You are here

FASB Proposes to Extend CECL Effective Date for Non-Public Business Entities

Overview
On August 20, 2018, the Financial Accounting Standards Board (FASB) issued a proposal to defer the effective date of Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL) for non-public business entities (non-PBEs). 

What Was Proposed?
For non-PBEs, CECL will be effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Under the original ASU, CECL would have been effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. 

The proposed ASU has a thirty-day comment period.

What Does This Mean?
If approved, non-PBEs will get an extra year to implement CECL. However, this does not mean that you should delay your implementation efforts. This deferral extends the time periods for which data may be available, and gives entities more time to gather data, refine methodologies and improve the implementation process. In addition, an entity that is prepared for CECL early, can adopt early, starting with fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Why Did The Effective Date Change?
Since the issuance of ASU 2016-13, the Transition Resource Group (TRG), a subdivision of the FASB, has been inquiring and seeking feedback from stakeholders. Stakeholders noted that the transition and effective date requirements would require both non-SEC filer PBEs and non-PBEs to adjust retained earnings as of the same date – January 1, 2021.

The proposed amendments would clarify the FASB’s original intent to provide separate and staggered effective date requirements for SEC filer public business entities (PBEs), non-SEC filer PBEs, and all other entities (non-PBEs).

What is a Non-PBE?
A non-PBE is any entity that does not meet any of the following conditions:

  1. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). 
  2. It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. 
  3. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. 
  4. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
  5. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including  footnotes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. 

An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity’s filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC.

Questions?
If you have any questions on these matters, please contact Dan Morrill, CPA, Member of the Firm, at 413-726-6857 or dmorrill@wolfandco.com, or your engagement officer or manager.