FASB looking at delaying standards for private companies and nonprofits for 2 years

Financial Accounting Standards Board chairman Russell Golden said Tuesday that FASB is considering giving accountants at privately held companies and not-for-profit organizations an extra two years to implement standards, instead of the one year it sometimes extends the effective dates for 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’ 2019 annual conference and expo in San Diego, marking the IMA’s 100th anniversary. “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.”

Before that, the IMA also plans to hold a meeting Wednesday to vote on issuing an exposure draft of a proposed standard on liabilities and equity, which Golden hopes to wrap up before his term as FASB chairman ends next June. While that standard would have a major impact, the two-year delay on the effective date could have an even wider impact on a host of other standards that have already been finalized by FASB.

FASB chairman Russell Golden speaking at the IMA Annual Conference and Expo in San Diego

Later, during a Q&A session with IMA chair emeritus Alex Eng following his speech, Golden explained what might happen with the lease accounting, hedging and current expected credit loss (also known as 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,” Golden recalled. “And we did a lot of research that helped us understand that private companies could reduce their costs by learning from public companies. They could learn from the accounting policies at public companies. They could learn from disclosures of 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 company 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?”

Institute of Management Accountants chair emeritus Alex Eng (left) with FASB chairman Russell Golden at the IMA conference and 100th anniversary in San Diego

To answer those questions, Golden has introduced it as a research topic for the FASB staff to study. “That's typically what happens,” he explained. “We put it on our research agenda and then the staff brings various things to the board. We're hopeful to have our first public board meeting on this on July 17. Once the board determines if we want to change our philosophy to go to two years for private companies and not-for-profits and then have a separate effective date for smaller reporting companies, I will then ask the board, do you want to make that a prospective approach or a 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.”

Accounting Today asked Golden to elaborate on how they might affect the requests for delaying the CECL standard for the private banks and community banks that have complained about the timeline. “On July 17, we’re scheduled to have the meeting to discuss the philosophy,” said Golden. “I think that philosophy is a good thing for the board to discuss and consider, and I think that if we apply that philosophy, we should consider the change retrospectively, so I do plan on having that discussion, and the board is being educated on the research the staff has done over the next few weeks.”

Accounting Today also asked about all the changes in leadership at FASB and the Governmental Accounting Standards Board, as well as the Financial Accounting Foundation that oversees them. Golden’s term is scheduled to end around the same time as GASB chairman David Vaudt, while FAF president and CEO Teri Polley recently announced she is stepping down as well. “Dave and I have always had the same term,” he said. “We’ve always been done in June of 2020. The trustees are actively looking at recruiting my replacement, and Dave’s replacement. They’ve put out a call for candidates and begun the search. My understanding is that’s progressing according to plan.”

Meanwhile, Golden is continuing his work, with a focus on the liabilities and equity standard that FASB will be meeting to vote to propose on Wednesday.

“Our active agenda project on liabilities and equity will simplify a very complex area of accounting — and provide more relevant information to financial statement users,” Golden said in his speech. “In the coming months, we’ll seek your input on an Exposure Draft that contains our proposals to achieve that.”

“We’re hopeful to get that exposure draft out,” he told Accounting Today. “Tomorrow will be the final day before the [invitation to] comment, and we’ll hopefully get that out, and we might have an opportunity to finish that by next spring.”

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