ASU 2020-10: A Summary of Codification Improvements
Gain insight into ASU 2020-10, an update that enhances U.S. GAAP by improving the usability and consistency of the FASB Codification through minor amendments.
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-10. This update is not designed to introduce major new accounting rules but to enhance the overall usability and internal consistency of the FASB’s Accounting Standards Codification (ASC). It makes the existing guidance easier for financial statement preparers to understand and apply by making a series of small-scale corrections and clarifications, and refining the structure and wording of the Codification.
Scope of Codification Changes
The changes introduced by ASU 2020-10 are numerous but generally minor in their individual impact. They fall into several broad categories intended to improve the Codification’s structure and clarity. A significant portion of the update involves conforming amendments, which standardize rules and disclosure requirements across different topics within the Codification to eliminate inconsistencies.
Another category of changes involves clarifying ambiguous language by refining wording to prevent misinterpretation of existing standards. For instance, the update moves disclosure requirements that were previously located in other sections into the dedicated “Disclosure” sections of the relevant topics. This structural change makes it less likely that a preparer will overlook a required disclosure.
The update also incorporates minor improvements, such as correcting inaccurate cross-references between different sections of the Codification, removing guidance that has become outdated or has been superseded by newer standards, and fixing simple typographical errors. While these edits do not change existing GAAP, they are part of the FASB’s ongoing maintenance to ensure the Codification remains a reliable and accurate source of authoritative guidance for all reporting entities.
Effective Dates and Implementation
The implementation timeline for ASU 2020-10 varies based on the type of entity. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. All other entities, which includes private companies and not-for-profit organizations, were required to adopt the changes for annual periods beginning after December 15, 2021. The FASB permitted early application of the update for any entity that wished to implement the changes ahead of the mandatory dates.
Adoption of ASU 2020-10 requires retrospective application. This means that an entity must apply the amendments as if they had always been in effect for all periods presented in its financial statements. For example, if a company presents comparative financial statements for 2022 and 2023, it must adjust the 2022 figures to reflect the changes, ensuring consistency across all reported periods.