As businesses across the U.S. prepare for the new fiscal year, staying updated with the latest accounting standards is critical. In 2024, the Financial Accounting Standards Board (FASB) introduced several changes to the U.S. Generally Accepted Accounting Principles (GAAP), impacting both public and nonpublic entities. Understanding these updates will not only ensure compliance but also help you make informed financial decisions for your business.
In this article, we’ll explore the most significant GAAP changes effective in 2024, how they affect different types of companies, and what actions you should take to stay ahead of the curve.
Key US GAAP Updates Effective in 2024
The FASB’s recent updates introduce a range of amendments that will affect public companies, smaller reporting companies (SRCs), and nonpublic entities. Below are some of the most critical updates:
Reference Rate Reform (Topic 848)
The Reference Rate Reform addresses the discontinuation of LIBOR and similar reference rates. With its deferral through ASU 2022-06, this guidance allows companies to continue applying certain relief provisions through December 31, 2024.
Impact on businesses: Companies relying on contracts that reference LIBOR must ensure they are prepared for the transition to alternative reference rates. This is critical for managing risk and maintaining accurate financial reporting.
Action Step: Ensure your contracts, debt instruments, and derivative transactions are aligned with the new reference rate requirements by the end of 2024. Early preparation is key to avoiding disruptions.
Debt with Conversion and Other Options (Subtopic 470-20)
ASU 2020-06 simplifies the accounting for convertible instruments and contracts in an entity’s own equity, effective for smaller reporting companies (SRCs) from fiscal years beginning after December 15, 2023. Larger public companies have already implemented these changes.
Impact on businesses: Companies issuing convertible debt or equity need to understand these updates to ensure accurate classification and avoid unnecessary adjustments in their financial statements.
Action Step: Review your financing instruments for compliance with the updated guidance and consult your CPA for any necessary adjustments.
Supplier Finance Programs (Subtopic 405-50)
ASU 2022-04 mandates new disclosures related to supplier finance programs, enhancing transparency about the obligations under such arrangements.
Impact on businesses: Supplier finance programs are widely used in various industries, and the new disclosure requirements will require companies to provide detailed information about these obligations, including a rollforward of activity.
Action Step: Work with your financial team to ensure proper documentation of supplier finance programs and prepare to implement the new disclosure requirements by the 2024 fiscal year.
Fair Value Measurement of Equity Securities (Topic 820)
ASU 2022-03 introduces new rules for measuring the fair value of equity securities subject to contractual sale restrictions. Companies must consider these restrictions when determining the fair value of equity securities.
Impact on businesses: This update impacts companies with equity investments that have sale restrictions, requiring a more complex evaluation of fair value.
Action Step: Evaluate your current equity securities and ensure your fair value measurements comply with the updated guidance.
Key GAAP Changes Effective After 2024
Looking beyond 2024, several significant updates will come into effect for nonpublic entities and SRCs. Understanding these future changes can help you plan for long-term compliance and minimize disruptions.
Long-Duration Contracts (Topic 944)
Starting in 2025, amendments to ASU 2018-12 for insurance contracts will be implemented. These changes provide targeted improvements to accounting for long-duration contracts, aimed at increasing transparency and consistency in reporting.
Impact on businesses: Insurance companies or those with significant insurance contracts must be prepared for the complex requirements related to long-duration contracts.
How These Changes Affect Public and Nonpublic Entities
One of the most critical considerations for companies is understanding whether they are classified as a Public Business Entity (PBE) or nonpublic entity under U.S. GAAP. PBEs typically have earlier adoption deadlines, while nonpublic entities often receive extended timelines. Smaller reporting companies (SRCs), a subset of public companies, may also have different effective dates, as seen with updates like ASU 2020-06.
Whether you operate a public, private, or smaller reporting company, the key is to stay informed about when these standards will affect you and to take proactive steps to integrate them into your financial processes.
Why These Changes Matter
The 2024 US GAAP updates reflect the dynamic nature of financial reporting and the ongoing efforts by FASB to adapt to global and domestic changes. Compliance with these new standards is crucial for maintaining transparency, enhancing investor confidence, and ensuring that your financial reporting aligns with best practices.
Preparing Your Business for US GAAP 2024
To successfully navigate these changes, businesses must take proactive steps to ensure compliance. Here’s how GreenGrowth CPAs can help:
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- Financial Review: We’ll conduct a thorough review of your financial statements to ensure they comply with the latest GAAP updates.
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- Consultation on Standards: Our team of experts can guide you through each standard’s impact on your business, helping you make informed decisions.
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- Implementation Support: From updating internal processes to preparing the necessary disclosures, we assist with the seamless integration of new accounting standards.
Stay Ahead with GreenGrowth CPAs
Adopting new accounting standards can be complex, but with the right guidance, it doesn’t have to be overwhelming. At GreenGrowth CPAs, we offer expert services that help businesses navigate regulatory changes with confidence. Reach out today to schedule a free consultation and ensure your financial reporting stays compliant in 2024 and beyond.
