FASB published a summary of the tentative decisions taken at its Board meeting in July 2019. The key topics discussed at the meeting include facilitation of the effects of the interbank offered rate (IBOR) transition on financial reporting, implementation of current expected credit losses (CECL) approach, and implementation of leases standard. FASB also decided to add a project to its technical agenda to consider the effective dates of Topic 326 on Financial Instruments—Credit Losses (CECL), Topic 842 on Leases, the recent amendments to Topic 815 on Derivatives and Hedging (referred to as Hedging), and the recent amendments made to Topic 944 on Financial Services—Insurance (also known as "Insurance" and covers long-duration contracts).

FASB decided to adopt a two-bucket approach to stagger effective dates for major standards. Bucket One constitutes SEC filers (GAAP definition), excluding smaller reporting companies as currently defined by SEC, while Bucket Two constitutes all other entities. FASB decided that CECL, Leases, and Hedging entities within Bucket Two should be afforded an effective date of at least two years after the effective date for Bucket One. FASB agreed on the following application of the two-bucket approach:

  • CECL—FASB decided that CECL will be effective for public business entities that are SEC filers, excluding smaller reporting companies as currently defined by SEC, for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. For calendar-year-end companies, this deadline will be January 01, 2020. For all other entities, FASB decided that CECL will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all entities, early adoption will continue to be permitted—that is, early adoption is allowed for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (that is, effective January 01, 2019, for calendar-year-end companies).  
  • Hedging—FASB decided to retain the existing effective date for Hedging for public business entities, which is for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years—that is, effective January 01, 2019 for calendar-year-end companies. FASB decided to defer the mandatory effective date for Hedging for all other entities by an additional year. Therefore, Hedging will be effective for entities other than public business entities for fiscal years beginning after December 15, 2020 (effective January 01, 2021 for calendar-year-end companies) and interim periods within fiscal years beginning after December 15, 2021 (January 01, 2022 for calendar-year-end companies). Early adoption will continue to be allowed.
  • Leases—FASB decided to retain the existing effective date for Leases for all public business entities, not-for-profit bond obligors, and employee benefit plans that file or furnish financial statements with the SEC, which is for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (effective January 01, 2019 for calendar-year-end companies). FASB decided to defer the mandatory effective date for Leases for all other entities by an additional year. Therefore, Leases will be effective for all other entities beginning after December 15, 2020 (January 01, 2021 for calendar-year-end companies) and interim periods within fiscal years beginning after December 15, 2021 (January 01, 2022 for calendar-year-end companies). Early adoption will continue to be allowed.
  • Insurance—FASB decided to provide public business entities with at least one additional year to transition to Insurance and to apply the two-bucket approach. Therefore, FASB decided that Insurance will be effective for public business entities that are SEC filers, excluding smaller reporting companies as currently defined by  SEC, for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. For calendar-year companies, this will be January 01, 2022. For all other entities, FASB decided that Insurance will be effective for fiscal years beginning after December 15, 2023 (January 01, 2024 for calendar-year-end companies) and interim periods within fiscal years beginning after December 15, 2024 (January 01, 2025 for calendar-year-end companies). Early adoption will continue to be allowed.

FASB directed the staff to draft a proposed Accounting Standards Update for vote by written ballot on the proposed amendments regarding the effective dates for CECL, Hedging, Leases, and Insurance. FASB decided that the comment period for the proposed update would be 30 days. FASB also discussed a recent substantive inquiry related to lessors accounting for impairment of operating lease receivables after the adoption of Topic 842 on Leases. FASB decided that standard-setting is currently unnecessary for this issue and instructed the staff to continue to monitor the issue for any significant diversity in practice.

Additionally, with respect to facilitation of the effects of IBOR transition on financial reporting, FASB decided that if an entity elects to apply the proposed guidance, the entity would cease applying the guidance as of January 01, 2023. FASB also directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 30 days.

 

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Keywords: Americas, US, Accounting, Banking, Insurance, Securities, Tentative Decisions, CECL, Derivatives and Hedging, Leases, Financial Instruments, IFRS 9, IFRS 17, IFRS 16, SEC, FASB

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