Recent Accounting Developments

12 Months Ended

Dec. 31, 2019

New Accounting Pronouncements And Changes In Accounting Principles [Abstract]

Recent Accounting Developments

3. RECENT ACCOUNTING DEVELOPMENTS

Leases—In February 2016, the Financial Accounting Standards Board (the “FASB”) issued updated guidance for leases. The guidance requires a lessee to (i) recognize a right-of-use asset and a lease liability that is initially measured at the present value of the lease payments, in the consolidated statement of financial condition, (ii) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis and (iii) classify operating lease related cash payments within operating activities and finance lease related principal cash payments within financing activities (with interest included in interest paid) in the consolidated statement of cash flows.

The Company adopted the new guidance on January 1, 2019 using the optional transition method, which allows such guidance to be applied initially at the adoption date with a cumulative-effect adjustment and without restating comparative periods. Lazard elected the package of practical expedients, which allows the carry-forward of the prior conclusions on lease definition, classification and initial direct costs related to the existing leases as of the adoption date.

Substantially all of the Company’s existing lease arrangements are operating leases. The adoption of the new guidance on January 1, 2019 resulted in a recognition of $502,000 of operating lease right-of-use assets (“ROU assets”) and $581,000 of operating lease liabilities in the Company’s consolidated statements of financial condition.  The operating lease liabilities at January 1, 2019 reflect any remaining lease payments discounted using an incremental borrowing rate (on a collateralized basis) based on the remaining lease term (the “Discount”), as an implicit rate was not readily determinable for any of the Company’s existing operating leases.  The operating lease

ROU assets are lower than the operating lease liabilities primarily because lease incentives reduce the ROU assets (see Note 10).

Improvements to Nonemployee Share-Based Payment Accounting—In June 2018, the FASB issued updated guidance to simplify the accounting for nonemployee share-based payment transactions. The new guidance generally requires equity-classified nonemployee share-based payment awards to be measured at the grant date, which is the date at which a grantor and grantee reach a mutual understanding of the key terms and conditions of a share-based payment award.  This update generally aligns the accounting for equity-classified share-based payment awards to nonemployees with the measurement date required for employees. The Company adopted the new guidance on January 1, 2019 and its application did not have a material impact on the Company’s financial statements.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income—In February 2018, the FASB issued updated guidance on the tax effects of items in “accumulated other comprehensive income (loss), net of tax” (“AOCI”). Specifically, the new guidance will permit, but not require, a reclassification from AOCI to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate under the Tax Cuts and Jobs Act of 2017. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21% corporate income tax rate. The Company adopted the new guidance on January 1, 2019 without reclassifying any amounts from AOCI to retained earnings.  The application of the guidance did not have a material impact on the Company’s financial statements.

Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments—In June 2016, the FASB issued new guidance regarding the measurement of credit losses on financial instruments. The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology that reflects current expected credit losses (“CECL”) and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The new guidance is effective for annual and interim periods beginning after December 15, 2019. The new guidance will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings at the beginning of the year of adoption.

The Company will adopt the new credit loss guidance upon its effective date of January 1, 2020. The Company’s adoption efforts include the identification of financial assets within the scope of the guidance, the evaluation of the current credit loss provisioning process, and the implementation of the CECL model. The impact of the new guidance primarily relates to the Company’s fee receivables. For customer loans within customer receivables, the Company has elected to apply the practical expedient on financial assets with collateral maintenance provisions, which results in no expected credit losses given that these loans are required to be maintained with collateral having a fair value in excess of the carrying amount of the loans.

To comply with the CECL model, the Company has analyzed historical bad debt charge-off data to determine the average charge-off rate used to measure the expected credit loss for fee receivables. The Company has determined that long-term forecasted information is not relevant to its fee receivables which are generally short-term. The Company will update the average charge-off rate periodically and maintain a quarterly reserve review process to consider current factors that would require an adjustment to the credit loss estimate. In addition, the Company will periodically perform a qualitative assessment to monitor risks associated with current and forecasted conditions that may require an adjustment to the expected credit loss allowance. The Company currently does not expect a material impact to its financial statements upon adoption of the new credit loss guidance.

Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment—In January 2017, the FASB issued updated guidance which eliminated Step 2 from the goodwill impairment test. Step 2 is the process of measuring a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires entities to measure a goodwill impairment loss as the amount by which a reporting unit’s carrying value exceeds its fair value, limited to the carrying amount of goodwill. The FASB also eliminated the requirements for entities that have reporting units with zero or negative carrying amounts to perform a qualitative assessment for the goodwill impairment test. Instead, those entities would be

required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount. The new guidance is effective for interim or annual goodwill impairment tests performed in fiscal years beginning after December 15, 2019. The Company will adopt the new guidance as of January 1, 2020 and prospectively apply the new model for its goodwill impairment test. There will be no impact to the Company’s financial statements at the adoption date.

Intangibles—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract—In August 2018, the FASB issued updated guidance on the accounting for implementation costs incurred in a cloud computing arrangement. The new guidance requires the capitalization of the implementation costs incurred in a cloud computing arrangement to be aligned with the requirements for capitalizing costs incurred to develop or obtain internal-use software. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2019 and allows entities to either retrospectively or prospectively apply the amendments at adoption. The Company will adopt the new guidance as of January 1, 2020 and has elected to apply the new guidance prospectively to implementation costs incurred after the adoption date. There will be no impact to the Company’s financial statements at the adoption date.

Related Party Guidance for Variable Interest Entities—In October 2018, the FASB issued updated guidance that requires consideration of indirect interest held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The new guidance is effective for fiscal years and interim periods beginning after December 15, 2019. The amendments are required to be applied retrospectively with a cumulative-effect adjustment. The Company will adopt the new guidance as of January 1, 2020 and does not expect a material impact to its financial statements at the adoption date.

Fair Value Measurement: Changes to the Disclosure Requirements for Fair Value Measurement—In August 2018, the FASB issued updated guidance which modifies the disclosure requirements on fair value measurement. The updated guidance eliminates or modifies various required disclosures under the current guidance and includes additional requirements. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2019. The additional disclosures related to level 3 fair value measurements are to be applied prospectively and other amendments are to be applied retrospectively. The Company will adopt the new guidance on January 1, 2020 and update its fair value measurement disclosures in accordance with the new guidance. The Company currently does not expect a material impact to its financial statements at the adoption date.

Compensation–Retirement Benefits: Changes to the Disclosure Requirements for Defined Benefit Plans—In August 2018, the FASB issued updated guidance which modifies the disclosure requirements regarding defined benefit plans and other postretirement plans. The updated guidance eliminates or clarifies certain currently required disclosures and includes additional requirements. The new guidance is effective for years ending after December 15, 2020 with retrospective application. The Company will adopt the new guidance on January 1, 2020 and update its related disclosures in accordance with the new guidance. The Company currently does not expect a material impact to its financial statements at the adoption date.

Simplifying the Accounting for Income Taxes—In December 2019, the FASB issued new guidance to simplify the accounting for income taxes. The amendments include the removal of certain exceptions and various improvements. These improvements are related to the accounting for franchise tax based on income, evaluation of step up in tax basis of goodwill, allocation of consolidated tax expense to standalone legal entities, recognition of enacted change in tax laws or rates, and other minor changes. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the new guidance.