ASU 2019-10: Key Provisions and Effective Dates

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-10, providing a staggered and delayed timeline for several new accounting standards. This update was a response to feedback regarding the complexity and cost of implementing these changes. The purpose was to offer relief to certain organizations, allowing them more time to adopt the new requirements by staggering effective dates based on an entity’s classification.

Entities Eligible for Deferral

The deferral granted by ASU 2019-10 is aimed at entities with more limited resources. The FASB established a “two-bucket” approach, separating large, public companies from all other entities. This latter group benefits from the delayed effective dates and includes private companies, not-for-profit organizations, and Smaller Reporting Companies (SRCs).

Private Companies

For the purposes of this deferral, a private company is an entity that is not a public business entity (PBE). A PBE is defined by criteria that include whether it is required to file financial statements with the Securities and Exchange Commission (SEC). Companies that do not meet these requirements qualify as private and are eligible for the extended timelines.

Not-for-Profit Entities

Not-for-profit (NFP) entities are another group granted relief under ASU 2019-10. This category includes organizations such as charities, foundations, and universities that operate for purposes other than generating profit. The deferral also extends to certain NFP entities that are conduit bond obligors for securities traded in a public market, provided they are not SEC filers.

Smaller Reporting Companies

A group benefiting from the deferral is Smaller Reporting Companies (SRCs), a designation defined by the SEC. An entity qualifies as an SRC if it has a public float of less than $250 million. Alternatively, a company with less than $100 million in annual revenues can qualify if it has either no public float or a public float of less than $700 million. An entity’s SRC status for the deferral is determined as of a specific date and does not change if it later fails to meet the criteria.

Deferred Accounting Standards and New Effective Dates

ASU 2019-10 amended the mandatory adoption dates for several accounting standards, providing relief to eligible entities. The deferrals allowed smaller organizations to benefit from the implementation experiences of larger public companies.

Credit Losses (Topic 326)

Financial Instruments—Credit Losses (Topic 326), commonly referred to as CECL, changes how entities account for expected credit losses. It requires a forward-looking approach where companies must estimate and recognize lifetime expected losses on financial assets. For eligible entities, ASU 2019-10 deferred the effective date to fiscal years beginning after December 15, 2022.

Leases (Topic 842)

Leases (Topic 842) requires companies to recognize most lease arrangements on their balance sheets by recording a right-of-use asset and a corresponding lease liability. This ended the common practice of off-balance-sheet operating lease accounting. For private companies and not-for-profit entities, the effective date was pushed to fiscal years beginning after December 15, 2021.

Derivatives and Hedging (Topic 815)

The update to Derivatives and Hedging (Topic 815) was intended to simplify hedge accounting and better align financial reporting with an entity’s risk management activities. ASU 2019-10 deferred the effective date for all other entities to fiscal years beginning after December 15, 2020.

Long-Duration Insurance Contracts (Topic 944)

This standard targets insurance companies that issue long-duration contracts, such as life insurance and annuities, and requires changes to liability measurement and profit recognition. For eligible insurance entities that are not large public filers, the effective date for Topic 944 was delayed to fiscal years beginning after December 15, 2024, with early application permitted.

Rationale for the Deferral

The FASB issued ASU 2019-10 as a direct result of feedback from stakeholders. Many expressed concerns that the original, uniform effective dates created implementation challenges for smaller organizations that often lack the resources of larger public companies. This led to the formalization of the two-bucket framework for setting effective dates, separating SEC filers (excluding SRCs) from all other entities.

This staggered approach allows smaller entities and their auditors to learn from the implementation experiences of the larger public companies. By observing the challenges and solutions that emerge, resource-constrained organizations can implement the standards more efficiently, reducing costs and improving the quality of financial reporting.