Over the last several years, FASB has significantly updated its accounting guidance for financial instruments. The standards on classification and measurement and credit impairment will have the greatest effect on financial institutions with investment portfolios. The changes to hedging accounting could expand its usage for all entities, especially those that manage prepayable mortgage portfolios, use commodity components in their production process or hold municipal securities. The 2021 phaseout of the London Interbank Offered Rate (LIBOR) will be an operational challenge for entities with derivatives, loans and securitizations tied to the LIBOR rate. The targeted updates for long-duration insurance contracts will be a significant undertaking for insurers.
FASB is currently considering a change to its philosophy in setting effective dates, and some entities could get additional time to implement these complex standards. FASB is proposing a two-bucket approach to stagger effective dates. Bucket one establishes the initial mandatory effective date for a major standard and comprises SEC filers, minus smaller reporting companies (SRC). Bucket two comprises all other entities and includes:
- All other public business entities (PBE), including SRCs
- Private companies
- All not-for-profits, including those that have issued—or are conduit bond obligors for—securities traded, listed or quoted on an exchange or over-the-counter market
- All employee benefit plans, including those that file financial statements with the SEC
An exposure draft is expected in the third quarter of 2019, and a final standard could be issued before year-end.