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In this quarterly update, we have provided information about financial reporting and accounting issues – some of which are currently being evaluated by regulatory agencies and have not been resolved at this time. We have also compiled a list of items for consideration in your financial reporting and disclosures for the second quarter and a summary of recently issued accounting pronouncements (see Appendices for summary of recently issued accounting pronouncements and the related effective dates).
If you have any questions regarding any of the items within, or if there are other areas where we might be of assistance, please reach out to our financial services team. We would be happy to help in any way we can.
Here are the sections covered in this update:
[page_anchor link="frequent-topics-of-discussion-across-the-industry"]
Marshall Trull, Senior Manager
As we approach the end of the second quarter of 2022, we are only six months away from the January 1, 2023, implementation date of the Current Expected Credit Loss (CECL) standard for smaller reporting companies and private institutions. At this point in the implementation process, institutions should have conducted or should soon be preparing to conduct parallel model runs. We recommend that institutions run parallel models by September 30, 2022, at the latest.
The planning of an effective parallel model run is vital to ensuring your institution is ready to calculate, review, and report on the new model for the first quarter of 2023. The effort required to support a parallel run should not be underestimated. You will be running the new CECL model in addition to your incurred loss model, requiring additional time and resources, both of which are likely in short supply for most. An effective parallel model run can be broken down into three distinct phases: technical and mechanical viability, operational effectiveness, and reporting.
[page_anchor link="fintech-update"]
Morgan Barr, Manager
Chad Reingardt, Shareholder
As preferences continue to change in a digital world, community banks and credit unions are making strategic partnerships with financial technology (“fintech”) to enhance the customer experience. Over the past three years, almost two-thirds of banks and credit unions have entered into at least one fintech partnership. In 2021 alone, global fintech funding reached $210 billion, and the average investment in fintech by financial institutions grew to nearly $10 million. Though fintechs were once seen as a threat to traditional banking, fintech investments are now considered to be strategic partnerships and important steps to the future of banking. However, with fintech companies traditionally growing quickly and operating under a different regulatory lens, partnering with a financial institution will quickly require the fintech to ensure appropriate controls are in place, and they are in compliance with regulations. Financial institutions will need to consider data privacy, AML and other regulatory compliance risks are appropriately addressed while working closely with the fintech to ensure viability and to reach their strategic goals.
Fintech partnerships typically are considered to fall into one of three categories: operational technology partnerships, customer-oriented partnerships, or front-end partnerships. Operational technology partnerships are often explored when the institution’s strategic needs are to enhance the institution’s technical infrastructure, monitoring, or other internal processes. Through the use of third-party technology, the institution will strive to improve effectiveness and efficiency. An example of such operational technology partnerships may include the deployment of new technology to automate certain aspects of the loan origination process in order to reduce costs related to data input and underwriting.
Customer-oriented partnerships may be entered into when the strategic goal is to enhance the customer-facing aspects of the financial institution’s business. Through the implementation of technology, the bank may offer the ability for customers to open accounts online or roll out goal-based savings applications. In all instances, the use of such technology is to both improve and enrich the customer experience.
The final fintech partnership grouping, front-end partnerships, or what is referred to as banking-as-a-service (BAAS), combines the financial institution’s infrastructure with technology developed by a fintech, wherein the fintech is able to interact directly with the end-customer in the delivery of banking products and services. Such services include the ability to make deposits, extend credit, or issue debit or credit cards.
Should a financial institution identify that its strategic needs align in a manner that fintech partnerships can be explored, proper due diligence is of the upmost importance. In August of 2021, due to the growing number of relationships between fintech and financial institutions, the Office of the Comptroller of the Currency (“OCC”) issued a guide to conducting due diligence. This guide defines and outlines six areas of due diligence to help ensure financial institutions entering into fintech partnerships are doing so in a manner that assesses the related risks. In addition to proper due diligence, it is crucial that a financial institution keep a finger on the pulse of the environment to remain abreast of industry issues and regulatory changes. The OCC continues to alter its monitoring of fintech and novel banks.
