Private companies now have until 2021 to follow the new lease accounting rules that public companies adopted earlier this year.

The Financial Accounting Standards Board (“FASB”) voted July 17th to give privately held companies additional time due to the complexities of the lease accounting standards changes as well as being on the heels of the revenue recognition major changes. The FASB new rules on lease accounting standards resulted in multiple changes on how companies report leased assets and liabilities and these changes are particularly cumbersome for privately held companies. The year reprieve should not be viewed as a time to postpone getting started in prepping for implementation or giving an excuse to put on hold current progress in this process if you have already begun to implement, rather it should highlight the complexity and work needed to reach compliance.

This is a tentative decision, pending comments, but is not expected to receive much opposition.

There is a comment period of 30 days which allows practitioners and users of financial statements to comment on the deferment. Overturning this decision is not expected.

Attention: Accounting Rule Delays in the Works

The vote on July 17, 2019, by the Financial Accounting Standards Board (FASB) issued a proposal that would delay several landmark accounting rules for certain companies. If finalized, the deferral would apply to new guidance for reporting leases, hedging transactions, credit losses and long-term insurance contracts.

Full Summary of FASB Changes

The table below summarizes key implementation date changes that the FASB unanimously voted to propose.

Accounting Standards Update (ASU)Types of entities affected by the proposed date changesCurrent effective date for calendar-year entitiesProposed effective date for calendar-year entities
No. 2016-02, LeasesPrivate companies and not-for-profits20202021
No. 2017-12, Derivatives and HedgingPrivate companies and not-for-profits20202021
No. 2016-13, Financial Instruments — Credit LossesSmaller reporting companies20212023
Private companies and not-for-profits20222023
No. 2018-12, Financial Services — InsurancePublic companies20212022
Smaller reporting companies, private companies and not-for-profits20222024

The term “smaller reporting companies” refers to those that have either 1) a public float of less than $250 million, or 2) annual revenue of less than $100 million and no public float or a public float of less than $700 million.

Unexpected Delays for Private Companies and Nonprofits

Private companies and nonprofits often receive an extra year to implement major accounting standards updates, compared to the effective dates that apply to public companies. In a shift in its philosophy for setting reporting dates on major new accounting standards, the FASB wants to give certain entities even longer to implement the changes.

Why are these delays needed?

Many entities continue to struggle with implementing the new revenue recognition guidance that went into effect in 2018 for public companies and 2019 for other entities. A possible deferral of other new rules would also allow smaller entities to learn from public companies how to implement the changes — and it would give accounting software providers extra time to update their packages to support the new reporting models.

FASB Proposal Coming Soon

The FASB is expected to issue its proposal as soon as possible. Then it will be subject to a 30-day comment period.

These deferrals, if finalized, would be welcome news for many organizations. But they’re not an excuse to procrastinate. Depending on your industry and the nature of your transactions, implementing the changes and educating stakeholders could take significant resources. Contact us before the implementation deadline to come up with a realistic game plan.

Consider partnering with LBMC as you prepare your transition.