Public companies are required to begin complying with the current expected credit losses model under Accounting Standards Codification Topic 326 beginning Jan. 1, 2020.

As overseers of financial reporting and auditing processes, audit committees ultimately are responsible for oversight of the implementation of the new accounting standard.

A new tool from the CAQ gives audit committees some guidance on how to exercise that oversight responsibility. The tool provides a brief overview of the core principles of the standard and suggests questions audit committees should be asking to properly evaluate how effectively the company has assessed the impact of the new accounting.

The tool also helps audit committees evaluate management’s implementation plan. It gives audit committees some additional issues to consider, such as transition methods and disclosure requirements, and it provides tips on additional resources that will be helpful to audit committees.

While financial services entities have been engaged on CECL implementation for some time leading up to the effective date, the standard’s effect outside of financial services is not as well recognized or understood. Audit committees outside of financial services “probably have a little work to do,” said Catherine Ide, managing director of professional practice at the CAQ, at a one-day Deloitte-Bloomberg conference on CECL. “There’s a little fatigue in the system,” she said, due to big changes companies have already endured with respect to revenue recognition and leases.

“There’s a misperception that the standard is only going to impact financial institutions,” said Ide. Any company that holds financial instruments that are not marked to market, or measured at fair value, will be affected in some way, she said.

That means audit committees at those entities need to be engaged with the process those companies are putting in place to evaluate how the company will be affected by the standard and what internal controls are necessary over both the implementation effort and the new accounting, Ide said.

Audit committees also are responsible ultimately for assuring the company is meeting its disclosure obligations both in connection with the new accounting and in the financial reporting periods leading up to implementation. The Securities and Exchange Commission’s Staff Accounting Bulletin No. 74 requires companies to give investors advance warning of changes that are coming in accounting.