What a Relief: The FASB Extends Deadlines for New Accounting Standards
On October 16, the Financial Accounting Standards Board (FASB) voted to defer the deadlines for private companies and certain small public companies to implement the new accounting standards on leasing, hedge accounting, credit losses (aka CECL), and long-duration insurance contracts.
Although the FASB has provided private companies with extra time to comply with the new standards, private companies should not wait to kick off their projects. Keeping in mind the lessons learned during public company adoptions, private companies should seize the extension as an opportunity to plan thoughtful implementations in pursuit of their strategic objectives.
Here are some key considerations for companies as they develop their adoption plans.
Amended effective dates for the new accounting standards
LEASING
Old Effective Date: 1/1/2020
New Effective Date: 1/1/2021
HEDGE ACCOUNTING
Old Effective Date: 1/1/2020
New Effective Date: 1/1/2021
CREDIT LOSSES
Old Effective Date: 1/1/2021
New Effective Date: 1/1/2023
LONG DURATION INSURANCE CONTRACTS
Old Effective Date: 1/1/2022
New Effective Date: 1/1/2024
Organize the Steering Committee
Implementing the new standards requires more than just a change in accounting; it requires consideration of the people, processes, controls, IT systems, and numerous other functions that will be affected by the transition. Similar to the impact the new revenue recognition guidance (ASC 606) had on many organizations, companies can expect wide-reaching implications across the business. For each new standard, companies should establish a project steering committee comprised of senior-level representatives from various departments. This group, established early on in the adoption timeline, will maintain focused engagement for these initiatives in order to ensure buy-in from across the organization on critical decisions and reduce the surprise of knock-on effects discovered on the back end.
Focus on the Full Roadmap
Companies should think about the implementation of the new accounting standards as a journey: Like every good road trip, it’s important to have a map. In addition to having detailed project plans for each new standard, companies should consider creating a broader accounting change plan that aligns the implementation of these standards with other strategic changes in the organization (e.g., implementation of new information technology systems). This plan will help reduce back-end rework on new systems to meet changing business requirements and make it easier for staff to support these projects while continuing their operational responsibilities.
Don’t Forget Internal Controls
Many private companies will eventually go public. Instead of scrambling on the back end to retrofit controls before a capital markets transaction, companies should consider layering a control assessment into the project plan on the front end. In addition to helping improve the reliability of the company’s financial information as part of good governance, this approach will allow finance leadership to focus on more strategic priorities as the company prepares to become SEC ready.
For private companies that have been waiting for the FASB to provide them with extra time to implement the suite of forthcoming accounting standards, the delay announcement may seem like an early holiday gift. By putting that time to good use, companies can make the implementation of these new accounting standards a smoother and more efficient process.