Catch a quick preview of Kelli Bernstein’s Xcelerate CPE Learning Series session! In this brief video, Kelli highlights the latest accounting standards and updates for 2024 and beyond. Read more of the blog to gain essential insights on how to navigate regulatory changes from FASB and PCAOB—helping your business stay ahead of the curve.
In our fast-changing economic environment, keeping up with financial reporting standards is crucial. The Financial Accounting Standards Board (FASB), the organization responsible for establishing financial reporting standards in the US, made a few changes this year worth noting. Let’s review what changed in 2024 and see what’s on the horizon in 2025
As global markets began to transition away from the use of the London Interbank Offered Rate (LIBOR), the FASB provided temporary relief to businesses shifting to new reference rates. This optional relief was intended to sunset at the end of 2022, but the FASB eventually pushed the sunset date out so that businesses utilizing LIBOR could do so until USD LIBOR was officially discontinued on June 30, 2023. The relief offered under ASU 2020-04 expires at the end of this year.
If you still need to modify contracts for hedging relationships and other transactions that used LIBOR, act now before the relief opportunity expires.
The FASB issued ASU 2020-06 to simplify how businesses report financial instruments that can be classified as either debt or equity. To simplify the reporting for convertible debt and convertible preferred stock instruments, the FASB requires businesses to use one of the following three reporting models:
Most public entities were required to report following this new guidance for fiscal years beginning after December 15, 2021. All others were required to follow the new guidance for fiscal years beginning after December 15, 2023.
2024 may very well be your first report year where you’re required to comply with ASU 2020-06. Talk with your financial advisor to see how adopting one of the required reporting models will affect your 2024 financial reports.
Entities that acquire revenue contracts during a business combination are now required to account for those contract assets and liabilities following the revenue recognition principles of ASC 606. Under prior guidance, most contract assets and liabilities that were acquired during a business combination were to be recorded at fair market value.
In many ways, this new accounting standard simplifies your reporting process so that all revenue contracts are accounted for under ASC 606, whether they originate with you or whether they were acquired from another company. If you haven’t finalized your revenue recognition principles under ASC 606, work with your advisor to do so as soon as possible.
ASC 842 (the new lease accounting standard) went into effect in 2022 for private entities and nonprofits. Related parties with common control arrangements struggled to (1) determine when a lease existed for purposes of ASC 842, and (2) account for leasehold improvements in a manner that reflects the underlying economics of the arrangement.
The FASB released ASU 2023-01 to offer solutions to these two problems. The first practical expedient makes it easier to know whether a lease exists between related entities. The second practical expedient lets common control entities amortize leasehold improvements in a manner that’s more accurate to the economics of the situation.
If you have a common control arrangement, you may find it easier to calculate or report leases and leasehold improvements beginning in 2024. Talk to your advisor to see if you’re eligible for one or both of these solutions.
We are in the second year of the new model for measuring credit losses, also known as the Current Expected Credit Loss (CECL) method. Under the prior model, credit losses couldn’t be recognized until a loss occurred. Under CECL, you are required to recognize a loss based on the losses estimated to occur over the contractual life of the financial instrument.
The new model requires you to provide more information about your estimation method, and to track and adjust your financials if your projected losses differ from your estimates. Talk to your advisor to finalize your CECL implementation.
The following changes will go into effect in 2025.
Public entities must comply in 2025, but private entities have until 2026.
This accounting update provides fact patterns that help entities determine how to report interest awards that have been issued as employee compensation. Public entities must comply next year, but private entities have until 2026.
The FASB seeks to create standards that (1) respond to the realities of our current financial environment, (2) adapt to changes in technology, and (3) take requirements from other regulatory bodies into account. We work hard to track this information and keep you abreast of the changes.
Contact us to learn about the key changes in 2024 and discover what's on the horizon for 2025.