The FASB plans to start its “post-effective date review” in 2019 on new accounting standards for revenue and leasing, to keep tabs on the guidance in “real time” as companies continue their adoption process, Chairman Russell Golden said. The review, a relatively new process for the board, will help to improve future standards and how companies implement them.
The FASB plans to start its “post-effective date review” this year on new accounting rules for revenue and leasing, to keep tabs on the guidance in “real time” as companies continue their adoption process, Chairman Russell Golden said.
The two standards for revenue recognition and leases are some of the biggest accounting changes the board has put into effect in more than a decade, holding significant impacts for some companies’ earnings. Companies are still in the process of adopting them.
The review, a relatively new process for the board, will help to improve future standards and how companies implement them. “All of this will help us understand both one-time and ongoing transition costs and, down the road, gather and compare ongoing data in this area,” Golden said.
The FASB’s post-effective date review and monitoring program is not well known by the board’s constituents, but it will secure “immediate feedback on our stakeholders’ implementation progress,” he explained in the board’s Quarterly Outlook, issued on April 11, 2019. But it “provides a tailored, longer-term look at each standard’s costs, benefits, and effectiveness.”
The review process will, in addition, enable the FASB to monitor investor perceptions of a standard in practice. “We anticipate that the benefits will take a longer time to measure than the costs,” Golden said.
Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), went into effect for public companies in 2018, and takes effect in 2019 for private companies.
The guidance replaces industry-specific rules with principle-based guidance for how companies report earnings obtained from the goods they sell or services they provide. The standard was issued in 2014.
“For the revenue recognition standard, we already held discussions with several advisory groups on the initial and ongoing costs of implementing the standard,” Golden wrote on LinkedIn. “We also issued a survey to financial statement preparers to better understand the costs of implementation.”
For ASU No. 2016-02, Leases (Topic 842), public companies have to apply it in 2019, and private companies in 2020. The guidance requires companies to—for the first time—bring on balance sheet all leased assets and leased liabilities that were previously kept off balance sheet. The standard will enable investors to understand the magnitude of lease obligations companies carry, and the impacts on their overall operations.
Golden said the FASB will survey the implementation costs of public, private, and not-for-profit organizations during the first few years of adoption of the leases rules.
The FASB’s post-effective date review is a similar process to the post-implementation review (PIR) that is done by its parent organization, the Financial Accounting Foundation (FAF). The FAF’s PIR review is done three-to-five years after the effective date of a new accounting standard. From that PIR, the FASB is able to determine whether to amend GAAP under a particular topic.
The board will also meet with its main advisory body, the Financial Accounting Standards Advisory Council (FASAC) later this year to discuss implementation costs.