As anticipated in this PubCo post, at its July 17 meeting, the FASB Board signaled its intent to adopt a new "two-bucket" approach that would stagger the effective dates for new major accounting standards. Under the new approach, the effective dates of major new standards would be delayed for entities in "Bucket Two"—smaller reporting companies, private companies, employee benefit plans and not-for-profit organizations— for at least two years after the effective dates for entities in "Bucket One"—other SEC filers. The determination of whether an entity is an SRC will be based on the entity's most recent assessment in accordance with SEC regulations. (See this PubCo post and this Cooley Alert.)
Subject to formal adoption of an accounting standards update, the change would mean that the accounting standard for Credit Losses (referred to as CECL) would be effective for entities in Bucket Two (including SRCs) for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. However, since the standards for Leases and for Derivatives and Hedging were already in effect, no change will be made with regard to the effective dates for SRCs, although some delay will likely be implemented for some of the other entities in Bucket Two.
As discussed in these FASB background materials, the change in philosophy was triggered as a result of recent FASB staff outreach to stakeholders and monitoring of implementation activities, through which the FASB staff learned that FASB's issuances of multiple major standards in the past several years had presented some "operability challenges" for all types of entities as they transitioned to the new standards. Although larger public companies encounter transition difficulties, those challenges were "magnified" for SRCs and nonpublic business entities (generally, private companies, not-for-profits and employee benefit plans).
According to the FASB, the following factors contributed to the transition challenges:
"(a) The availability of resources
(b) Timing and source of education
(c) Learnings from implementation issues encountered by larger public companies and SEC comment letters
(d) Application of difficult transition guidance often associated with a major standard
(e) Understanding and applying guidance related to additional standard-setting activities and education provided after a major standard is issued
(f) The development of:
(1) Sufficient information technology and expertise in developing and implementing new IT systems or system changes
(2) Effective business solutions and internal controls."
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