The ever-changing fintech landscape presents the industry with a myriad of new challenges, as well as a countless number of new opportunities. Management should consider all scenarios and the resulting impacts to stakeholders as well as the related accounting and regulatory impact before entering into strategic fintech partnerships.
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The following selected Accounting Standards Updates (ASUs) were issued by the Financial Accounting Standards Board (FASB) during the second quarter. A complete list of all ASUs issued or effective in 2022 is included in Appendix A.
In March, the FASB issued ASU 2022-01, Fair Value Hedging—Portfolio Layer Method, which is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, the FASB issued ASU 2017-12, Targeted Improvement to Accounting for Hedging Activities, to better correlate the economic results of risk management activities with hedge accounting. ASU 2017-12 increased transparency around how the results of hedging activities are presented, both on the face of the financial statements and in the notes, for investors and analysts when hedge accounting is applied. One of the major provisions of ASU 2017-12 was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows.
Since issuing ASU 2017-12, stakeholders have told the FASB that the ability to elect hedge accounting for a single layer is useful, but hedge accounting could better reflect risk management activities if expanded to allow multiple layers of a single closed portfolio to be hedged under the method. ASU 2022-01 expands the current single-layer method to allow multiple hedged layers of a single closed portfolio under the method. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method.
Additionally, ASU 2022-01:
ASU 2022-01 applies to all entities that elect to apply the portfolio layer method of hedge accounting.
Effective Dates
For public business entities, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. For all other entities, ASU 2022-01 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted.
In March, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures, which is intended to improve the decision usefulness of information provided to investors about certain loan refinancings, restructurings, and write-offs. During the FASB’s post-implementation review of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, (the credit losses standard), including a May 2021 roundtable, investors and other stakeholders questioned the relevance of the troubled debt restructuring (TDR) designation and the decision usefulness of disclosures about those modifications. Some noted that measurement of expected losses under the current expected credit loss (CECL) model already incorporates losses realized from restructurings that are TDRs and that relevant information for investors would be better conveyed through enhanced disclosures about certain modifications. The amendments in ASU 2022-02 eliminate the accounting guidance for TDRs by creditors that have adopted the CECL model while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty.
The disclosure of gross write-off information by year of origination was cited by numerous investors as an essential input to their analysis. To address this feedback, the amendments ASU 2022-02 require that a public business entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases.
Effective Dates
For entities that have adopted the amendments in ASU 2016-13, the amendments in ASU 2022-02 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted the amendments in ASU 2016-13, the effective dates for the amendments in ASU 2022-02 are the same as the effective dates in ASU 2016-13.
The amendments in ASU 2022-02 should be applied prospectively, except as provided in the next sentence. For the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.
Early adoption of the amendments in ASU 2022-02 is permitted if an entity has adopted the amendments in ASU 2016-13, including adoption in an interim period. If an entity elects to early adopt the amendments in ASU 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures.
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In March, the Securities and Exchange Commission (SEC) proposed new rules and amendments to enhance disclosure and investor protection in initial public offerings by special purpose acquisition companies (SPACs) and in business combination transactions involving shell companies, such as SPACs, and private operating companies. The proposed new rules and amendments would require, among other things, additional disclosures about SPAC sponsors, conflicts of interest, and sources of dilution. They also would require additional disclosures regarding business combination transactions between SPACs and private operating companies, including disclosures relating to the fairness of these transactions. Further, the new rules would address issues relating to projections made by SPACs and their target companies, including the Private Securities Litigation Reform Act safe harbor for forward-looking statements and the use of projections in SEC filings and in business combination transactions. If adopted, the proposed rules would more closely align the required financial statements of private operating companies in transactions involving shell companies with those required in registration statements for an initial public offering. The proposal also includes a new rule addressing the status of SPACs under the Investment Company Act of 1940, which is designed to increase attention among SPACs about this important assessment. Under the proposed rule, SPACs that satisfy certain conditions that limit their duration, asset composition, business purpose, and activities would not be required to register under the Investment Company Act.
