The Financial Accounting Standards Board (FASB) voted Wednesday, May 20, 2020, to give private companies and nonprofit organizations that have not yet issued their financial statements an extra year to comply with the revenue recognition and leases standards.
Why did FASB extend the effective date?
The deferred implementation was based on feedback the FASB received on the proposal related to coronavirus pandemic challenges. Many organizations continue to struggle through months of decreased or nonexistent operations. Private companies and nonprofits may not have the technology or resources to implement the standards effectively.
The FASB has directed its staff to draft a final Accounting Standards Update (ASU) for a vote by written ballot, and the board members indicated that they would vote in favor.
Revenue Recognition (ASC 606, Revenue from Contracts with Customers)
The effective date for the new revenue recognition standard will be extended to annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. Early application will continue to be permitted.
The FASB decided to extend the effective date of the revenue recognition standard for all nonpublic entities that have not yet adopted the new standard.
The original proposal was limited and would have extended the revenue recognition effective date only for franchisors that are not public business entities. Still, the FASB extended the proposal to all nonpublic entities based on feedback on the proposal.
The FASB retained the effective date of ASU No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made and decided not to align the guidance with the deferral of the revenue recognition standard.
Leases (ASC 842)
FASB also decided to extend the effective date of its lease accounting standard for private companies and not-for-profits that have not yet issued their GAAP-compliant financial statements or made those financial statements available for issuance. Early adoption will be permitted.
The effective date of the leases standard will be for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application will continue to be permitted.
For more information on these developments, please contact your BeachFleischman relationship manager.
Tysiac, K. (2020, May 20). FASB votes to delay revenue recognition effective date for private companies. Journal of Accountancy. Retrieved from https://www.journalofaccountancy.com/news/2020/may/fasb-delays-revenue-recognition-for-private-companies-amid-coronavirus.html
CCH ARM Editorial. (2020, May 21). FASB decides to extend effective date of revenue recognition and leases standards for certain entities. CCH Group. Retrieved from http://news.cchgroup.com/2020/05/21/fasb-decides-to-extend-effective-date-of-revenue-recognition-and-leases-standards-for-certain-entities/accounting-audit/a-a-hot-topics/