Just like many other organizations, the Financial Accounting Standard Board’s (FASB) standard setting activities were slowed in 2020 because of COVID-19, and many effective dates were pushed back.
Here is a look at the more significant Accounting Standards Updates (ASU) that will still be going into effect for private companies and their effective dates.
Please note two things: These effective dates are for private companies only; public business entities often have different effective dates, and those dates are not covered in this article. Please also note that many ASUs include optional early adoption provisions that are not addressed in this article.
Upcoming Standards
The following standards will go into in effect in the current fiscal year for private companies.
ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting
This ASU requires the accounting for shared-based payment transactions for acquiring goods and services from nonemployees to be accounted for in a similar manner as share-based payments to employees. This guidance does not apply to share-based payments used to effectively provide:
- Financing to the issuer
- Awards granted in conjunction with selling goods or services to customers
Effective dates: Fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.
ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement
This ASU modifies the disclosure requirements on fair value measurements, including the following:
- Removes the following disclosure requirements:
- The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy
- The policy for timing of transfers between levels
- The valuation processes for Level 3 fair value measurements
- The changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period
- Modifies the following disclosure requirements:
- In lieu of a rollforward for Level 3 fair value measurements, now required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities
- For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly
- The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date
Effective dates: Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
ASU 2019-03, Updating the Definition of Collections
This ASU modifies the definition of the term collections for entities that maintain collections (primarily not-for-profit entities) and requires that a collection-holding entity disclose its policy for the use of proceeds from when collection items are deaccessioned (that is, removed from a collection). If a collection-holding entity has a policy that allows proceeds from deaccessioned collection items to be used for direct care, it should disclose its definition of direct care.
Effective dates: Fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.
ASU 2019-08, Share-Based Consideration Payable to a Customer
This ASU requires an entity to measure and classify share-based payment awards granted to a customer similar to share-based payments to employees in Topic 718.
Effective dates: For entities that have adopted the amendments in ASU 2018-07, fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For entities that have not yet adopted the amendments in ASU 2018-07, fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.
ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting
This ASU adds a new Topic 848, Reference Rate Reform, to the Accounting Standards Codification (ASC), which provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. These expedients and exceptions apply only to:
- Contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform
- Contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship
Effective dates: March 12, 2020, through December 31, 2022.
Reminder: Deferrals of Effective Dates
FASB has deferred these effective dates of certain standards for private companies:
- ASU 2019-09 defers the effective date of ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts, to fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024
- ASU 2019-10 defers the effective date of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years
- ASU 2019-10 defers the effective date of ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, to fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021
- For entities that have not issued their financial statements reflecting the adoption of ASU 2014-09 as of June 3, 2020, ASU 2020-05 defers the effective date of ASU 2014-09, Revenue from Contracts with Customers, to fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020
- ASU 2020-05 defers the effective date of ASU 2016-02, Leases, to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022
Planning Ahead
The following standards will be in effect in the upcoming fiscal year for private companies.
ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities
This ASU expands the opportunities for entities to use hedge accounting by making changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. Key changes include, but are not limited to, the following:
- Permits hedge accounting for certain risk components in hedging relationships involving nonfinancial risk and interest rate risk
- Simplifies certain aspects of fair value hedges, including the ability to measure the change in fair value of a component or a partial term and to utilize a new “last-of-layer” method
- Any ineffectiveness measured for a hedge will now be presented in the same income statement line item in which the earnings effect of the hedged item is reported
- May elect to perform qualitative assessments of hedge effectiveness after the initial quantitative assessment
- When using the critical terms match method, may assume the hedging derivative matures at the same time as the forecasted transactions if they occur within the same 31-day period or fiscal month
- May perform the initial prospective quantitative assessment of hedge effectiveness after hedge designation, but no later than the first quarterly effectiveness testing date, or for certain private and not-for-profit entities, no later than the next interim or annual financial statements are available to be issued
- May apply a long-haul method for assessing hedge effectiveness if the shortcut method was applied and is no longer appropriate as long as certain conditions are met
Effective dates: ASU 2019-10 deferred the effective date to fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.
ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans
This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans as follows:
- Removes the following disclosure requirements:
- The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year
- The amount and timing of plan assets expected to be returned to the employer
- The disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law
- Related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan
- The reconciliation of the opening balances to the closing balances of plan assets measured on a recurring basis in Level 3 of the fair value hierarchy. However, entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets
- Adds the following disclosure requirements:
- The weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates
- An explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period
The ASU also clarifies the disclosures in ASC 715-20-50-3.
Effective dates: Fiscal years ending after December 15, 2021.
ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract (hosting arrangement) with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Capitalized implementation costs of a hosting arrangement are expensed over the term of the hosting arrangement and presented in the same line item as the fees associated with the hosting element. This guidance does not apply to the service element of a hosting arrangement.
Effective dates: Fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.
ASU 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities
This ASU allows a private company to elect not to apply variable interest entity (VIE) guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities. The ASU also provides guidance for evaluating indirect interests held through related parties under common control when determining whether a decision-making or service provider fee is a variable interest.
Effective dates: Fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 31, 2021.
ASU 2018-18, Collaborative Arrangements
This ASU makes the following targeted improvements:
- Clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account
- Adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606
- Requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer
Effective dates: Fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.
ASU 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials
This ASU makes changes to the accounting guidance for broadcasters and entities that produce and distribute films and episodic television series as follows:
- Aligns the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization
- Requires that an entity reassess estimates of the use of a film for a film in a film group and account for any changes prospectively
- Requires that an entity test a film or license agreement for program material within the scope of Subtopic 920-350 for impairment at a film group level when the film or license agreement is predominantly monetized with other films and/or license agreements
Effective dates: Fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.