By Colin Hannifin, CPA, Business Assurance & Advisory Services Manager
FASB Responds to COVID-19 by Voting to Delay the Implementation of New Revenue Recognition and Lease Standards
On May 20, 2020, the Financial Accounting Standards Board (the “FASB” or the “Board”) held a virtual meeting in which it voted to affirm its intent to delay the effective dates of its revenue recognition standard 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.
The FASB has voted 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 new standard.
The Board instructed its staff to draft an Accounting Standard Update (“ASU”) describing the delay, which will then be subject to a final approval vote. It is expected that the ASU will allow entities to adopt the revenue recognition standard in accordance with the current schedule or to defer implementation of the standard for one year.
In the proposal issued in April 2020, the FASB had proposed delaying aspects of the new revenue recognition standard for franchisors in response to questions regarding how to record initial franchise fees should be treated under ASC 606.
During the comment period, the FASB received dozens of comments, many of which urged a wider deferral of the standard. The new revenue recognition standard, which replaces most existing revenue guidance, brings sweeping changes and has proved challenging for entities to adopt. Comment letters noted that the focus of entities is on surviving the challenges presented by COVID-19 and many don’t have the resources to simultaneously tackle the implementation of the new revenue recognition standard.
However, the FASB did decline to delay the implementation of ASU No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. With the additional assistance provided to organizations related to pandemic response, the Board felt the guidance included in the new standard will be helpful.
The Board also affirmed its intent to support the deferral of the required implementation date for ASC Topic 842, Leases.
Under the proposal, the new lease standard is expected to be delayed 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 financial statements.
Under the proposal, it is expected that the new lease standard will be 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 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 expected to be 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 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 have been temporarily suspended so that priority may be given to 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.