In March, the SEC issued Staff Accounting Bulletin 121 (SAB 121) in an effort to enhance the information received by investors and other users of financial statements about the risks associated with safeguarding crypto assets. SAB 121 represents a significant change to companies that safeguard crypto assets. SAB 121 provides that a company that is responsible for safeguarding crypto assets held for its platform users should record a liability on its balance sheet for its obligation to do so, measured at fair value, and should record a corresponding asset, measured at fair value, at the same time as it records the liability. Currently, a company will generally not report the crypto assets of platform users on its balance sheet unless it has control over such assets. However, under SAB 121, the fair value of crypto assets will be recorded as a liability, along with a corresponding asset, even when a company has no control over such crypto assets. The interpretative guidance defines a crypto asset as a digital asset that is issued and/or transferred using a distributed ledger or blockchain technology using cryptographic techniques and applies whether a company safeguards crypto assets for platform users directly or by an agent acting on its behalf.
The guidance applies to companies that file reports pursuant to the Securities Exchange Act of 1934 (Exchange Act) and companies that have submitted or filed a registration statement under the Securities Act of 1933 (Securities Act) or the Exchange Act that is not yet effective. It also applies to certain other companies, including private operating companies that are going public through a business combination transaction with a special purpose acquisition company (SPAC) and companies that are submitting or filing an offering statement under Regulation A. The staff expects companies that are current SEC filers to comply with SAB 121 no later than the first interim or annual period ending after June 15, 2022, with retrospective application as of the beginning of the fiscal year to which the interim and annual period is related. The staff expects all other companies, including companies conducting an initial registration of securities under the Securities Act or Exchange Act, companies conducting an offering of securities under Regulation A, and private operating companies entering into a business combination transaction with a SPAC, to apply the guidance beginning with their next submission or filing with the SEC, with retrospective application, at a minimum, as of the beginning of the most recent annual period ending before June 15, 2022, provided the filing also includes a subsequent interim period that also reflects application of this guidance. If the filing does not include a subsequent interim period that also reflects application of this guidance, then the staff expects it to be applied retrospectively to the beginning of the two most recent annual periods ending before June 15, 2022.
In May, the SEC proposed amendments to rules and reporting forms to promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of environmental, social, and governance (ESG) factors. The proposed changes would apply to certain registered investment advisers, advisers exempt from registration, registered investment companies, and business development companies. The proposed amendments seek to categorize certain types of ESG strategies broadly and require funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue. Funds focused on the consideration of environmental factors generally would be required to disclose the greenhouse gas emissions associated with their portfolio investments. Funds claiming to achieve a specific ESG impact would be required to describe the specific impact(s) they seek to achieve and summarize their progress on achieving those impacts. Funds that use proxy voting or other engagement with issuers as a significant means of implementing their ESG strategy would be required to disclose information regarding their voting of proxies on particular ESG-related voting matters and information concerning their ESG engagement meetings. Finally, to complement the proposed ESG disclosures in fund prospectuses, annual reports, and adviser brochures, the proposal would require certain ESG reporting on Forms N-CEN and ADV Part 1A, which are forms on which funds and advisers, respectively, report census-type data that inform the SEC’s regulatory, enforcement, examination, disclosure review, and policymaking roles.
The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System issued a joint Notice of Proposed Rulemaking to modernize and strengthen the rules implementing Community Reinvestment Act (CRA).
Building on feedback from stakeholders and research, the agencies invite public comment on their joint proposal, which has the following key elements:
Comments on the joint proposal are due by August 5, 2022.
In April, the FDIC issued a Financial Institution Letter (FIL) to all FDIC-supervised institutions that have engaged or plan to engage in activities involving crypto or digital assets. The FDIC defines crypto assets as any digital asset using cryptographic techniques. For purposes of this FIL, the FDIC defines crypto-related activities as those that include “acting as crypto-asset custodians; maintaining stablecoin reserves; issuing crypto and other digital assets; acting as market makers or exchange or redemption agents; participating in blockchain- and distributed ledger-based settlement or payment systems, including performing node functions; as well as related activities such as finder activities and lending”. The FIL goes on to state that the aforementioned examples of crypto-related activities is not all inclusive or that the activity is permissible for FDIC-supervised institutions.
