The Financial Accounting Standards Board voted unanimously on Wednesday to propose delaying the effective date of some of its major accounting standards, including ASC 842, Lease Accounting, for privately held companies, nonprofits, and small reporting companies.

The delay means those organizations would have an extra year — until January 2021 — to adopt the new lease accounting rules. The delay would also apply to the deadlines to adopt ASC 326 (Current Expected Credit Losses) and ASC 815 (Derivatives and Hedging).

FASB has to issue a formal proposal for public comment before finalizing the new effective dates. For private companies, ASC 842 is currently scheduled to take effect for annual financial reporting periods starting after Dec. 15 (or after Jan. 1, 2020 for calendar periods), and interim periods after Dec. 15, 2020.

The new leasing standard took effect for public companies in January 2019, but several groups had been calling for postponing the effective date for other issuers. In May, the American Institute of CPAs formally asked FASB to push back the effective date, calling lease accounting “significant and complex.”

The AICPA cited, among other things, the overlap with the implementation of FASB’s new revenue recognition standard and the struggles public companies had complying with the new lease accounting rules.

Prior to voting to add a project to the FASB agenda to amend the effective date of the three standards, several FASB board members expressed their support. Among other benefits, a delay would provide time for greater education of private companies and for organizations to manage the disruption accounting changes cause. On the other hand, the cost of the delay would be nominal in terms of the capital flow to private companies, pointed out FASB Vice Chair James Kroeker.

private company accounting

FASB member Harold Schroeder

In a survey earlier this year, Deloitte found that only 30% of private companies planned to adopt ASC 842 on schedule while 33% said they were unprepared to comply and 44% said they were just somewhat prepared.

But FASB board member Harold Schroeder said moving back the standards’ effective date for private and small reporting companies was about more than just mere compliance.

In talking with companies the last eight years, said Schroeder at FASB’s public forum on Wednesday, he learned that companies can apply new accounting standards quickly. They can take a compliance approach and “tick the boxes [and] get the numbers right on the income statement or balance sheet,” he said. But if they want to “integrate the information into their business and use it for making business decisions in the future, they need more time. … [They] don’t have the resources [and] the software developers aren’t up to speed, or it hasn’t trickled down to the smaller companies,” Schroeder added.

At the forum, FASB Chair Russell Golden indicated that the board was contemplating making the two-year difference in the effective date for rules adoption by public and private companies a standard practice, at least for major codifications.

FASB issued the new leasing standard in February 2016. It could bring up to $2 trillion of lease liability onto S&P 500 balance sheets, affecting public and private entities that enter lease arrangements and sign contracts containing leases to support their business operations.

The small reporting companies that would benefit from the extra year in effective dates are defined as those with a public float of less than $250 million, or annual revenue less than $100 million and no public float, or a public float of less than $700 million.

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