Codification Improvements—Financial Instruments

Accounting Standards Update 2019-04—Codification Improvements to Topic 326, Financial InstrumentsCredit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

 

Overview


On April 25, 2019, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update related to the following financial instruments:
  1. Accounting Standards Update No. 2016-01, Financial Instruments— Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
  2. Accounting Standards Update No. 2016-13, Financial Instruments— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
  3. Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
After the issuance of each Update, the Board has assisted stakeholders in the implementation of the amendments as incorporated into the Codification. Through this assistance, the Board has identified certain areas that need clarification and correction.
 
The Board has an ongoing project on its agenda for improving the Codification or correcting its unintended application. The items addressed in that project generally are not expected to have a significant effect on current accounting practice or to create a significant administrative cost for most entities. The amendments in this Update are similar to those items. However, the Board decided to issue a separate Update for improvements to Updates 2016-01, 2016-13, and 2017-12 to increase stakeholders’ awareness of the amendments and to expedite improvements to the Codification.
 
The amendments in this Update affect a variety of Topics in the Codification. A chart identifying the Topics (Subtopics), paragraphs, and the nature of the amendment is provided in the Amendments to the FASB Accounting Standards Codification® section.
 
The amendments in this Update apply to all reporting entities within the scope of the affected accounting guidance.
 

How Do the Amendments Improve Current Generally Accepted Accounting Principles (GAAP)?


The amendments in this Update represent changes to clarify, correct errors in, or improve the Codification. The amendments should make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications.
 

Effective Dates and Transition


Topics 1, 2, and 5: Codification Improvements to Update 2016-13
 
For entities that have not yet adopted the amendments in Update 2016-13, the effective dates and transition requirements for the amendments related to this Update are the same as the effective dates and transition requirements in Update 2016-13. The transition adjustment includes adjustments made as a result of an entity developing or amending its accounting policy upon adoption of the amendments in this Update for determining when accrued interest receivables are deemed uncollectible and written off.
 
For entities that have adopted the amendments in Update 2016-13, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of this Update as long as the entity has adopted the amendments in Update 2016-13.
 
For entities that have adopted the amendments in Update 2016-13, the amendments in this Update should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date an entity adopted the amendments in Update 2016-13. The transition adjustment includes adjustments made as a result of an entity developing or amending its accounting policy upon adoption of the amendments in this Update for determining when accrued interest receivables are deemed uncollectible and written off.
 
Topic 3: Codification Improvements to Update 2017-12 and Other Hedging Items
 
For entities that have not yet adopted the amendments in Update 2017-12 as of the issuance date of this Update, the effective dates and transition requirements for the amendments to Topic 815 are the same as the effective dates and transition requirements in Update 2017-12.
 
For entities that have adopted the amendments in Update 2017-12 as of the issuance date of this Update, the effective date is as of the beginning of the first annual period beginning after the issuance date of this Update. For those entities, early adoption is permitted, including adoption on any date on or after the issuance of this Update.
 
Entities that have already adopted the amendments in Update 2017-12 as of the issuance date of this Update are able to elect either to retrospectively apply all the amendments in this Update as of the date the entity adopted the amendments in Update 2017-12 or to prospectively apply all amendments as of the date of adoption of the amendments in this Update with the following exceptions:
  1. Entities that adopted Update 2017-12 in an interim period and elected to modify the measurement methodology for a hedged item in accordance with either paragraph 815-20-25-6B or paragraph 815-25-35-13 without designating the hedging relationship are required to reflect any adjustment made in accordance with paragraph 815-20-65-3(e)(1) at the appropriate balance on the date of initial application of Update 2017-12 if that adjustment was made as of the date of adoption of the amendments in Update 2017-12.
  2. Entities that elect to rebalance fair value hedging relationships upon adoption of the amendments in this Update are required to reflect any adjustments for existing hedges as of the date of adoption of the amendments in Update 2017-12 on the date of initial application of Update 2017-12.
  3. Entities that did not reclassify debt securities from held-to-maturity to available-for-sale upon adoption of the amendments in Update 2017-12 and elect to reclassify debt securities upon adoption of the amendments in this Update are required to reflect the reclassification as of the date of adoption of this Update. Entities that reclassified debt securities from held-to-maturity to available-for-sale upon adoption of the amendments in Update 2017-12 are not permitted to make any additional reclassifications.
Topic 4: Codification Improvements to Update 2016-01
 
The amendments in this Update related to Update 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period following the issuance of this Update as long as the entity has adopted all of the amendments in Update 2016-01.
 
The amendments in this Update should be applied on a modified-retrospective transition basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date an entity adopted all of the amendments in Update 2016-01.
 
The amendments in this Update related to equity securities without readily determinable fair values for which an entity elects the measurement alternative in accordance with paragraph 321-10-35-2 should be applied prospectively.

Additional Information

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