Brief overview of new accounting rules for 12/31/21 financial statements.

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To help auditors in the CPA community, the AIPCA peer review staff publishes PR Prompts, a newsletter with information for firms providing audits, review, compilations, and other attestation services.

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For ease of reading, I will not put all the following material in quotations.

One section of the newsletter provides background on new accounting rules that will be required in the near term:

PR Prompts – Fall 2021:

Upcoming accounting standards updates (ASUs) not-for-profits (NFPs) should be familiar with at the end of 2021

The following is a summary of FASB ASUs with initial effective dates for most NFPs beginning in calendar-year 2021 and for 2020-2021 fiscal year-ends, or with effective dates that were deferred to 2021. Also, summarized are ASUs on the horizon with effective dates for most NFPs in 2022 and later. Additional information and guidance related to a number of these ASUs can be found in this AICPA article.

ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

The new guidance on reference rate reform, also discussed in this related Journal of Accountancy article, provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued. ASU No. 2020-04 is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be in effect for a limited time from March 12, 2020, through December 31, 2022. See also ASU No. 2021-01, discussed below, which serves to clarify the scope of Topic 848.

ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope

This ASU was issued to improve clarity and operability with respect to the scope of Topic 848. The standard clarifies that contract modification relief may be applied to contracts that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform and that are affected by the discounting transition. Additionally, it simplifies the hedge accounting relief by allowing the option to remove one or more derivative instruments that were added to a hedging instrument that is affected by the discontinuance of a reference rate without hedge de-designation. Consistent with ASU No. 2020-04 above, this standard is effective immediately for all entities, including NFPs, through December 31, 2022.

ASU No. 2018-08, Not-For-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made

This ASU was effective for nonpublic entities for transactions in which the entity was a resource recipient for annual periods beginning after December 15, 2018. However, it was effective for nonpublic entities for transactions in which the entity is the resource provider (i.e., the contributions made portion of the standard) for annual periods beginning after December 15, 2019. Therefore, NFPs may be adopting ASU No. 2018-08 for certain transactions during 2020-2021 fiscal year-ends. Implementation tools and guidance are available through the AICPA Not-for-Profit Resource Library:

ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities

This ASU was issued to delay the effective dates of two significant ASUs: revenue recognition (ASC 606) and leases (ASC 842). ASU No. 2020-05 permitted private companies and NFPs that had not yet applied the revenue recognition standard to do so for annual reporting periods beginning after December 15, 2019, and for interim reporting periods within annual reporting periods beginning after December 15, 2020. As a result, NFPs may be implementing ASC 606 during 2020-2021 fiscal year-ends.

ASU No. 2020-05 also permitted private companies, private NFPs, and public NFPs that had not yet issued (or made available) their financial statements reflecting the adoption of the leases standard to apply the new standard for fiscal years beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022. As such, this ASU is effective for 2022 calendar year-ends and 2022-2023 fiscal year-ends. While the leases standard does not have required implementation dates in 2021, early application is allowed.

ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

The amendments in ASU No. 2018-15 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 (and hosting arrangements that include an internal use software license). The ASU is effective for nonpublic entities for annual reporting periods beginning after December 15, 2020. Additional guidance on implementation of this ASU is available from the Center for Plain English Accounting.

Summary

Preparing for implementation of new ASUs can be a daunting task; however, it does not have to be. By taking the time and effort to evaluate and plan for adoption of new standards, entities will be better prepared for implementation making the whole process less stressful. All NFPs are different, so these ASUs will have different effects and implications depending on the nature of the entity’s operations. Attending trainings, talking with colleagues and meeting with auditors are just some of the things NFPs can do to alleviate some of the stress and burden of adopting new ASUs.

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