The Financial Accounting Standards Board announced at the end of 2019 that they were delaying several effective dates. These changes impact four areas: credit losses, leasing, hedging, and long-duration insurance standards.
Who Is Affected?
If your nonprofit is considered a public business entity (PBE), it may be subjected to the same rules and requirements as PBEs. When looking at FASB ASU 2019-10, this would place nonprofits in “bucket 2” in the update, subjecting them to the same changes as other entities when it comes to reporting financial instruments such as credit losses, leasing, derivatives, and hedging.
What Are the Major Implications?
If your nonprofit is affected by ASU 2019-10, here are the critical points found in the standards update:
- Credit Losses: If your organization is on a calendar-year end, and it is eligible for the deferral, the new effective date is January 1, 2023. Organizations can determine whether they are eligible to be ‘smaller reporting companies’ based on their most recent filing determination. This must be in accordance with SED regulations as of November 15, 2019.
- Derivatives: Nonpublic business entities get a one-year deferral. If your organization is on a calendar year-end, and it is eligible for the deferral, the effective date is January 1, 2021.
- Leases: All non-public business entities get a one-year deferral. This includes nonprofits that have issued, or are conduit bond obligators for securities that are traded, listed, or quoted on an over-the-counter market or exchange, as well as employee benefit plans that file or furnish financial statements with or to the SEC. If your organization is on a calendar year-end, and it is eligible for the deferral, the new effective date is January 1, 2021.
Why the Update?
According to the FASB report, there is a significant change to the underlying philosophy of the standards, thus necessitating updates to:
- Accounting Standards Update No. 2016-13, Financial Instruments— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Credit Losses)
- Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (Hedging)
- Accounting Standards Update No. 2016-02, Leases (Topic 842) (Leases).
- Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944)
Is Your Nonprofit a PBE?
It is essential to note whether your nonprofit is considered a PBE, which would make the changes applicable to your organization. FASB amended its glossary of terms in 2013 to create one definition for PBEs.
Although nonprofits are left out of the general definition of PBE in the Master Glossary, specific nonprofits may be subjected to the requirements imposed on PBEs by specific FASB standards. When that occurs, nonprofits are differentiated using similar terms to those used for the definition of PBEs.
“Nonprofits that have ‘issued, or is a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter [OTC] market’ are held to the same accelerated effective dates and expanded disclosure requirements imposed on PBEs,” according to .
Your best recourse is to consult with the Master Glossary definitions and use these to evaluate whether your nonprofit fits in the PBE category. Then, check what disclosures are required. Nonprofits, for example, are required to disclose certain pension information only if the nonprofit is determined to be a public entity.
Fortunately, FASB has granted more time to adhere to the news standard. They’ve also provided plenty of clarifying information in the documents we’ve linked to help you understand the full impact of the changes and updates.
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please at 206-605-3113 for more information.