FASB delays effective date for leases, hedging, and CECL standards

FASB delays effective date for leases, hedging, and CECL standards

Private companies and not-for-profit organizations will be getting a bit of a reprieve in a rapid-fire sequence of complex accounting standards updates. On Aug. 15, 2019, FASB issued a proposed Accounting Standards Update that will give private companies and not-for-profits extra time to implement the standards for leases, hedging, and credit losses.

Private companies and not-for-profits will get an extra year, until January 2021, to implement the hedging and lease standards, and an extra two years for the credit loss standard, until January 2023.

With these changes, FASB is changing its approach to setting effective dates for complex changes to accounting standards. FASB acknowledges that smaller companies often lack the internal and external resources to implement complex standards, and that granting these companies an additional year after new standards are effective for public companies may not be sufficient.

Now, FASB is considering giving private companies and not-for-profits an additional year for major updates. Complex updates will be effective for private companies and not-for-profits two years after they are effective for public companies. Minor updates will continue to be effective for private companies and not-for-profits one year after they are effective for public companies.

Let’s take a look at what this means for private companies and not-for-profits.


With ASC 842, FASB made big changes to the method of accounting for leases, which I wrote about here and here. For the first time, operating leases will appear on the balance sheet.

Accounting teams and their advisors are now realizing how much work implementing this new standard requires. First, organizations need to gather and analyze all of their leases. Contracts and other agreements need to be examined for embedded leases. With all the leases in hand, the data is extracted and entered into some kind of tracking system.

Companies with many leases will likely need a software tool to help them out because the calculations and required disclosures can be pretty tough to manage just using Excel. While there are many options for enterprise systems, QuickBooks® users have few choices.


Hedge accounting is notoriously challenging, but the update to ASC 815 codified as ASU 2017-12 simplifies this significantly. Adopting the standards for hedge accounting is elective, not mandatory, so this may not impact your clients. Organizations that have elected to follow the earlier simplifications to hedge accounting for private companies in ASU 2014-03 that I discussed here will not be impacted. Those standards may be implemented at any time. If you have clients whose hedging activities don’t fit under the requirements for the simplified approach in ASU 2014-03, the simplifications in 2017-12 may be worth looking into.

Current expected credit losses (CECL)

FASB’s update to the allowance for credit losses, ASC 326, codified as ASU 2016-13, is primarily aimed at financial institutions. As the financial crisis of 2008 demonstrated, the previous method for reporting expected credit losses was not adequate to protect financial institutions or investors. Under the previous standard, credit losses were reported as an impairment loss only when the loss became probable, delaying recognition, which made some balance sheets look much better than they really were.

While this is most relevant to financial institutions, FASB warns that this standard applies to any organization with receivables or investments on its balance sheet, or has exposure to possible losses through guarantees, commitments, or other off-balance sheet arrangements. This means any organization with trade receivables may be impacted.

Under the new model in ASU 2016-13, management’s estimates of current expected credit losses (CECL) are recognized immediately. These estimates can be developed by applying an organization’s historical experience of losses, adjusting that for current market conditions and combining that with estimated future cash flows from projections supported by reasonable assumptions.

For organizations that only have trade receivables, the guidance is flexible. Losses can be estimated by applying historic credit loss percentages and modifying those for current economic conditions, as described in this article from BKD.

Keep momentum going

Even with an extra year, many smaller organizations will face significant challenges in implementing these new standards. Your clients may need your assistance to understand the updated standards, and then to collect and analyze their data.

Hopefully, your clients have already started, but the additional time should not be a signal to stop or slow down. This is an opportunity for advisors to be especially proactive and reach out to your clients to make sure they’re on track!