The FIL goes on to discuss the various risks associated with crypto-related activities, which include safety and soundness, financial stability, and consumer protection. As a result of the new risks posed by crypto-related activities, the FDIC is requiring FDIC-supervised institutions to notify the agency prior to engaging in these activities, or if already involved in such activities. The FDIC aims to assess the risks as stated above based on the information provided on a case-by-case basis. The initial notification to the FDIC should provide a sufficient level of detail surrounding the crypto-related activity, and if applicable, a timeline to implement or begin the activity. Lastly, the FDIC points to existing regulations in Section 39 of the FDI Act, Part 364 in order to emphasize that existing safety and soundness standards should continued to be followed by FDIC-supervised institutions.
The rapid growth in insured deposits during the first half of 2020 caused the Deposit Insurance Fund (DIF) reserve ratio, calculated by dividing the DIF balance by the dollar amount of insured deposits in the banking system, to decline below the statutory minimum of 1.35% to 1.30% as of June 30, 2020. On September 15, 2020, the FDIC Board of Directors (Board) adopted a Restoration Plan to restore the DIF to at least 1.35% by September 30, 2028, maintaining the assessment rate schedule in place at the time. In the last six months, the situation has worsened, with the reserve ratio falling from 1.27% to 1.23%.
Based on updated analysis and projections for the DIF balance and reserve ratio, the FDIC projects that, absent an increase in assessment rates, the reserve ratio is at risk of not reaching the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028. The FDIC issued a proposed rule which would increase initial base deposit insurance assessment rates by 2 basis points, beginning the first quarterly assessment period of 2023, to increase the likelihood that the reserve ratio will meet the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028, consistent with the Amended Restoration Plan.
In its Semiannual Risk Perspective for Spring 2022, the OCC reported on key risks facing the federal banking system. Operational, compliance, and credit risk are key themes in the report. Operational risk remains elevated as banks respond to an evolving and increasingly complex operating environment and cyber risks. Compliance risk is heightened, driven by regulatory changes and policy initiatives that continue to challenge risk management. Potential longer-term implications related to the pandemic, inflation, and direct and indirect impacts of the war in Ukraine results in credit risk remaining moderate. In addition, financial performance o f banks has been challenged by inflation, rising interest rates, and other implications related to the pandemic and geopolitical events. Challenges of retaining and replacing staff due to increased turnover was also identified as a key risk area.
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The following selected FASB exposure drafts and projects are outstanding as of June 30, 2022.
In May 2022, the FASB added a project to its technical agenda on the recognition, measurement, presentation and disclosure of environmental credits that are legally enforceable and tradeable, following a review of the staff’s initial research on accounting for environmental credits, including feedback that there is diversity in practice in this area. The project will address the accounting by participants in compliance and voluntary programs, as well as by creators of environmental credits. The FASB also added a project to address the accounting for and disclosure of certain digital assets. Many stakeholders have suggested that any guidance issued on this topic should permit or require issuers to account for certain digital assets at fair value. In addition, the FASB added a project on consolidation for business entities to its research agenda after removing its project on consolidation reorganization and targeted improvements from the technical agenda. The new project will explore whether a single consolidation model could be developed for business entities. In response to feedback received on the FASB’s Invitation to Comment, Agenda Consultation, the FASB also added a project on financial key performance indicators to the research agenda to explore standardizing the definitions of financial key performance indicators.
In September 2021, the FASB issued a proposal that would improve financial reporting for investors and other financial statement users by increasing comparability of financial information across reporting entities that have investments in equity securities measured at fair value that are subject to contractual restrictions preventing the sale of those securities.
