ASUs Effective in 2024

by Jaclyn M. Veno, CPA

photo: © iStock/LunaKate

The issuance of new ASUs by the FASB is part of what makes the accounting profession so exciting! These ASUs are responsive to stakeholder feedback that the FASB has received over the years and ensure the Accounting Standards Codification stays relevant in an ever-changing world. In 2024, various ASUs will be effective and impact public and private entities.

The first ASU effective this year is ASU 2021-08: Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 was issued in October 2021. It addresses diversity in practice related to the recognition of acquired contract liability, as well as payment terms and their effect on subsequent revenue recognized by the acquirer. The primary update from ASU 2021-08 is that it requires using Topic 606 for contract assets and liabilities in business combinations. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if they had originated the contracts themselves. However, ASU 2021-08 does not affect the accounting for other assets or liabilities that may arise from revenue contracts with customers in accordance with Topic 606, such as refund liabilities, or in a business combination, such as customer-related intangible assets and contract-based intangible assets. ASU 2021-08 is effective for private business entities this year.

Additionally, ASU 2022-01: Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method was issued in March 2022, and it expands the use of the last layer method that permits only one hedged layer to allow multiple hedged layers of a single closed portfolio. Then, ASU 2022-01 renames the last-of-layer method to the portfolio layer method. ASU 2022-01 specifies that eligible hedging instruments in a single-layer hedge may include spot-starting or forward-starting constant-notional swaps or spot-or forward-starting amortizing-notional swaps and that the number of hedged layers (that is, single or multiple) corresponds with the number of hedges designated. ASU 2022-01 is effective for private business entities.

ASU 2022-03: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions was issued in June 2022 to address diversity in practice when measuring the fair value of an equity security subject to contractual restrictions prohibiting the sale of an equity security. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security. It also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The entity should also disclose the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet, the nature and remaining duration of the restriction(s), and the circumstances that could cause a lapse in the restriction(s). ASU 2022-03 is effective for public business entities in 2024, with private companies adopting it the following year.

In addition, ASU 2023-02: Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method was issued in March 2023. It permits entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, entities amortize the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognize the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit). A reporting entity would be required to disclose certain information in annual and interim reporting periods, such as the nature of its tax equity investments and the effect of its tax equity investments and related income tax credits and other income tax benefits on its financial position and results of operations. ASU 2023-02 is effective for public business entities, with private companies adopting it next year.

ASU 2023-07: Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures was issued in November 2023. This ASU, because of stakeholder feedback, as investors supported enhanced expense disclosures because segment information is critically important in understanding a public entity’s different business activities. Since ASU 2023-07 is a disclosure standard, it does not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. ASU 2023-07 applies to all public entities required to report segment information in accordance with Topic 280. ASU 2023-07 requires that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods. Additionally, ASU 2023-07 clarifies that if the chief operating decision maker (CODM) uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.

Lastly, ASU 2022-06: Deferral of the Sunset Date of Topic 848 was issued in December 2022. ASU 2022-06 delayed the sunset date of ASU 2020-04. In 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. The objective of the guidance in Topic 848 is to provide temporary relief during the transition period from LIBOR to SOFR or other approved reference rates. At the time that ASU 2020-04 was issued, LIBOR was previously set to sunset on December 31, 2021. As a result, the sunset provision was set for December 31, 2022—12 months after the expected cessation date of all currencies and tenors of LIBOR. However, in March 2021, the UK Financial Conduct Authority announced the extension of LIBOR for various tenors of USD LIBOR through June 30, 2023, beyond the previous sunset date of Topic 848.  As a result, the FASB deferred the sunset date of Topic 848 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

In summary, various ASUs are effective this year. It is exciting to see how these will impact the accounting profession and clients.

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