The Financial Accounting Standards Board officially proposed delaying the implementation deadlines for major accounting standards for private companies, smaller reporting companies (SRCs), and not-for-profit organizations. The later deadlines, which FASB hopes to make standard practice, would give private companies until January 2021 to comply with the new lease and hedge accounting standards updates, and until January 2023 to comply with the new rules on current expected credit losses (CECL).

In the exposure draft, issued Thursday, FASB said the proposal represented a shift in FASB’s philosophy around how effective dates for major standards are staggered between “larger public companies and all other entities.”

“Based on what we’ve learned from our stakeholders, including the Private Company Council and the Small Business Advisory Committee, private companies, not-for-profit organizations, and SRCs would benefit from additional time to apply major standards,” stated FASB Chairman Russell G. Golden.

Going forward, if the proposal is adopted, new accounting standards would first take effect for larger SEC filers and then be effective for other entities up to two years later.

SRCs, which would benefit from the delay 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. Employee benefit plans would also fall into the category of “other entities.”

Because the leases and hedging standards are already in effect for some SEC filers, FASB decided not to change the effective date of those standards for SRCs. The deadline for SRCs to comply with the new credit loss standard, however, would be pushed back to January 2023.

FASB said challenges around the implementation of major accounting standards are “magnified” for private companies and smaller public issuers. The exposure draft listed some factors that affect the “severity of challenges” they encounter when transitioning to a new accounting standard:

  1. Availability of resources (both internal and external)
  2. Timing and source(s) of education
  3. Knowledge or experience gained from implementation issues encountered by larger public companies
  4. Understanding and applying guidance from post-issuance standard-setting activities
  5. The development or acquisition of sufficient information technology and expertise in developing new systems or effecting system changes, effective business solutions and internal controls, and better data or estimation processes.

At the July 17 FASB board meeting, member Harold Schroeder said moving back the effective dates of standards for private and smaller reporting companies was about more than just mere compliance.

In talking with businesses the last eight years, said Schroeder, he has learned that they can apply new accounting standards quickly — “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.

FASB encouraged stakeholders to comment on the proposed ASU by September 16.

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