ASC 820, Fair Value Measurement, states that when measuring the fair value of an asset or a liability, a reporting entity should consider the characteristics of the asset or liability, including restrictions on the sale of the asset or liability, if a market participant also would take those characteristics into account. Key to that determination is the unit of account for the asset or liability being measured at fair value.
Some stakeholders noted that ASC 820 contains conflicting guidance on what the unit of account is when measuring the fair value of an equity security. This has resulted in diversity in practice on whether the effects of a contractual restriction that prohibits the sale of an equity security should be considered in measuring that equity security’s fair value.
To address this, the amendments in the proposed ASU would clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.
In May, the Basel Committee on Banking Supervision (BCBS) approved a final set of principles for management and supervision of climate-related financial risks. The BCBS, whose members are central banks from 28 jurisdictions including the U.S., first issued a consultation paper in November 2021 to solicit comment. Because climate change may create physical and transition risks that could affect the safety and soundness of individual banks and the broader financial system, BCBS in 2020 established a high-level task force on climate-related financial risks to contribute to the committee’s mandate to strengthen regulation, supervision, and practices of banks around the world. The consultation paper laid out broad principles to manage climate-related financial risks.
Because some of the impacts can manifest over different time horizons and exacerbate over time, the BCBS urged banks to continuously develop their expertise commensurate with the risks they face and make sure appropriate resources allocated to manage the risks. The principles are on various categories for banks: corporate governance; internal control framework; capital and liquidity adequacy; risk management process; management monitoring and reporting; comprehensive management of credit risk; comprehensive management of market, liquidity, operational and other risks; and scenario analysis. There are also separate principles for bank supervisors. In the U.S., the Financial Stability Oversight Council (FSOC) also has a workstream related to climate change risks.
EITF Agenda Items
The Emerging Issues Task Force met on November 11, 2021, and deliberated the following topic:
The Emerging Issues Task Force met on June 16, 2022, and reached a consensus-for-exposure on the following topic:
If the consensus-for-exposure is ratified by the FASB, it is expected to be issued as a proposed ASU in the third quarter of 2022.
PCC Activities
The Private Company Council (PCC) met on Thursday, April 21 and Friday, April 22, 2022. Below is a summary of topics addressed by the PCC at the meeting:
[page_anchor link="appendices"]
The following table contains significant implementation dates and deadlines for standards issued by the FASB and others.
For the Quarter Ended June 30, 2022
The illustrative disclosures below are presented in plain English. Please review each disclosure for its applicability to your organization and the need for disclosure in your organization’s financial statements.
{Please give careful consideration to appropriateness of italicized text.
ASU 2016-02 - Applicable to lessee and lessor entities:
In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for [fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.-public business entities] [fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.-all other entities]. Early adoption is permitted.
We expect to adopt the guidance using the modified retrospective method and practical expedients for transition. The practical expedients allow us to largely account for our existing leases consistent with current guidance except for the incremental balance sheet recognition for lessees. We have started an initial evaluation of our leasing contracts and activities. We have also started developing our methodology to estimate the right-of use assets and lease liabilities, which is based on the present value of lease payments (the December 31, 2019 future minimum lease payments were $____ million). We do not expect a material change to the timing of expense recognition, but we are early in the implementation process and will continue to evaluate the impact. We are evaluating our existing disclosures and may need to provide additional information as a result of adoption of the ASU.
ASU 2016-13 ― Applicable to entities that hold financial assets and net investment in leases that are not accounted for at fair value through net income:
In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The guidance requires a financial asset (including trade receivables) measured at amortized cost basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of credit losses for newly-recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. The amendments will be effective for the Company for [fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.-public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC] [fiscal years beginning after December 15, 2022 including interim periods within those fiscal years.-all other entities] Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of adoption of this guidance on the financial statements.
