The FASB’s 11 ASUs Summary

Monthly Newsletter Dec. 2020 | Audit and Accounting

In 2020, the FASB* issued 11 ASUs, summarized as follow: 

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 FASB Emerging Issues Task Force)

These amendments clarify the interaction of the accounting for equity securities under Topic 321, equity method investments under Topic 323, and certain forward contracts and purchased options under Topic 815. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The amendments should be applied prospectively, and early adoption is permitted.

ASU 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842)

These amendments add SEC paragraphs to Topics 326 and 842 for the issuance of new SEC guidance on these topics. This ASU applies to public entities and is effective upon issuance.

ASU 2020-03, Codification Improvements to Financial Instruments

The amendments in this Update are narrow scope changes intended to clarify and improve the accounting and disclosure guidance in a number of financial instrument Topics in the Codification. They apply to all reporting entities within the scope of the affected accounting guidance. The effective dates for all issues addressed in this ASU are stated in the ASU.

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Global reference rate reform initiatives will result in alternative reference rates that replace LIBOR and other commonly used benchmark interest rates. FASB issued this optional guidance to provide relief in accounting for contract modifications related to transitioning from LIBOR and other reference rates for a limited period of time. This ASU may be applied any time after March 12, 2020, but no later than December 31, 2022, which is the rate reform transition period.

ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842):

Effective Dates for Certain Entities. FASB deferred the effective dates of these Topics by one year to provide relief to all entities as a result of the COVID-19 pandemic. The ASU was effective upon issuance.

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

This ASU was issued to simplify accounting for financial instruments with characteristics of liabilities and equity by reducing the number of accounting models and allowing more contracts to qualify for equity classification. It also amended earnings per share calculations for convertible instruments under FASB ASC 260 and added disclosure requirements for convertible instruments. It is effective for public business entities that aren’t smaller reporting companies for fiscal years beginning after December 15, 2021, including interim periods within those years. For all other entities, it is effective for fiscal years beginning after December 15, 2023, including interim periods within those years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments should be applied as of the beginning of the fiscal year.

ASU 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets

The ASU includes new requirements for presentation and disclosure of contributed nonfinancial assets (gifts-in-kind) to provide more transparency about their measurement and use. It requires these contributions to be presented as a separate line in the statement of activities and adds additional disclosures in the notes to the financial statements. The amendments are effective for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. Early adoption is permitted. The amendments should be applied on a retrospective basis to all periods presented.

ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs

The amendments in this Update clarify guidance in ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), about amortization periods for premiums on callable debt securities and state that an entity should reevaluate whether a callable debt security with multiple call dates is within the scope of FASB ASC 310-20-35-33 for each reporting period. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application isn’t permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application is permitted for all other entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. All entities should apply the amendments prospectively as of the beginning of the period of adoption for existing or newly purchased callable debt securities.

ASU 2020-09, Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762

This ASU applies to SEC registrants and amends Topic 470 and several other Topics to conform to changes the SEC made earlier this year to its disclosure rules on guaranteed debt offerings in SEC Release No. 33-10762. The amendments are effective January 4, 2021, with early application permitted.

ASU 2020-10, Codification Improvements

The FASB has a standing project on its agenda to make improvements to GAAP, address suggestions and feedback from stakeholders, and update standards for technical corrections and clarifications. The amendments in this ASU don’t change GAAP, but they do affect a number of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. The amendments in Sections B and C of the ASU are effective for annual periods beginning after December 15, 2020, for public business entities, and for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, for all other entities. Early application is permitted for public business entities for any annual or interim period for which financial statements haven’t been issued. For all other entities, early application is permitted for any annual or interim period for which financial statements are available to be issued. The amendments should be applied retrospectively at the beginning of the period that includes the adoption date.

ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application

The amendments in this ASU defer the effective date of ASU 2018- 12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, by one year to provide implementation relief as a result of the COVID-19 pandemic. The amendments also change the early adoption date to either the beginning of the prior period presented, or the beginning of the earliest period presented. For public business entities that aren’t smaller reporting companies, ASU 2020-11 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025.

Consideration due to COVID-19:

Considerations should be made to address the COVID-19 impact of items such as:

• Valuation of investments and financial instruments
• Valuation and potential impairment of tangible and intangible assets, including goodwill
• Collectability of accounts receivable and loans and reasonableness of related reserves
• Cash requirements for payments of accounts payable, debt, and leases
• Debt defaults or modifications
• Restructuring costs
• Contingencies

Going Concern:

The pandemic has resulted in changes to the risks businesses are facing and may have resulted in changes in operations, shutdowns, and losses of revenues and customers. In addition, decreased cash flows, debt defaults, and changes in financing sources may impact the company’s liquidity and ability to continue as a going concern.

For additional information and detail, please feel free to contact us.

Pro-Vider Consulting LLC  contact@pro-vider-pros.com
Ozawa & Associates info@ozawacpa.com

*Financial Accounting Standards Board (FASB) – https://www.fasb.org/home