FASB Looking at Delaying Standards for Private Companies and Nonprofits for Two Years
FASB Board Chair Russell Golden said recently FASB is considering giving accountants at privately held companies and nonprofit organizations an extra two years to implement standards, instead of the one year it sometimes extends them.
“At a public meeting next month, the FASB will consider whether we should extend implementation timelines for private companies and not-for-profit organizations as well as for smaller public companies - and if so, how we should define a ‘small public company’,” Golden said at the Institute of Management Accountants’ (IMA) 2019 conference. “As part of this process, we’ll look at the effective dates of certain standards that are not yet effective to determine whether they should be amended to reflect a new philosophy. We’ll ask you for input on this as well.”
Golden explained what might happen with the lease accounting, hedging and current expected credit loss (CECL) standards, which haven’t yet taken effect for private companies. “Back in 2010 to 2012, before that we always made GAAP effective for both public and private at the same time. And we did a lot of research that helped us understand that private companies could reduce their costs by learning from public companies. And so we began to give an additional year for private companies and we gave an extra year for not-for-profits, provided they weren't a conduit borrower. The thought was a conduit borrower was entering a quasi-capital market. What we've observed in looking back on revenue recognition is that for some of these major standards perhaps a year is not long enough for the private companies to reap the benefit of the reduction of cost.”
He noted that's primarily because the audit of the financial statements of public companies usually came out after private companies began to implement the standard, especially when the revenue recognition standard took effect.
“And then we have the regulatory cycle, which is important to ensure quality in our capital markets by the SEC and the PCAOB, so we're studying whether or not two years makes more sense on these major standards for the spread between public and private,” said Golden. “We're also looking at perhaps we should extend that for not-for-profits and conduit borrowers. When you think about the not-for-profits, the private companies have a similar concern about resources and training and availability, so why should they have a difference? And then we started to look at [whether] the concerns and the resources of private companies are similar to some component of public companies. In the past, we've never really had a different effective date between categories of public companies. But the [Securities and Exchange] Commission has three or four categories, depending on when you have to file your financial statements. So we’ve gone back to look to see does that impact the coverage of a public company, the fact their financial statements come later than others, does that mean they have fewer analysts following them? Would that impact their investment?”
To answer those questions, Golden has introduced it as a research topic for the FASB staff to study. He stated he hopes to have the first public board meeting on the issue July 17, and if the decision is to move forward, they will decide to take a prospective or retrospective approach. “If it’s retrospective, that would potentially adjust the current effective dates for private companies on those that aren't yet effective, which includes leasing, hedging and CECL. We are researching whether or not we should change the public company effective dates on those standards. But we are researching right now whether we should change the public company effective date on our project to include long-duration insurance, those that write life insurance and annuities, and that’s because of an agenda request. But with respect to leases, hedging and CECL, it's solely related to smaller reporting companies and private companies in that regard.”
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