ASU 2017-04 ― Applicable to all entities:
In January 2017, the FASB amended the Goodwill and Other Topic of the Accounting Standards Codification to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for [reporting periods beginning after December 15, 2019.-public business entities that are SEC filers] [reporting periods beginning after December 15, 2020.-public business entities that are not SEC filers] [reporting periods beginning after December 15, 2021.-all other entities] Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2017-12 ― Applicable to entities that elect to apply hedge accounting:
In August 2017, the FASB amended the requirements of the Derivatives and Hedging Topic of the Accounting Standards Codification to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments will be effective for the Company for [interim and annual periods beginning after December 15, 2018.-public business entities] [fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021.-entities other than public business entities] Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2018-10 ― Applicable to lessee and lessor entities:
In July 2018, the FASB amended the Leases Topic of the Accounting Standards Codification to make narrow amendments to clarify how to apply certain aspects of the new leases standard. The amendments are effective for [reporting periods beginning after December 15, 2018.-public business entities] [annual periods beginning after December 15, 2019, and interim periods within annual reporting periods beginning after December 15, 2020-all other entities]. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2018-11 ― Applicable to lessee and lessor entities:
In July 2018, the FASB amended the Leases Topic of the Accounting Standards Codification to give entities another option for transition and to provide lessors with a practical expedient. The amendments will be effective for the Company for [reporting periods beginning after December 15, 2018.-public business entities] [annual periods beginning after December 15, 2019, and interim periods within annual reporting periods beginning after December 15, 2020-all other entities]. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2018-12 ― Applicable to insurance entities that issue long-duration contracts:
In August 2018, the FASB amended the Financial Services—Insurance Topic of the Accounting Standards Codification to make targeted improvements to the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments will be effective for the Company for [fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.-public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC] [for fiscal years beginning after December 15, 2023, and interim periods within fiscal year beginning after December 15, 2024.-all other entities] The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2018-14 ― Applicable to employers that sponsor defined benefit pension or other postretirement plans:
In August 2018, the FASB amended the Compensation—Retirement Benefits—Defined Benefit Plans Topic of the Accounting Standards Codification. The amendments remove, modify, and add certain disclosure requirements for employers that sponsor defined benefit pension plans or other postretirement plans. The amendments are effective [fiscal years ending after December 15, 2020.-public business entities] [fiscal years ending after December 15, 2021-all other entities]. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2018-15 ― Applicable to all entities:
In August 2018, the FASB amended the Intangibles—Goodwill and Other Topic of the Accounting Standards Codification to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments will be effective for the Company for [fiscal years beginning after December 15, 2019.-public business entities] [fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021-all other entities]. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2018-17 ― Applicable to all entities:
In October 2018, the FASB amended the Consolidation topic of the Accounting Standards Codification for determining whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety. [The amendments will be effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.-public business entities] [The amendments also provide a nonpublic entity with the option to exempt itself from applying the variable interest entity consolidation model to qualifying common control arrangements. The amendments will be effective for the Company for annual periods beginning after December 15, 2020, and interim periods within annual reporting periods beginning after December 15, 2021.-all other entities] Early adoption is permitted. The Company will apply a full retrospective approach in which financial statements for each individual prior period presented and the opening balances of the earliest period presented are adjusted to reflect the period-specific effects of applying the amendments. [The Company does not expect these amendments to have a material effect on its financial statements.] [The Company is currently evaluating the effect that implementation of the new standard will have on its financial statements.]
ASU 2018-18 ― Applicable to all entities:
In November 2018, the FASB amended the Collaborative Arrangements Topic of the Accounting Standards Codification to clarify the interaction between the guidance for certain collaborative arrangements and the new revenue recognition financial accounting and reporting standard. The amendments will be effective for the Company for [fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.-public business entities] [fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.-all other entities] Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2018-19 ― Applicable to entities that hold financial assets and net investment in leases that are not accounted for at fair value through net income:
In November 2018, the FASB issued guidance to amend the Financial Instruments—Credit Losses topic of the Accounting Standards Codification. The guidance aligns the implementation date of the topic for annual financial statements of nonpublic companies with the implementation date for their interim financial statements. The guidance also clarifies that receivables arising from operating leases are not within the scope of the topic, but rather, should be accounted for in accordance with the leases topic. The amendments will be effective for the Company for [reporting periods beginning after December 15, 2019, including interim periods within those fiscal years.-SEC filers] [reporting periods beginning after December 15, 2020, including interim periods within those fiscal years.-public business entities that are not SEC filers] [fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.-all other entities] Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of adoption of this guidance on the financial statements.
