Proposed Delay of Lease Standard Implementation due to COVID-19

Proposed Delay of Lease Standard Implementation due to COVID-19

Posted on

By Colin Hannifin, Business Assurance & Advisory Services Manager

FASB to Propose Delay of Implementation of Lease Standard due to Coronavirus (COVID-19)

Update: On Tuesday, April 21, 2020, the Financial Accounting Standards Board (“FASB”) issued an exposure draft of a proposed Accounting Standards Update that would grant a one-year effective delay for certain entities implementing the new lease and revenue recognition standards.  The FASB has asked that any comments be submitted by May 6, 2020.  The short comment period indicates that FASB intends to move quickly on the proposal.  After the comment period is closed, FASB will vote on the proposal. 

 FASB’s press release can be found here and the exposure draft can be accessed here.


On Wednesday, April 8, 2020, the FASB held a virtual meeting to address the impact of the ongoing COVID-19 global pandemic and the challenges businesses are facing.  In its meeting, the FASB voted to add to its agenda for future consideration proposals to delay the effective dates of its lease standard and certain aspects of its revenue recognition standard for certain franchisors.

New Lease Accounting standard (ASC 842)

Under the planned proposal, the required implementation date for Accounting Standards Codification (“ASC”) Topic 842, Leases, would be delayed for one additional year for certain 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.

After the issuance of Accounting Standards Update (“ASU”) 2019-10 last November, the new lease standard is effective for private entities for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.  Under the planned proposal, this would be delayed to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

For public not-for-profits, the new lease standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those years.  The planned proposal would push that date to December 15, 2019, including interim periods within those years.

The schedule for the implementation of the new lease standards for public business entities would remain unchanged.

Revenue Recognition Standard (ASC 606)

FASB is also planning to propose a delay in the effective date for certain aspects of ASC Topic 606, Revenue from Contracts with Customers.  More specifically, they are offering relief to franchisors that are not public business entities.  Questions have persisted as to how initial franchise fees should be treated under ASC 606.  Under the planned proposal, the effective date of the revenue recognition standard would be delayed one year and would be effective for fiscal years beginning after December 15, 2019, and interim reporting period within fiscal years beginning after December 15, 2020.

During the proposed delay, the Board will add a research project to its agenda to evaluate how to reduce the cost of applying ASC Topic 606 to initial franchise fees.

Conclusion

It’s important to note that this is just the first step in a potential deferral.  The FASB has directed its staff to draft a proposal with a short 15-day comment period, indicating that they intend to consider and vote on the proposal quickly.

FASB has stated that it plans to continue to monitor the impact of the pandemic and will consider additional relief from the strain of implementation if necessary.  Several projects on FASB’s agenda have been temporarily suspended so that priority may be given to the impact of the global pandemic.


We are closely monitoring this evolving and unique economic situation. We will keep you updated and informed on how to respond to these and additional tax and regulation changes as they are announced.

Questions on the potential impact to your business? We can help. Contact your Keiter representativeEmail | 804.747.0000

COVID-19 Business Resource Library


About the Author

Colin is a Business Assurance & Advisory Services Senior Manager at Keiter. He has significant experience in public accounting for both the not-for-profit and private sectors. Colin’s clients rely on him for sound advice and insights on accounting regulations and changes that may impact their business. Read more of Colin’s insights on our blog.

More Insights from Colin Hannifin, CPA


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.

Contact

How Can We Help You and Your Business?

Innsbrook Corporate Center
4401 Dominion Boulevard
Glen Allen, Virginia 23060

804.747.0000 or 804.273.6200

Directions