From the Chairman's Desk:
By Russell G. Golden, FASB Chairman

The Philosophy of Effective Dates


Quality standards need quality implementation. You can’t have one without the other.
 
The FASB currently devotes almost half of our staff time to help companies and others make a smooth transition to new standards. Seeking to improve this experience, we recently took a fresh look at our philosophy for setting effective dates—one we believe will help more stakeholders apply our standards even more efficiently.
 
On July 17, the FASB voted to issue proposals that would increase the amount of time that smaller public companies, private companies and not-for-profit organizations have to implement major standards. The new deadline would be at least two years after large publicly traded companies adopt a major standard.
 
The change would stagger effective dates using two “buckets”:
  • “Bucket One” would include all Securities and Exchange Commission (SEC) filers (as defined in existing GAAP) excluding smaller reporting companies (SRCs) as currently defined by the SEC.
  • “Bucket Two” would consist of all other entities, including:
    • All other Public Business Entities (PBEs), including SRCs
    • Private companies
    • All not-for-profit organizations, and
    • All employee benefit plans. 
Two proposed Accounting Standards Updates (ASUs) that apply this effective date philosophy are expected to be issued in mid-to-late August. One ASU will propose  effective date changes to Hedging, Leases, and Credit Losses (CECL).  The second ASU will propose a deferral of effective dates for the Insurance standard for long-duration contracts (life insurance) for all stakeholders.
 


These changes are another important step toward better serving all our stakeholders, not just some. They are part of the FASB’s ongoing “cultural evolution” set in motion by the Private Company Council (PCC) and sustained with input from all our stakeholders and advisory groups, including the FASB’s Small Business Advisory Committee (SBAC).
 
These changes are another important step toward better serving all our stakeholders, not just some.
 
Before the creation of the PCC, the FASB usually required all organizations to implement new standards in lockstep. Every company—from large multinational public companies to small private companies—generally was expected to apply a standard (and get it right!) at the same time.
 
The PCC helped us understand the challenge this presented to private companies with limited resources. In response, the FASB made it our practice to consider whether to provide private companies and organizations an additional year to implement major standards.
 
The PCC was right. When applying the revenue recognition standard, we found that private companies did, in fact, benefit from the opportunity to learn from public company experiences and resources at no added cost. It also helped the FASB address challenges encountered by public companies to smooth the transition for private companies and organizations.
 
Our experience with past standards also reassured us that staggering effective dates between public and private companies did not negatively impact financial statement users.
 
The experience also made us realize that, for a major standard, one year might not be enough. For example, most public company financial statements came out after private companies began to implement the revenue recognition standard.  Had those financial statements been available to private companies before they initiated transition, it would have put valuable information at their disposal and paved the way for an even smoother transition.
 
Our experience with past standards also reassured us that staggering effective dates between public and private companies did not negatively impact financial statement users. This was an important factor in our decision to grant more organizations more time to implement standards.
 
As always, we’ll look to you to provide input on the proposals—and let us know if you agree that the philosophy change will promote better implementation of our standards for smaller public companies, private companies and other nonpublic entities. I also encourage you to share any other ideas that support our mission to set high-quality standards that provide relevant information to financial statement users.
 
Thank you again for your support of high-quality financial reporting—and your contributions of time and input into our work.



The views expressed in this column do not necessarily reflect the views of the FASB. Official positions of the FASB are arrived at only after extensive due process and deliberation.