead at what is coming for December 31, 2024, year-end reports (and beyond).

Standards Effective Now

The most significant updates effective now are ASU 2020-06, Debt – Debt with Conversion and Other Options and 2021-08 Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

ASU 2020-06 provides simplification by reducing the number of accounting models for convertible debt and convertible preferred stock. It also improves and amends the earnings per share guidance.

2021-08 addresses accounting related to contract assets and liabilities acquired in a business combination and requires an entity to recognize those in accordance with ASC Topic 606 at the acquisition date as part of a business combination.

For those that did not elect to early adopt ASU 2023-01 Leases (Topic 842): Common Control Arrangements, it is now effective. This standard provides guidance to entities applying the lease standard to transactions with entities under common control.

New Accounting Standards Issued in 2024

The most significant standard issued during 2024 relates to ASC Topic 718 — ASU 2024-01- Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This standard provides new illustrative examples to help determine whether profits interest or similar awards should be accounted for in accordance with Topic 718. The additional examples include arrangements that would be accounted for by applying the guidance of 718 and an example where an award would not be accounted for using the guidance of Topic 718.

* 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 2024.

2024-02—Codification Improvements – Amendments to Remove References to Concepts Statements
Summary: This update removes references to the various FASB Concepts Statements. FASB Concepts Statements are nonauthoritative guidance considered by the FASB when developing standards. In most instances, the reference to the Concepts Statements is extraneous and does not require an entity to understand or apply the guidance.

Additionally, in certain instances, the codification references Concepts Statements that are superseded, which could provide opportunities for diverse implementation over time. The removal of the Concepts Statements from the codification will draw a distinction between authoritative and non-authoritative literature. Generally, the amendments in this update are not intended to result in significant accounting changes for most entities.

Entities may elect to apply this on either a prospective basis on all transactions recognized on or after the date the entity first applies the amendments or retrospectively to the beginning of the earliest comparative period presented.
Effective date for PBEs Annual periods beginning after December 15, 2024.
Effective date for non-PBEs Annual periods beginning after December 15, 2025.
Early adoption Permitted
2024-01—Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards
Summary: The purpose of this update is to provide an illustrative example to demonstrate how to apply scope guidance in ASC 718-10-15-3 to determine whether profits interest and similar awards should be accounted for in accordance with Topic 718.

The amendments should be applied either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments.             
Effective date for PBEs Fiscal years beginning after December 15, 2024.
Effective date for non-PBEs Fiscal years beginning after December 15, 2025.
Early adoption Permitted

What's effective for non-public December 31, 2024 financial statements?

The following ASUs are effective for December 31, 2024 financial statements (applicable to all entities, unless otherwise noted).

2022-04 — Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations
Summary: This ASU enhances the transparency of supplier finance programs by requiring disclosures related to the programs. A supplier finance program allows a buyer to offer its suppliers access to payment before the invoice due date. This access to early payment is generally provided by a third-party based on the invoices that the buyer confirms are valid. These programs are becoming increasingly popular as they provide suppliers with cash flows more quickly than waiting for the invoice due date.

The amended disclosure requirements were applicable to December 31, 2023 year ends, except for amendment on the roll forward information. The requirements previously adopted include disclosure of: 
  1. Key terms of the program, assets pledged as security, and other forms of guarantees.
  2. For obligations that the buyer has confirmed as valid, each of the following items should be disclosed:
    1. The outstanding confirmed amount as of the end of the annual period,
    2. A description of where the obligations are presented in the balance sheet, and
    3. A roll forward of the obligations during the annual period. (Effective for fiscal years beginning after December 15, 2023).
The amendments in this ASU should be applied retrospectively, except for the amendment on roll forward information, which should be applied prospectively.
Effective date for all entities Fiscal years beginning after December 15, 2022 (interim periods within those fiscal years, except the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023).
Early adoption Permitted
2020-06—Debt—Debt with Conversation 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: This standard is intended to simplify how entities account for certain financial instruments with characteristics of liabilities and equity. 

The main provisions include:
  • Reducing the number of accounting models for convertible debt instruments and preferred stock. This includes removing certain separation models in Subtopic 470-20.
  • Amending guidance for derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.
  • Improves and amends earnings per share guidance.
  • Updating disclosure requirements.
The amendments in this ASU should be applied through a modified or fully retrospective approach.
Effective date for all entities Fiscal years beginning after December 15, 2023 (including interim periods within those fiscal years).
Early adoption Permitted
2020-04 — Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (the following updates are related to Reference Rate Reform)
2022-06 — Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848; 2021-01 — Reference Rate Reform (Topic 848): Scope
Summary: The LIBOR reference rate is being phased out, requiring 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, 2024.
2021-08—Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
Summary: FASB issued this ASU to address diversity in practice and inconsistency related to acquired revenue contracts in a business combination impacting 1) recognition of an acquired contract liability and 2) payment terms and their effect on subsequent revenue recognized by the acquirer. 

The amendments require an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. This differs from previous guidance which required contract assets and contract liabilities from revenue contracts with customers to be recorded at fair value on the acquisition date.  
Effective date for all entities Fiscal years beginning after December 15, 2023 (including interim periods within those fiscal years).
Early adoption Permitted
2022-01—Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method
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: 
  1. expands the current last-of-layer method which only permits one hedged layer to allow multiple hedged layers of a single closed portfolio and renames the last-of-layer method to the portfolio layer method.
  2. expands the scope of the portfolio layer method to include non-prepayable financial assets.
  3. specifies that eligible hedging instruments in a single-layer hedge may include spot-starting or forward-starting constant-notional swaps, or spot or forward-starting amortizing-notional swaps and that the number of hedged layers (that is, single or multiple) corresponds with the number of hedges designated.
  4. provides guidance on accounting and disclosures related to hedge basis adjustments that are applicable to the portfolio layer method whether a single hedged layer or multiple hedged layers are designated.
  5. specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio.
The amendments in this ASU should be applied retrospectively for hedge basis adjustments under the portfolio layer method. Entities have the option to apply the disclosure changes prospectively or retrospectively. Additionally, entities may designate multiple hedged layers of a single close portfolio solely on a prospective basis. 
Effective date Fiscal years beginning after December 15, 2023 (interim periods within those fiscal years).
Early adoption Permitted, if ASU 2017-12 has already been adopted for the corresponding period.
2023-01 — Leases (Topic 842): Common Control Arrangements
Summary: FASB issued this ASU to provide relief to related party lease arrangements between entities under common control.

Issue #1: The ASU provides private companies and not-for-profit organizations that are not conduit bond obligors with a practical expedient to use the written terms and conditions of a common control arrangement to determine whether a lease exists and, if so, the classification of and accounting for that lease, allowing for broad flexibility in the formality of what constitutes written terms and conditions.

Issue #2: The ASU requires all entities, including public companies, to amortize leasehold improvements associated with common control leases over the useful life to the common control group.
Effective date for all entities Fiscal years beginning after December 15, 2023 (interim periods within those fiscal years).
Early adoption Permitted
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About the Author(s)

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David Peaden, CPA

National Assurance Sr Manager
David leads teams to assist clients with financial audits, and compliance testing including single audits. He is experienced with government, healthcare, and manufacturing entities.
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