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New Accounting Guidance
 9 Months Ended
Sep. 30, 2019
Accounting Changes and Error Corrections [Abstract]  
New Accounting Guidance New accounting guidance

A. Adoption of new accounting standards

Lease accounting (Accounting Standards Update (ASU) 2016-02) – In February 2016, the Financial Accounting Standards Board (FASB) issued accounting guidance that revises the accounting for leases. Under the new guidance, lessees are required to recognize a right-of-use asset and a lease liability for substantially all leases. The new guidance will continue to classify leases as either financing or operating, with classification affecting the pattern of expense recognition. The accounting applied by a lessor under the new guidance will be substantially equivalent to current lease accounting guidance. The new guidance was effective January 1, 2019 and was applied using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of January 1, 2019. The prior period comparative information has not been recasted and continues to be reported under the accounting guidance in effect for those periods.

The new guidance provides a number of optional practical expedients in transition. We elected the “package of practical expedients,” which allows us not to reassess under the new guidance our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight practical expedient. In addition, the new guidance provides practical expedients for an entity’s ongoing lessee accounting. For certain property and information technology equipment leases, we have elected to separate payments for lease components from non-lease components. For all other leases, we have elected not to separate lease and non-lease components. We have elected the short-term lease recognition exemption for all leases that qualify, which means we will not recognize right-of-use assets or lease liabilities for these leases with a term of twelve months or less.

The most significant effects of adoption relate to the recognition of right-of-use assets and lease liabilities on our balance sheet for operating leases and providing new disclosures about our leasing activities. In addition, we derecognized existing assets and debt obligations for a sale-leaseback transaction that qualified for sale accounting under the new guidance. The gain associated with this change in accounting was recognized through opening retained earnings as of January 1, 2019. The adoption did not have a material impact on our results of operations.

In March 2019, the FASB issued Leases - Codification improvements (ASU 2019-01) which amended the new leasing guidance. Under these amendments, lessors that are not manufacturers or dealers will use their cost, less any discounts that may apply, as the fair value of the underlying asset, and lessors within the scope of Financial Services-Depository and Lending guidance will present all principal payments received under leases within investment activities on the statement of cash flows.  We adopted the new guidance effective January 1, 2019, and the adoption did not have a material impact to our financial statements.

See Note 10 for additional information.
The cumulative effect of initially applying the new lease guidance to our consolidated financial statements on January 1, 2019 was as follows:

Consolidated Statement of Financial Position
 
 
 
 
 
 
(Millions of dollars)
 
Balance as of December 31, 2018
 
Cumulative Impact from Adopting New Lease Guidance
 
Balance as of January 1, 2019
Assets
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$
1,765

 
$
(17
)
 
$
1,748

Property, plant and equipment - net
 
$
13,574

 
$
(26
)
 
$
13,548

Noncurrent deferred and refundable income taxes
 
$
1,439

 
$
(77
)
 
$
1,362

Other assets
 
$
2,332

 
$
713

 
$
3,045

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Accrued expenses
 
$
3,573

 
$
(27
)
 
$
3,546

Other current liabilities
 
$
1,919

 
$
209

 
$
2,128

   Long-term debt due after one year
 
 
 
 
 
 
      Machinery, Energy & Transportation
 
$
8,005

 
$
(362
)
 
$
7,643

Other liabilities
 
$
3,756

 
$
538

 
$
4,294

 
 
 
 
 
 
 
Shareholders’ equity
 
 
 
 
 
 
Profit employed in the business
 
$
30,427

 
$
235

 
$
30,662

 
 
 
 
 
 
 


We adopted the following ASUs effective January 1, 2019, none of which had a material impact on our financial statements:

ASU
Description
2017-08
Premium amortization on purchased callable debt securities
2017-12
Derivatives and hedging - Targeted improvements
2018-02
Reclassification of certain tax effects from accumulated other comprehensive income

B. Accounting standards issued but not yet adopted

Credit losses (ASU 2016-13) – In June 2016, the FASB issued accounting guidance to introduce a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses.  The new guidance will apply to loans, accounts receivable, trade receivables, other financial assets measured at amortized cost, loan commitments and other off-balance sheet credit exposures.  The new guidance will also apply to debt securities and other financial assets measured at fair value through other comprehensive income.  We will adopt the new guidance effective January 1, 2020.  An implementation team is continuing to work on the design of new processes and controls as well as assessing the effects of the new guidance.  While we are still evaluating the impact of the new guidance, we do not expect a material impact to our financial statements.

We consider the applicability and impact of all ASUs. ASUs not listed above were assessed and either determined to be not applicable or not expected to have a material impact on our financial statements.