ASU 2019-05 ― Applicable to entities that hold financial instruments:
In May 2019, the FASB issued guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The amendments will be effective for the Company for [fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.-entities that have adopted ASU 2016-13] {For entities that have not yet adopted ASU 2016-13: [reporting periods beginning after December 15, 2019.-SEC filers] [reporting periods beginning after December 15, 2020.-public business entities that are not SEC filers] [fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.-all other entities]}. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2019-09 ― Applicable to insurance entities that issue long-duration contracts:
In November 2019, the FASB issued guidance to defer the effective date of ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The new effective date will be [for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.-public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC] [for fiscal years beginning after December 15, 2023, and interim periods within fiscal year beginning after December 15, 2024.-all other entities] The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2019-10 ― Applicable to all entities:
In November 2019, the FASB issued guidance to defer the effective dates for private companies, not-for-profit organizations, and certain smaller reporting companies applying standards on current expected credit losses (CECL), leases, hedging. The new effective dates will be CECL: [fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.-public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC] [fiscal years beginning after December 15, 2022 including interim periods within those fiscal years.-all other entities]; Hedging: [fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021.-entities other than public business entities]; Leases: [fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.-all entities other than public business entities; not-for-profit entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-the-counter market; and employee benefit plans that file or furnish financial statements with or to the SEC] The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2019-11 ― Applicable to all entities:
In November 2019, the FASB issued guidance that addresses issues raised by stakeholders during the implementation of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments affect a variety of Topics in the Accounting Standards Codification. [For entities that have adopted the amendments in ASU 2016-13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years] [For entities that have not yet adopted the amendments in ASU 2016-13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years-public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC] [fiscal years beginning after December 15, 2022, including interim periods within those fiscal years-all other entities]. Early adoption is permitted in any interim period as long as an entity has adopted the amendments in ASU 2016-13. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2019-12 - Applicable to entities within the scope of Topic 740, Income Taxes:
In December 2019, the FASB issued guidance to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments are effective for [fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.-public business entities] [fiscal years beginning after December 15, 2021, and interim periods within annual reporting periods beginning after December 15, 2022-all other entities]. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2020-01 ― Applicable to all entities:
In January 2020, the FASB issued guidance to address accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments are effective for [fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.-public business entities] [for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years-all other entities]. Early adoption is permitted, including early adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2020-03 ― Applicable to all entities:
In March 2020, the FASB issued guidance that makes narrow-scope improvements to various aspects of the financial instrument guidance, including the current expected credit losses (CECL) guidance issued in 2016. The amendments related to conforming amendments: For public business entities, the amendments are effective upon issuance of this final ASU. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020. Early application is permitted. The effective date of the amendments to ASU 2016-01 is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For the amendments related to ASU 2016-13, public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies (SRCs) as defined by the SEC, should adopt the amendments in ASU 2016-13 during 2020. All other entities should adopt the amendments in ASU 2016-13 during 2023. Early adoption will continue to be permitted. For entities that have not yet adopted the guidance in ASU 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016-13. For entities that have adopted the guidance in ASU 2016-13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For those entities, the amendments should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to opening retained earnings in the statement of financial position as of the date that an entity adopted the amendments in ASU 2016-13. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2020-04 ― Applicable to all entities:
In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2020-05 ― Applicable to all entities:
In June 2020, the FASB issued guidance to defer the effective dates for certain companies and organizations which have not yet applied the revenue recognition and leases guidance by one year. The new effective dates will be: Revenue Recognition: annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020; Leases: fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2020-06 ― Applicable to all entities:
In August 2020, the FASB issued guidance to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The amendments are effective for [fiscal years beginning after December 15, 2021, including interim periods within those fiscal years – public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC] [fiscal years beginning after December 15, 2023, including interim periods within those fiscal years – all other entities]. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2020-08 ― Applicable to all entities:
