Evaluating the Impact of Current ASUs

Sample Solution

Full Answer Section

• • Changes relevant to small and medium-sized nonpublic businesses: The ASU provides several accommodations for small and medium-sized nonpublic businesses, including:
    • The ability to use the practical expedient to not separately identify lease payments that are not significant relative to the lease.
    • The ability to use the practical expedient to not separately identify lease payments that are received or paid in advance.
    • The ability to use the practical expedient to not disclose certain lease information in the footnotes to the financial statements.

• ASU 2014-09, Revenue Recognition (Topic 606): This ASU changes the accounting for revenue recognition by requiring companies to recognize revenue when it is earned, rather than when it is received. This change is intended to provide more accurate information about a company's financial performance. The effective date for nonpublic business entities is December 15, 2023, for fiscal years beginning after December 15, 2023.

  • Changes relevant to small and medium-sized nonpublic businesses: The ASU provides several accommodations for small and medium-sized nonpublic businesses, including:
    • The ability to use the simplified revenue recognition model.
    • The ability to use the practical expedient to not separately identify performance obligations when the transaction price is less than $5,000.
    • The ability to use the practical expedient to not disclose certain revenue information in the footnotes to the financial statements.

2. Considering ASU 2014-09 Revenue Recognition, are there steps that nonpublic reporting entities need to take now, if they have not already done so? Explain.

Yes, there are several steps that nonpublic reporting entities need to take now, if they have not already done so, to prepare for the implementation of ASU 2014-09 Revenue Recognition. These steps include:

• Understanding the new revenue recognition model and how it will affect their business.
• Assessing their contracts with customers to determine the appropriate performance obligations.
• Determining the transaction price for each performance obligation.
• Identifying when revenue should be recognized.
• Determining the appropriate accounting for any discounts or allowances.
• Making changes to their accounting systems and processes to capture the necessary information.
• Training their staff on the new revenue recognition requirements.

3. How should entities prepare for implementation of ASU 2016-02 Leases? Explain.

Entities should prepare for the implementation of ASU 2016-02 Leases by:

• Understanding the new lease accounting requirements and how they will affect their business.
• Evaluating their lease portfolio to determine which leases will be affected by the new standard.
• Classifying their leases in accordance with the new standard.
• Measuring and recording the lease liability and right-of-use asset.
• Calculating and recording depreciation and amortization expense.
• Disclosing the required information about their leases in the financial statements.

Entities may also need to make changes to their accounting systems and processes to capture the necessary information. They should also train their staff on the new lease accounting requirements.

4. Are there any other ASUs with open effective dates that have a likelihood of impacting the financial statements of small and medium-sized nonpublic businesses?

Yes, there are several other ASUs with open effective dates that have a likelihood of impacting the financial statements of small and medium-sized nonpublic businesses. These include:

• ASU 2018-15, Derivatives and Hedging (Topic 815): This ASU changes the accounting for derivatives and hedging activities. The effective date for nonpublic business entities is December 15, 2023, for fiscal years beginning after December 15, 2023.
• ASU 2020-06, Financial Instruments—Overall (Topic 825): This ASU changes the accounting for financial instruments. The effective date for nonpublic business entities is December 1