Topic 11: Reporting Issues Related to Adoption of New Accounting Standards

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.3 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.

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.

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.

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?

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.