On August 15, 2019, the Financial Accounting Standards Board (“FASB”) issued a proposed Accounting Standards Update (“ASU”) that would grant private companies (along with not-for-profit organizations, and certain small public companies) additional time to implement new FASB standards on 1. current expected credit losses, 2. leases, and 3. hedging. Stakeholders are encouraged to review and provide comment on the proposed ASU by September 16, 2019.
Since 2014, FASB has issued several major Accounting Standards Updates, such as ASC 606 - Revenue Recognition, ASC 842 - Leases, ASC 815 - Derivatives and Hedging, ASC 326 - Financial Instruments – Credit Losses, etc. Although large public business entities may also encounter difficulties in transitioning to a new standard, the challenges are magnified for smaller public business entities and nonpublic business entities. In response to those issues and requests to defer certain major updates, FASB developed a philosophy to extend and simplify how effective dates are staggered between larger public companies (bucket one) and all other entities (bucket two).
Under this philosophy, a major update would first be effective for bucket-one entities—entities that are Securities and Exchange Commission (SEC) filers, excluding entities eligible to be smaller reporting companies (SRCs) under the SEC’s definition. All other entities, including entities eligible to be SRCs, all other public business entities, and all nonpublic business entities (private companies, not-for-profit organizations, and employee benefit plans) would compose bucket two. For those entities, it is anticipated that the FASB will consider requiring an effective date staggered at least two years after bucket one for major updates. Generally, it is expected that early application would continue to be permitted for all entities.
Because some of the new standards are already effective for bucket one entities, the Board retained the effective date for those entities, but private and all other entities now have more time to improve their processes and entire business approach related to the new standards as they perform the new implementation.
For more information, please refer to the Proposed Accounting Standards Update: