At this time of year, it is important to familiarize ourselves with the Accounting Standards Updates (ASUs) that are now effective for the first time, along with a few that may be coming down the pipeline. Included is a sample of the most prevalent standards for non-public business entities (which have different effective dates).
Effective during calendar year 2022
ASU 2016-02: Leases (Topic 842): Leases
Overview: Lease commitments in various forms must be included as part of the balance sheet and will be recorded as a right of use asset with a corresponding liability and amortized of the life of the leases.
Implementation: Effective for years beginning after December 15, 2021. ASU 2016-02 Leases should be implemented and reviewed in conjunction with the numerous amendments and practical expedients.
ASU 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
Overview: Reduces cost and complexity related to accounting for income taxes by making narrow simplifications to income tax accounting; however, there were some provisions that will impact private companies that are pass-through entities. The standard reversed the order in previous guidance for a hybrid income/franchise tax by placing income tax first and, if any additional amounts were owed under a franchise tax, FASB ASC 740 would not apply. The standard also states an entity is no longer required to allocate consolidated current and deferred tax expense to legal entities not subject to tax if consolidated, although the entity may elect to still do so. Application of state and local deferred income to pass-through entities should be considered, if material.
Implementation: Effective for years beginning after December 15, 2021. Early adoption is permitted.
ASU 2020-01: Investments – Equity Securities (Topic 321): Investments – Equity Method and Joint Ventures (Topic 323) and Derivatives and Hedging (Topic 815) Clarifying the Interactions between Topic 321, Topic 323 and Topic 815.
Overview: Clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting for purposes of applying the measurement alternative within Topic 321 immediately before applying or discontinuing the equity method. The standard also prompts consideration of whether certain forward contracts and purchased options should be accounted for which standard. It should also be considered, upon settlement or exercise, if the securities would be accounted for under the equity method or fair value.
Implementation: Effective for years beginning after December 15, 2021. Early adoption is permitted.
ASU 2020-07: Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets
Overview: Improves transparency in the reporting of contributed nonfinancial assets (gifts-in-kind (GIK)). Requires an NFP organization to present GIK as a separate line item on the statement of activities along with increased disclosures. Those disclosures include disaggregation by category and, for each category, qualitative information regarding whether the GIK was utilized, restriction and program information, and valuation techniques.
Implementation: Effective for years beginning after June 15, 2021. Early adoption is permitted.
ASU 2021-07: Compensation – Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards (a consensus of the Private Company Council)
Overview: Practical expedient allowing a nonpublic entity to determine the current price input of an equity-classified share-based award issued using reasonable application of a reasonable valuation method. Various methods and applications are included and recommended.
Implementation: Effective for years beginning after December 15, 2021. Early adoption is permitted.
ASU 2021-10: Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance
Overview: Enhances disclosures for business entities regarding the nature of transactions, accounting policies, affected line items on the balance sheet and income statement, and the amounts applicable to each financial statement. An entity must disclose information about the significant terms and conditions including but not limited to the duration of the agreement, commitments made by both parties, provisions for recapture and any other contingencies.
Implementation: Effective for years beginning after December 15, 2021. Early adoption is permitted.
Effective during calendar year 2023
ASU 2017-04: Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
Overview: Eliminates the requirement to reallocate the fair value of the acquired assets and liabilities by reporting unit at the goodwill impairment measurement date and the comparison of the goodwill resulting from this reallocation to that originally recorded. Also eliminates the requirement to perform a qualitative test for impairment if the carrying value of that unit is negative or zero.
Implementation: Effective for years beginning after December 15, 2022. Early adoption is permitted.
ASU 2022-04: Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations (except for amendment on roll-forward information)
Overview: Requires the buyer in a supplier finance program to disclose qualitative and quantitative information about the program regarding the program’s nature, activity during the period, changes from period to period, and potential magnitude including items such as outstanding amounts, description of obligations, and a rollforward.
Implementation: Effective for years beginning after December 15, 2022. Early adoption is permitted.
ASU 2016-13: Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
ASU 2018-19: Codification Improvements to Topic 326, Financial Instruments – Credit Losses (tied to adoption of ASU 2016-13)
ASU 2019-04: Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 8225 Financial Instruments
ASU 2019-05: Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief
ASU 2019-11: Codification Improvements to Topic 326, Financial Instruments – Credit Losses
ASU 2020-03: Codification Improvements to Financial Instruments
ASU 2022-02: Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
Overview: Includes significant changes in the accounting for credit impairment and, although assumed to have the most impact on financial institutions, most organizations have financial instruments that are affected, such as trade receivables, contract assets, lease receivables, loans and commitments, held to maturity securities, etc. Adds current expected credit loss (CECL) as an impairment model, which is based upon expected losses rather than incurred losses. The ASU will reduce the complexity by decreasing the number of models an entity uses, eliminates the barrier for timely recognition of losses, recognition of an allowance of lifetime expected losses, and not require a specific method for estimating expected credit losses. There have been numerous updates, amendments, and codifications since the issuance of ASU 2016-13.
Implementation: Effective for year beginning after December 15, 2022. Early adoption is permitted.
For any questions or guidance related to the new standards, please contact Stephanie Allgeyer at sallgeyer@vlcpa.com or 800.887.0437.
