Newsletter

The Rundown: A Comprehensive Review of Accounting Matters | 2021 Q3

October 15, 2021

This past quarter, the Financial Accounting Standards Board (FASB) has issued five new accounting standard updates (ASUs). The latest issue of the Rundown features a summary and important details pertaining to each, reminders of 2021 and 2022 Accounting Pronouncements for both public and private companies, and a feature of Statement on Auditing Standard 134.

New 2021 Accounting Standard Updates

During 2021, the Financial Accounting Standards Board (FASB) has issued five new accounting standard updates (ASUs) as of the end of the third quarter.  The list of ASUs and brief summary of each follows:

Reference Rate Reform

ASU 2021-01

The amendments in this Update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition resulting from reference rate reform.  Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in this Update to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition.  As a result of this Update, an entity is permitted to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination.

Effective immediately upon release of the ASU, which was January 2021.  The amendments in this Update do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship (including periods after December 31, 2022).

Franchisors-Revenue from Contracts with Customers

ASU 2021-02

The amendments in this Update introduce a new practical expedient that simplifies the application of the guidance about identifying performance obligations. The practical expedient permits franchisors that are not public business entities to account for pre-opening services provided to a franchisee as distinct from the franchise license if the services are consistent with those included in a predefined list within the guidance. Additionally, the Board decided to provide an accounting policy election to recognize the pre-opening services as a single performance obligation.

If an entity has already adopted Topic 606, the amendments in this Update are effective in interim and annual periods beginning after December 15, 2020. Early application is permitted.  If an entity has not yet adopted Topic 606, the effective date is annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020.

Intangibles—Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events

ASU 2021-03

This Update applies to private companies and not-for-profit entities that elect the accounting alternative.  The new Update allows private companies and not-for-profit organizations that elect this alternative to evaluate triggering events at the end of each reporting period, rather than the date the triggering event occurs. This alternative applies to goodwill and does not apply to other intangible assets or long-lived assets.

The amendments in this Update are effective on a prospective basis for fiscal years beginning after December 15, 2019. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance as of March 30, 2021.

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options

ASU 2021-04

This update affects all entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. The amendments that relate to the recognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in Topic 260, Earnings Per Share.  This Update was issued to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (e.g., warrants) that remain equity-classified after modification or exchange based on the economic substance of the modification or exchange.

The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.  Early adoption is permitted for all entities, including adoption in an interim period.

Lessors – Certain Leases with Variable Lease Payments

ASU 2021-05

The amendments in this Update affect lessors with lease contracts that (1) have variable lease payments that do not depend on a reference index or a rate and (2) would have resulted in the recognition of a selling loss at lease commencement if classified as sales-type or direct financing.  Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met:

  • The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3.
  • The lessor would have otherwise recognized a day-one loss.

The amendments are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities and interim periods within fiscal years beginning after December 15, 2022, for all other entities.  Early adoption is permitted.

2021 Accounting Pronouncements: Private Companies

As a reminder, the following ASUs are effective for private companies for calendar year 2021:

  • ASU  2020-04: Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
  • ASU  2020-03: Codification Improvements to Financial Instruments
  • ASU  2019-10: Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)-Effective Dates
  • ASU  2019-02: Entertainment-Films-Other Assets-Film Costs (Subtopic 926-20) and Entertainment-Broadcasters-Intangibles-Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials (a consensus of the FASB Emerging Issues Task Force)
  • ASU  2018-18: Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606
  • ASU  2018-17: Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
  • ASU  2018-15: Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)

2022 Accounting Pronouncements: Private Companies

As a reminder, the following ASUs are effective for private companies for calendar year 2022:

  • ASU  2020-10: Codification Improvements
  • ASU  2020-01: Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force)
  • ASU  2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
  • ASU  2019-01: Leases (Topic 842): Codification Improvements
  • ASU  2018-20: Leases (Topic 842)-Narrow-Scope Improvements for Lessors
  • ASU  2018-14: Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans
  • ASU  2018-11: Leases (Topic 842)-Targeted Improvements
  • ASU  2018-10: Codification Improvements to Topic 842, Leases
  • ASU  2018-01: Leases (Topic 842)-Land Easement Practical Expedient for Transition to Topic 842
  • ASU  2016-02: Leases (Topic 842)

2022 Accounting Pronouncements: Public Companies

As a reminder, the following ASUs are effective for public companies for calendar year 2022:

  • ASU  2020-07: Not-for-Profit Entities (Topic 958)-Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets
  • ASU  2020-06: Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

2022 Accounting Pronouncements: Governmental Entities

As a reminder, the following ASU is effective for governmental entities for calendar year 2022:

  • GASB Statement 87: Leases

 SAS 134: Attestation Standard You Should Know About

In May 2019, the AICPA Auditing Standards Board (ASB) issued, Statement on Auditing Standards (SAS) 134: Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements.  This standard significantly changes the auditor’s report by placing the auditor’s opinion at the front of the report for added visibility and expands the basis for opinion, management responsibilities, and auditors responsibilities paragraphs.  The standard also introduces a new concept, Key Audit Matters, that must be communicated in the auditor’s report when the auditor has been engaged to do so.  SAS 134 is effective for audits of financial statements for periods ending on or after December 15, 2021.