On September 30, 2020, in response to implementation challenges resulting from COVID-19, the FASB affirmed its decision to defer the effective date of ASU 2018-12 and to provide transition relief if early application is elected. ASU 2020-11, Insurance (Topic 944): Effective Date and Early Application, was issued in November 2020 with the revised effective dates.
Calendar year-end SEC filers other than smaller reporting companies (SRCs), as defined by the SEC, are required to adopt ASU 2018-12 on January 1, 2023. Other calendar year-end entities will be required to adopt the ASU on January 1, 2025. Early application will be permitted. If early application is not elected, the transition date will be the beginning of the earliest period presented. To facilitate early application, an early adopter may elect that the transition date be either the earliest period presented or the beginning of the prior period presented in order to align the early application transition date with the standard transition date for SEC filers. For example, if an SEC filer early adopts on January 1, 2022, it may elect a transition date of January 1, 2021, the same transition date that would apply if the insurer were instead to adopt on the standard adoption date of January 1, 2023. This special provision to align the transition dates between early and standard adoption is meant to provide an insurer with a fixed transition date for purposes of calculating the transition adjustment early in its implementation process while maintaining flexibility to decide at a later date whether or not to early adopt the guidance. Alternatively, an early adopter may elect the transition date to be the earliest period presented. For example, an SEC filer early adopting on January 1, 2022 may elect a transition date of January 1, 2020, so that all three income statements presented are on a comparable basis. The guidance in this chapter assumes that the deferral will be finalized as noted above. The one-time determination of whether an entity is eligible to be an SRC is based on an entity’s most recent determination under SEC regulations as of November 15, 2019.
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