FASB proposes to delay accounting standards implementation – why? – my views, because the changes are significant, and sometimes difficult and disruptive, including on legal issues

The FASB has proposed delaying the implementation of some of the new accounting standards. Here is a link to the news release, and at the bottom of this post I have pasted the news release:


New revenue recognition rules in 2018. New leasing rules in 2019. The change in standards back to a more principle-based approach (such as when I became a CPA) v. the rule-based approach that developed over time. Plus, all of the new standards, some of which have been enacted in part, and some of which are still to come (see below). There is a sea change of accounting standards occurring, not to mention changes to auditing standards, communications with management, boards and audit committees, changing and increasing topics and issues for disclosure, and the increasing expectations upon management, boards, audit committees, internal auditors, outside auditors, and in-house compliance professionals and legal counsel, etc. These and other changes are impacting not only public companies, but also private business entities, and nonprofits. The FASB and other sources acknowledge that significant difficulties and disruptions are occurring.

On the one hand, changes are what they are – my job or task is to deal with them. But these changes to accounting standards are very significant, as are the ramifications.

From a risk management perspective, I suggest that the FASB should continue to evaluate changes that have been implemented, enacted and proposed, and make its views public on an ongoing basis, even just as a reminder, why changes are being proposed and enacted, the pros, cons and costs, and the positive and negative impacts that are being caused upon businesses and job protection and creation, investors, lenders, borrowers, and other stakeholders, and whether the changes are truly necessary and worthwhile compared to the pains or negatives that are being caused.

Consider, for example, to what extent are the rules that were in place for decades deficient? If the then existing rules were deficient, why were those deficiencies allowed to exist? Due to the rule changes, some industries and businesses will see disruption or deterioration to their on-paper financial statements, whereas others will see improvements, all the while they are still the same industries or businesses that they already were. As a result of on-paper rule changes, some industries and businesses will now have an increased risk or difficultly of raising capital or of obtaining loans, and might also be less attractive, or more attractive, as M&A targets, whereas in fact there have been no operational changes in the impacted industries or businesses.

Consider, for example, if the rule changes cause an increase in restatements, such as due to difficulties understanding or implementing the rule changes, or as a result of vagueness in the rule (principle-based approach v. rule-based approach), or, perhaps, the rule fails or omits to include sufficient and necessary detail or scope, will those conditions impact possible liability exposure, standards of care, and the evaluation of possible wrongdoing including level of culpability or wrongful intent, resulting internal investigations, or the applicability of possible clawback provisions, job performance reviews, and other impacted matters?

As said above, my job or task is to deal with those ongoing activities and changes. This post merely discusses some issues for possible consideration resulting from the FASB’s ongoing activities.

Here is a copy of the FASB news release:


Extends Implementation Deadline for Credit Losses, Leases, and Hedging Standards

Norwalk, CT, August 15, 2019—The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU) that would grant private companies, not-for-profit organizations, and certain small public companies additional time to implement FASB standards on current expected credit losses (CECL), leases, and hedging. Stakeholders are encouraged to review and provide comment on the proposed ASU by September 16, 2019.

The proposed ASU describes a new FASB philosophy that extends and simplifies how effective dates for major standards are staggered between larger public companies and all other entities. Those other entities include private companies, smaller public companies, not-for-profit organizations, and employee benefit plans. Under this philosophy, a major standard would first be effective for larger public companies.  For all other entities, the Board would consider requiring an effective date staggered at least two years later.  Generally, it is expected that early application would continue to be permitted for all entities.

“Based on what we’ve learned from our stakeholders, including the Private Company Council and the Small Business Advisory Committee, private companies, not-for-profit organizations, and some small public companies would benefit from additional time to apply major standards,” stated FASB Chairman Russell G. Golden.  “This represents an important shift in the FASB’s philosophy around effective dates, one we believe will support better overall implementation of these standards.”

Based on that philosophy, the Board proposes to amend the effective dates for CECL, leases, and hedging as follows (chart assumes calendar-year end):

The proposed ASU and a FASB In Focus overview document are available at www.fasb.org.

About the Financial Accounting Standards Board

Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB. For more information, visit www.fasb.org.


Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Thank you for reading this website. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

I am also the Chair of the Business Law Section of the Bar Association of San Francisco.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

The following are copies of the tables of contents of three of the more formal materials that I have written over the years about accounting/auditing, audit committees, and related legal topics – Accounting and Its Legal Implications was my first formal effort, which resulted in a published book that had more of an accounting and auditing focus; Chapter 5A, Audit Committee Functions and Responsibilities, for the California Continuing Education of the Bar has a more legal focus; and the most recent Tate’s Excellent Audit Committee Guide (February 2017) also has a more legal focus:

Accounting and Its Legal Implications

Chapter 5A, Audit Committee Functions and Responsibilities, CEB Advising and Defending Corporate Directors and Officers

Tate’s Excellent Audit Committee Guide

The following are other summary materials that you might find useful:


Audit Committee 5 Lines of Success, Diligence, and Defense - David Tate, Esq, 05052018

COSO Enterprise Risk Management Framework ERM Components and Principles

From a prior blog post which you can find at https://wp.me/p75iWX-dk if the below scan is too difficult to read:

* * * * *