In October 2020, the FASB issued guidance to clarify the FASB’s intent that an entity should reevaluate whether a callable debt security that has multiple call dates is within the scope of FASB Accounting Standards Codification (FASB ASC) 310-20-35-33 for each reporting period. The amendments will be effective for [fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 – public business entities] [fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application is permitted for all other entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 - all other entities]. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2020-10 ― Applicable to all entities:
In October 2020, the FASB issued amendments to clarify the Accounting Standards Codification and make minor improvements that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments are effective for [annual periods beginning after December 15, 2020. Early application is permitted for any annual or interim period for which financial statements have not been issued - public business entities] [annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. Early application is permitted for any annual or interim period for which financial statements are available to be issued - all other entities]. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2020-11 ― Applicable to insurance entities that issue long-duration contracts:
In November 2020, the FASB issued guidance to defer the effective dates for insurance entities which have not yet applied the long duration contracts guidance by one year. The new effective dates will be [fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.-public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC] [for fiscal years beginning after December 15, 2024, and interim periods within fiscal year beginning after December 15, 2025.-all other entities] The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2021-04 ― Applicable to Entities that issue freestanding written call options that are classified in equity
In May 2021, the FASB issued amendments that clarify an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2021-05 ― Applicable to lessor entities
In July 2021, the FASB issued amendments to require lessors to classify and account for a lease with variable payments as an operating lease if (a) the lease would have been classified as a sales-type lease or a direct financing lease and (b) the lessor would have otherwise recognized a day-one loss. The amendments are effective for [fiscal years beginning after December 15, 2021 – all entities] [interim periods within fiscal years beginning after December 15, 2021 – public business entities] [interim periods within fiscal years beginning after December 15, 2022 – all other entities]. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2021-07 ― Applicable to private companies and not-for-profit entities that elect the accounting alternative
In October 2021, the FASB issued guidance that provides the option to elect a practical expedient to determine the current price input of equity-classified share-based awards issued as compensation using the reasonable application of a reasonable valuation method.
The practical expedient is effective prospectively for all qualifying awards granted or modified during fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2021-08 ― Applicable to all entities that enter into a business combination
In October 2021, the FASB amended the Business Combinations topic in the Accounting Standards Codification to require entities to apply guidance in the Revenue topic to recognize and measure contract assets and contract liabilities acquired in a business combination. The amendments are effective for [fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. - public business entities] [fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. - all other entities] The amendments are applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2021-09 ― Applicable to lessees that are private companies or not-for-profit entities
In November 2021, the FASB amended the Leases topic in the Accounting Standards Codification to allow lessees that are not public business entities to make an accounting policy election to use a risk-free rate as the discount rate by class of underlying asset, rather than at the entity-wide level. The amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2021-10 ― Applicable to all entities except for not-for-profit entities and employee benefit plans
In November 2021, the FASB added a topic to the Accounting Standards Codification, Government Assistance, to require certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2022-01 ― Applicable to entities that elect to apply the portfolio layer method of hedge accounting
In March 2022, the FASB issued amendments which are intended to better align hedge accounting with an organization’s risk management strategies. The amendments are effective for [fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. - public business entities] [fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. - all other entities]. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2022-02 ― Applicable to entities that hold financial assets and net investment in leases that are not accounted for at fair value through net income:
In March 2022, the FASB issued amendments which are intended to improve the decision usefulness of information provided to investors about certain loan re-financings, restructurings, and write-offs. The amendments are effective for [fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. - entities that have adopted the amendments in ASU 2016-13] [fiscal years beginning after December 15, 2022 including interim periods within those fiscal years.-entities that have not yet adopted the amendments in ASU 2016-13]. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
Applicable to all:
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
NOTE: The disclosures in the previous appendix are not intended to be all inclusive. All pronouncements issued during the period should be evaluated to determine whether they are applicable to your Company. Through June 30, 2022, the FASB has issued the following Accounting Standard Updates during the year.
ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
