Third Quarter Financial Services Update Highlight – FASB Proposes Deferral of Effective Dates for CECL, Leases and Hedging

This article is a part of a larger third-quarter update. For more information on these quarterly updates, please contact a member of the
Elliott Davis Financial Services Group

On August 15, the FASB issued Proposed ASU NO. 2019-750, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. Under the proposed changes, the effective dates for CECL, Leases and Hedging will be deferred for smaller reporting companies (SRCs), private and not-for-profit organizations an additional year to adopt the new credit loss rule. The proposal would also grant private companies and nonprofits an additional year to adopt leases and hedge accounting rules. Large public companies will not get a deferral.

If finalized, the proposed changes would result in the following changes:

Measurement of Credit Losses (CECL)

The proposal would defer ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, from 2021 to 2023 for SRCs and from 2022 to 2023 for private companies and nonprofits (calendar-year-end dates).

Calendar-year-end SEC filers (typically larger public companies) that are not SRCs as defined by the SEC would keep the current January 1, 2020, effective date for ASU No. 2016-13. Earlier application is allowed.

Leases

The proposal would defer ASU No. 2016-02, Leases (Topic 842), from 2020 to 2021 (calendar-year-end) for private companies and not-for-profit organizations.

The leases rules are already in effect for public companies and therefore no date changes can be made for those companies.

Hedging

The proposal would defer ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, from 2020 to 2021 (calendar-year-end) for private companies and not-for-profit organizations.

The hedging rules are already in effect for public companies and therefore no date changes can be made for those companies, the proposal states.

The comment period closed on September 16 and the FASB is scheduled to vote on the Proposed ASU on October 16.

We can help

If you have questions or need more information related to the new lease accounting standard, please contact your Elliott Davis adviser.