Topic 11: Reporting Issues Related to Adoption of New Accounting Standards
11100 [Reserved]
(Last updated: 12/31/2022)
11200 New Leasing Standard (FASB ASC Topic 842)
(Last updated: 10/30/2020)
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842). Public entities must apply Topic 842 to annual reporting periods
beginning after December 15, 2018, including interim reporting periods within
that reporting period.20 Earlier application is permitted.
All other entities, including EGCs that have appropriately elected to defer
compliance with new or revised financial accounting standards until a company
that is not an issuer (as defined under section 2(a) of the Sarbanes-Oxley Act
of 2002) is required to apply such standards, must apply Topic 842 to annual
reporting periods beginning after December 15, 2019, and interim reporting
periods within annual reporting periods beginning after December 15, 2020. ASU
No. 2020-05 further delayed adoption of ASC 842 for all other entities for
financial statements issued for fiscal years beginning after December 15, 2021,
and interim periods within fiscal years beginning after December 15, 2022.
Earlier application is permitted.
The IASB also issued IFRS 16, Leases, in February 2016. For most
companies, the effective date will be the same as under U.S. GAAP.
Companies will transition to Topic 842 using a modified retrospective approach
where they will recognize and measure all leases within the scope of the
standard that exist as of the beginning of the earliest comparative period
presented. The entity will adjust equity at the beginning of the earliest
comparative period presented as if the standard had always been applied, subject
to certain practical expedients and other transition relief prescribed by the
standard.
11210 Registrant Financial Information
11210.1 Date of Initial Application
Question
A calendar year-end registrant adopts the new leasing
standard on January 1, 2019, with an initial application date of January 1,
2017. In May 2019, the registrant files its first quarter 10-Q, which
reflects the adoption of the new standard. The next month, the registrant
files a registration statement on Form S-3 that includes financial
statements for the years ending December 31, 2018, 2017, and 2016, as well
as the quarters ending March 31, 2019 and 2018.
Item 11(b)(ii) of Form S-3 requires retrospective revision of the pre-event
audited financial statements that were incorporated by reference in the Form
S-3 to reflect a subsequent change in accounting principle. Does the
reissuance of the registrant’s financial statements change the date of
initial application to January 1, 2016 because it is the beginning of the
earliest comparative period presented?
Answer
No. The reissuance of the financial statements in Form S-3 accelerates the
provision of the retroactively restated financial statements for the years
ended December 31, 2018 and 2017, but it does not change the date of initial
application.
11300 New Disclosures About Short-Duration Contracts for Insurance Entities (FASB ASC Topic 944)
(Last updated: 11/9/2016)
In May 2015, the FASB issued ASU No. 2015-09, Disclosures about
Short-Duration Contracts (the ASU). The ASU applies to all insurance
entities that issue short-duration contracts as defined in Topic 944, Financial
Services – Insurance, and requires additional disclosures including incurred and
paid claims development information by accident year.
Public business entities must apply the ASU to annual reporting periods
beginning after December 15, 2015, and interim reporting periods within annual
periods beginning after December 15, 2016.
All other entities, including EGCs that have elected to defer compliance with
new or revised financial accounting standards until a company that is not an
issuer (as defined under Section 2(a) of the Sarbanes-Oxley Act of 2002) is
required to apply such standards, must apply the ASU to annual reporting periods
beginning after December 15, 2016, and interim reporting periods within annual
periods beginning after December 15, 2017.
Companies will transition to the ASU retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. Early application is permitted.
11310 Registrant Financial Information
11310.1
Question
A registrant adopts the ASU for the fiscal year ended
December 31, 2016. The new guidance requires the presentation in the notes
to the financial statements of disaggregated claims development tables, at a
minimum for each reportable segment, depicting, in part, re-estimates of
claims by accident year for up to ten years. Securities Act Industry Guide 6
and Exchange Act Industry Guide 4 (collectively, “Industry Guide 6”)
identify a consolidated ten-year loss reserve development table to be
provided by Property and Casualty insurers in either the Business or
MD&A section. Must the registrant continue to present the Industry Guide
6 table in its filings?
Answer
No. A registrant must provide the claims development tables required by the
ASU. It does not have to separately provide the ten-year loss reserve
development table identified in Industry Guide 6, but may opt to do so.
11400 Targeted Improvements to the Accounting for Long-Duration Contracts for Insurance Entities (FASB ASC TOPIC 944)
(Last updated: 12/31/2022)
On August 15, 2018, the FASB issued ASU No. 2018-12,
Financial Services — Insurance (Topic 944): Targeted Improvements to the
Accounting for Long-Duration Contracts. The ASU applies to insurance
entities that issue long-duration contracts as defined in Topic 944,
Financial Services — Insurance.
Public business entities that meet the definition of a
Securities and Exchange Commission (SEC) filer, excluding entities eligible to
be smaller reporting companies, must apply the ASU to fiscal years beginning
after December 15, 2022 and interim periods within those fiscal years. The
one-time determination of whether an entity is eligible to be a smaller
reporting company is based on an entity’s most recent determination as of
November 15, 2019.
All other entities, including smaller reporting companies and
EGCs that have elected to defer compliance with new or revised financial
accounting standards until a company that is not an issuer (as defined under
Section 2(a) of the Sarbanes-Oxley Act of 2002), are required to apply the ASU
to fiscal years beginning after December 15, 2024, and interim periods within
fiscal years beginning after December 15, 2025.
Early application of the amendments is permitted. If early application is
elected, the transition date shall be either the beginning of the prior period
presented or the beginning of the earliest period presented. If early
application is not elected, the transition date shall be the beginning of the
earliest period presented.
11410 Registrant Financial Information
11410.1 Date of Initial Application
Question
A calendar year-end registrant adopts ASU No. 2018-12 on January
1, 2023, with a transition date of January 1, 2021. In May 2023, the registrant
files its first quarter 10-Q, which reflects the adoption of the new standard.
The next month, the registrant files a registration statement on Form S-3 that
includes financial statements for the years ending December 31, 2022, 2021 and
2020, as well as the quarters ending March 31, 2023 and 2022.
Item 11(b)(ii) of Form S-3 requires “restated financial statements” of the
pre-event audited financial statements that were incorporated by reference in
the Form S-3 to reflect a subsequent change in accounting principle that
requires a material retroactive application. Does the reissuance of the
registrant’s financial statements in accordance with Item 11(b)(ii) change the
transition date to January 1, 2020 because it is the beginning of the earliest
period presented?
Answer
No. The reissuance of the financial statements in Form S-3
accelerates the requirement to provide the financial statements for the years
ended December 31, 2022 and 2021 with retroactive application, but does not
change the transition date of the accounting standard.
Footnotes
20
A public business entity that otherwise would not meet
the definition of a public business entity except for a requirement to
include or inclusion of its financial statements or financial
information in another entity’s filing with the Commission may apply
Topic 842 for annual reporting periods beginning after December 15,
2020, and interim reporting periods within annual reporting periods
beginning after December 15, 2021. See ASU No. 2020-02. The dates in
this ASU corresponded with the “all other entities” adoption dates and
as a result of ASU No. 2020-05 these dates have changed as discussed
above.