While all of us are dealing with the consequences of COVID-19 in our country and internationally, the accounting profession, more than ever, is relied upon for consistency not only in financial reporting but also day-to-day operations. It’s easy to lose sight of important Accounting Standard Updates (“ASU”) when all of us are focused on social distancing and self-isolation. This post is a quick reminder about ASU 2016-12 or CECL considerations for non-public entities. If you haven’t had a chance to think about CECL implementation and your organization is non-public or a public one that is a non-SEC filer, now is the time to put together an implementation plan. The effective dates of adoption of the CECL standard are:
|Entity Type||US GAAP Effective Date|
|Public Companies (non-SEC filers)||Fiscal years starting after 12/15/2020|
For interim periods within those fiscal years
|Non-Public Companies||Fiscal years starting after 12/15/2020|
For interim periods beginning after in 2021
When ASU 2016-13 was first published, it appeared to be applicable only to financial institutions. As we get closer to the effective dates of the standard, many accounting firms, including CAA, emphasize that the standard in fact applies to all entities.
Here are a few examples of relevant transactions for non-financial services companies:
- Trade receivables
- Loan receivables
- Lease receivables in a sales-type or direct financing lease
- Held-to-maturity debt securities
- Financial guarantees
Let’s take a closer look at trade receivables. Today, many organizations are using a historical loss method to reserve for its allowance for doubtful accounts under current US GAAP. The new standard requires the use of a forward-looking approach that considers lifetime credit losses in combination with the historical loss method. What does this mean for your organization? That you will need to consider not only current but also future conditions of your trade receivables. On the surface it may seem like an easy task, however once you start digging deeper, you may come to a realization that the process of gathering, quantifying, and concluding on the data is not such an easy task. For example, if your organization accepts credit card payments for merchandise sold in a gift shop, how do you project future conditions that may impact your receivables? Should you consider chargebacks and returns in your analysis? Perhaps. It all depends on unique underlying details and facts surrounding your organization and its trade receivable accounts. I highly recommend that you start your analysis soon. The deadline is just around the corner.