The Financial Accounting Standards Board (FASB) Accounting Standards Codification is the sole source of authoritative U.S. GAAP for private companies. The FASB issues an Accounting Standards Update (ASU) to communicate changes to the FASB Codification. Below are highlights of recently-issued ASUs that are most likely to affect you. If there are additional updates, we will discuss them with you individually.
| ASU | Effective | Highlights |
|---|---|---|
| ASU 2016-02: Leases (Topic 842) and ASU 2018-01: Leases (Topic 842): Land Easement Practical Expedient and Transition to Topic 842 | This is effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted. | • Today, operating leases are off-balance sheet. This update will significantly change the balance sheet of lessees to be more like the current recording of capital leases. The new guidance affects operating leases with terms greater than one year on the balance sheet for both an asset (the right to use the leased item) and a liability (the obligation to make lease payments). • ASU 2016-02 changes the terminology to refer to capital leases as finance leases, but treatment will be relatively the same. • ASU 2018-01 allows a simplified transition approach (entities have the option to apply provisions at the effective date) and reduces the need for many lessors to separate lease and non-lease components. |
| ASU 2015-14: Revenue from Contracts with Customers: Deferral of the Effective Date | Nonpublic entities are required to apply the new revenue standard for the annual period beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. | • ASU 2014-09 is delayed for one more year. This will supersede all existing revenue recognition guidance. The new guidance focuses on when control of goods or services transfer to the customer instead of recognizing revenue when the risks and rewards transfer to the customer. • Additional guidance issued (ASU 2017-05, ASU 2016-12, ASU 2016-10, and ASU 2016-8) clarified some language relating to this subject. All are effective with ASU 2015-14. |
| ASU 2015-17: Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes | This is effective in annual periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early application is permitted (prospective or retrospective). | • ASU 2015-17 simplifies the balance sheet classification of deferred taxes so all are now NONCURRENT. |
| ASU 2016-09: Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting | This is effective in annual periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early application is permitted. | • Nonpublic entities can use practical expedient for determining the expected term of certain share-based awards (prospectively). • This offers a one-time opportunity to change the measurement basis for all liability-classified awards to intrinsic value upon adoption of the ASU. • It allows forfeitures to be recognized when they occur OR are estimated to occur (as currently required). • Other provisions in this ASU address income tax effects of share-based payments and minimum statutory tax withholding requirements. |
| ASU 2016-14: Not-for-Profit Entities (topic 95): Presentation of Financial Statements | This is effective retrospectively in annual periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. | • There are now two classes of net assets (net assets with donor restrictions and net assets without donor restrictions) instead of three (unrestricted, temporarily restricted, and permanently restricted). • This ASU requires enhanced disclosures for board-designated restrictions; the composition of net assets with donor restrictions and the nature of those restrictions; information regarding the entity’s liquidity; natural classification of expenses; methods used to allocate costs between program and support functions; and data on underwater endowment funds. • It also removes the requirement to disclose netted investment expenses. |
| ASU 2016-01: Financial Instruments – Overall (Subtopic 825-10): Recognition & Measurement of Financial Assets and Financial Liabilities | This is effective in annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early application is permitted (excluding some disclosures). | • Equity investments not accounted for using the equity method of accounting will no longer be able to use the available-for-sale classification (where changes in fair value are reported in comprehensive income). All equity investments will generally be measured at fair value through earnings. • Where financial liabilities using the fair value option are concerned, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. They will be reclassed to earnings if they’re settled before maturity. • Companies will no longer be required to disclose the fair value of financial instruments measured at amortized costs. |
Please contact your MST professional for additional information about any of these ASUs and for assistance in evaluating your specific facts and circumstances.
