FASB Adopts Accounting Standards Delay

Oct 2, 2019

At their meeting on July 17, the Financial Accounting Standards Board (FASB) voted to propose an implementation delay on four key standards.

FASB has approved delays in policy implementation for the following accounting standards, for non- public companies:

Lease accounting                                           January 1, 2021

Accounting for credit losses                        January 1, 2013

Derivatives & hedging                                   January 1, 2021

Long-duration insurance contracts.          January 1, 2024

The decision to delay implementation of new policies is based upon a variety of factors. The chief goal of the delays is to allow companies the space they need to get the accounting correct and improve both their processes and business approach.

CECL Implementation Delay

On October 16, 2019 the Financial Accounting Standards Board (FASB) will discuss its proposal to delay the current expected credit loss (CECL) standard by an additional year for not-for-profits, including credit unions. This would push implementation to 2023. Credit union trade associations such as NAFCU have continued to voice concerns about the negative impacts CECL may have on credit unions. NCUA Board Chairman Rodney Hood has stated he is committed to reducing regulatory compliance burdens for credit unions. In addition, NCUA Board Member J. Mark McWatters has explained that the NCUA has the authority to phase in the day-one adverse effects on regulatory capital that may result from CECL adoption, potentially over a three year period.

FASB’s staff cited numerous factors that led to the reconsideration of effective dates, including:

  • Availability of resources.
  • Time required to educate staff.
  • Opportunity to learn from implementation issues described in large public company filings and SEC comment letters.
  • Application of difficult transition guidance.
  • Challenges in the development of IT system solutions, IT expertise, and effective business solutions and internal controls.

The board would leave early adoption options unchanged.

FASB member Hal Schroeder said he found that companies said they had the ability to get the accounting correct under the earlier effective dates. But they told him that a delay in the effective dates would allow them to improve their processes and entire business approach related to the new standards as they perform the implementation.

“More time simply allows more education,” said FASB Vice Chairman James Kroeker.

In particular, the lease accounting standard requires substantial work to locate and gather lease contracts and extract the necessary data for performing the new accounting. Vendors’ development of software to perform lease accounting under the new standard also was slower than some had expected.

Meanwhile, the credit losses standard requires complicated financial modeling that is difficult for smaller entities.

The concerns of preparers led the AICPA’s Technical Issues Committee (TIC) to send FASB a letter in May requesting a delay in the lease accounting standard effective date for private companies. The Associated General Contractors of America sent a letter to FASB with a similar request.

“Many of our members within the business community and at accounting firms have expressed concern about the timing of these significant new accounting standards, so we welcome and appreciate FASB’s decision to reconsider the effective dates for many entities,” Dan Noll, CPA, the AICPA’s senior director for accounting standards–Public Accounting, said in a statement. “The AICPA will continue to work to help our members and other professionals implement these important standards.”