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Standards Update: 1/27/21

January 27, 2021

The Financial Accounting Standards Board (FASB) regularly issues Accounting Standards Updates (ASUs) to make changes to the FASB Codification, the primary source of Accounting Principles Generally Accepted in the United States (GAAP). Below are select ASUs that were recently issued.


ASU No. 2020-10, Codification Improvements

The FASB has issued ASU No. 2020-10, Codification Improvements, to clarify certain items in the Accounting Standards Codification (ASC). ASU No. 2020-10 applies to all reporting entities within the scope of the affected guidance. However, the amendments are not expected to have a significant impact upon adoption.

Summary

ASU No. 2020-10 facilitates updates to the ASC for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements.

The amendments add all disclosure guidance to the appropriate disclosure section (Subsections 50 – Disclosure) within the ASC. Previously, certain disclosure requirements were included only elsewhere in the ASC (within Subsections 45 – Other Presentation Matters), particularly when presentation could be made either on the face of a financial statement or within the notes.

The update also amends and adds new headings, adds cross referencing to other guidance, and refines certain terminology.

While the amendments were not intended to change existing GAAP, entities should review the ASU to ensure its application has no impact on their financial reporting.

Effective Date and Transition

For nonpublic entities, ASU No. 2020-10 is effective for annual periods beginning after Dec. 15, 2021. Entities are required to apply ASU No. 2020-10 on a retrospective basis at the beginning of the period that includes the adoption date.


ASU No. 2020-11, Financial Services – Insurance (Topic 944)

The FASB has issued ASU No. 2020-11, Financial Services – Insurance (Topic 944) to improve, simplify, and enhance the financial reporting requirements for long-duration contracts issued by insurance entities.

Summary

ASU No. 2020-11, Financial Services – Insurance (Topic 944) provides:

  1. Additional time for implementation by deferring the effective date of ASU No. 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI), by one year for all insurance entities.
  2. Transition relief to facilitate early application of LDTI and encourage accelerated delivery of better information to investors and other financial statement users.

Effective Date and Transition

For most nonpublic entities, ASU No. 2020-11 defers the effective date of ASU No. 2018-12 to fiscal years beginning after Dec. 15, 2024.

To facilitate early application of LDTI, an entity that chooses early application may do so as of the beginning of the prior period presented or as of the beginning of the earliest period presented.


ASU No. 2021-01, Reference Rate Reform (Topic 848)

The FASB has issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope to clarify the scope of Topic 848, Reference Rate Reform, which provides optional temporary guidance for entities transitioning away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions within Topic 848.

Summary

ASU No. 2021-01, Reference Rate Reform (Topic 848) clarifies that the derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.

The summary to the ASU provides a table with descriptions of several changes to various ASC subtopics within Topic 848, primarily related to the scope clarification mentioned above.

Effective Date and Transition

ASU No. 2021-01 is effective immediately for all entities.

Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued.

The amendments in this update do not apply to contract modifications made, as well as new hedging relationships entered into, after Dec. 31, 2022, and to existing hedging relationships evaluated for effectiveness for periods after Dec. 31, 2022, except for certain hedging relationships existing as of Dec. 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship.

For questions on how to implement these new accounting standards, please contact your KSM advisor, or complete this form.

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