FASB will not be providing a last-minute reprieve on its lease accounting standard effective date, despite the concerns of financial statement preparers about the difficulty of implementing the new rules.
"At this point, we're anticipating an on-time implementation," FASB Chairman Russell Golden said Wednesday at the AICPA Conference on Current SEC and PCAOB Developments.
The lease accounting standard takes effect for public companies in 2019 and for most other entities in 2020. It is designed to provide investors with more information by bringing lease assets and obligations onto lessee balance sheets.
Preparers have had difficulty implementing the standard for several reasons:
- Locating all the lease contracts that exist throughout an organization and extracting the information needed from them has been a significant challenge for company finance and accounting staffs.
- Implementing systems to handle the new accounting has been difficult for some preparers.
- Handling these challenges on the heels of a high-profile revenue recognition implementation has been difficult for companies.
In a recent PwC survey, 87% of respondents said that the combined difficulty of adopting recent accounting changes was somewhat or very difficult. Respondents cited the tremendous time and expense that implementation requires, and their limited internal resources to handle the job.
Golden said FASB understands these challenges and has been in extensive consultation with preparers at organizations of all sizes. After issuing the revenue recognition and lease accounting standards as well as a credit loss accounting standard with huge implications for financial institutions, FASB has taken a pause in pursuing changes to high-impact standards.
The board has increased its focus on education and made minor changes to the lease accounting standard to help ease the transition. But unlike with the revenue recognition standard, whose effective date was delayed by a year, FASB will not push back the implementation date of the lease accounting standard.
"We think the system is ready to have a quality implementation as of the beginning of next year," Golden said.
Although FASB doesn't have immediate plans to issue any other high-impact accounting standards, a few projects on its technical agenda may be worth monitoring as potential important standards for issuance in the next three to five years:
- Disaggregation of performance information. This would occur either through presentation in the statement of income or disclosure in the notes. The project is based on disaggregating functional lines into natural components. FASB's staff is performing research asking how companies roll up their components into consolidated line items; on what level accounting systems track the components; and whether companies review for internal reporting purposes the components of costs of goods sold and selling, general expenses, and administrative expenses.
- Segment reporting. FASB is studying potential improvements to the aggregation criteria and reportable segment process, as well as improvements to segment disclosure requirements. FASB asked public companies to evaluate how two alternative approaches would affect their segment reporting: reordering the current process for determining reportable segments to move the quantitative thresholds earlier in the process; and removing the aggregation criteria so that each operating segment is reportable until a practical limit is reached.
- Liabilities and equity. FASB hopes to make the guidance less complex and more understandable while preserving the quality of information provided to investors. The board is focusing on indexation and settlement in the context of the derivative scope exception, convertible debt, disclosures, and earnings per share. FASB's staff is researching potential new rules for accounting for convertible instruments and for determining whether instruments are indexed to an organization's own stock within the context of the derivative scope exception.
FASB is staying on the sidelines right now in the discussion about accounting for cryptocurrency, Golden said. He said the board is monitoring the work of an AICPA task force on accounting and auditing for cryptocurrency to see if FASB needs to weigh in on the topic.
Technology in general, though, is a major focus for FASB as it looks ahead to the future. The board is studying how its standards may need to be adapted to accommodate technological advances to continue providing investors with the most useful information possible.
"We need to ask what these changes in the business environment mean to investors, companies, and auditors in the future — and what the potential impacts of those changes will be on accounting standards and disclosures," Golden said.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA's editorial director.