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.
ASU 2023-01 Leases (Topic 842): Common Control Arrangements, which many chose to adopt early, is now in effect. 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.
| 2024-04 — Debt — Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments | |
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| Summary: This update is intended to improve the relevance and consistency in application of the induced conversion guidance in FASB Accounting Standards Codification Subtopic 470-20, Debt —Debt with Conversion and Other Options. Current generally accepted accounting principles provide guidance for determining whether a settlement of convertible instruments at terms different from the original conversion terms should be accounted for as an induced conversion (as opposed to a debt extinguishment). Because that guidance was written in the context of share-settled convertible debt instruments, stakeholders raised questions about how to apply the existing induced conversion guidance to settlements of convertible debt instruments with cash conversion and other features that have become prevalent in the marketplace. The amendments in the ASU clarify requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion. | |
| Effective date for PBEs | Annual periods beginning after December 15, 2025. |
| Effective date for non-PBEs | Annual periods beginning after December 15, 2025. |
| Early adoption | Permitted |
| 2024-03 — Income Statement — Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses | |
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| Summary: This update is applicable to public business entities. The update requires disclosure in the notes to the financial statements about specified information regarding certain costs and expenses. This includes disclosure of the amounts of purchases of inventory, employee compensation, depreciation, intangible asset amortization and depreciation, depletion, and amortization recognized as part of oil and gas-producing activities (DD&A) included in each relevant expense caption. A relevant expense caption is an expense caption presented on the face of the income statement within continuing operations that contains any of the expense categories listed previously. The update also requires entities to disclose the total amount of selling expenses and in annual reporting periods, the entity’s definition of selling expenses. |
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| Effective date for PBEs | Annual periods beginning after December 15, 2026. |
| Effective date for non-PBEs | Not Applicable |
| Early adoption | Permitted |
| 2024-02 — Codification Improvements — Amendments to Remove References to Concepts Statements | |
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| 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. |
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| 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 | |
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| 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. |
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| 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 |
ASUs 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 | |
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| 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:
The amendments in this ASU should be applied retrospectively, except for the amendment on roll forward information, which should be applied prospectively. |
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| 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 | |
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| Summary: This standard is intended to simplify how entities account for certain financial instruments with characteristics of liabilities and equity. The main provisions include:
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| Effective date for all entities | Fiscal years beginning after December 15, 2023 (including interim periods within those fiscal years). |
| Early adoption | Permitted |
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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 |
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| 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 | |
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| 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. |
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| 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 | |
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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 | 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 | |
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| 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. |
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| 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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