By Colin M. Hannifin, CPA, Business Assurance & Advisory Services Manager
Relief to entities struggling with the challenges presented by the ongoing COVID-19 pandemic
On Wednesday, June 3, 2020, the Financial Accounting Standards Board (the “FASB” or the “Board”) issued Accounting Standards Update (ASU) 2020-05, which delays the effective dates of the new revenue recognition standards and lease standard for certain entities. The delays were first proposed in April 2020 as a means to provide relief to entities struggling to respond to the COVID-19 pandemic and simultaneously implement the significant new accounting standard.
ASU 2020-05 provides an option to delay the effective date for Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers for all nonpublic entities that have not yet issued financial statements reflecting the implementation of the revenue recognition standard.
Under the optional delay, nonpublic entities may elect to implement the new rules for annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. This reflects a one-year delay in the implementation of the standard and is optional.
ASU 2020-05 also provides an option to delay the required implementation date for ASC Topic 842, Leases for one additional year for the following entities:
- Private entities, including companies and not-for-profits; and
- Public not-for-profits, meaning any not-for-profit that has issued or is a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or over-the-counter market that has not yet issued or made available financial statements.
Under the new ASU, the new lease standard is effective for private entities for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. This marks the second time the effective date of the lease standard has been delayed for private entities; in November 2019, the FASB issued ASU 2019-10, which provided effective date deferrals for a number of new standards, including leases.
For public not-for-profits, the new lease standard is now effective for fiscal years beginning after December 15, 2019, including interim periods within those years.
The schedule for the implementation of the new lease standards for public business entities will remain unchanged.
The delays are effective as of June 3, 2020, and the entities as noted above can take advantage of these delays as long as their financial statements have not been made available. The delays are optional, and if significant implementation efforts are underway, entities may find it most efficient to implement in alignment with existing implementation guidelines.
The FASB intends these optional delays to provide relief to entities struggling with the challenges presented by the ongoing COVID-19 pandemic by easing the implementation burden on short staffed and overwhelmed accounting departments. The FASB has stated it plans to continue to monitor the impact of COVID-19 and will consider additional relief from the strain of implementation if necessary. Several projects on the FASB’s agenda remain temporarily suspended so that priority may be given to addressing the impact of the global pandemic.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.