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Accounting Firms Confused on Whether Some Nonprofit Conduit Debt Obligors Qualify for FASB’s Leases Deferral

Thomson Reuters Tax & Accounting  

· 5 minute read

Thomson Reuters Tax & Accounting  

· 5 minute read

By Denise Lugo

Big Four and other accounting firms asked the FASB to clarify whether nonprofits that file interim financial information in the Electronic Municipal Market Access (EMMA) system, which is publicly available, would also qualify for a pending delay on lease accounting rules.

Nonprofits that issue or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-the-counter market are required to post quarterly financial information or statements to EMMA, and it is not clear whether that excludes them from the FASB’s proposed rule-deferral, Ernst & Young LLP, PricewaterhouseCoopers LLP, Deloitte & Touche LLP, Plante & Moran PLLC, among others told the board.

“It is unclear whether such quarterly financial information (i.e., not GAAP-compliant interim financial statements) that reflects the adoption of the leases guidance and which an entity has posted on EMMA constitutes an entity having “issued financial statements or made financial statements available for issuance,” as that phrase is used in the proposed amendments,” PwC said in a May 6 letter.

Many public NFPs, primarily healthcare organizations, may have reflected (or may have been required to reflect) the adoption of the leases guidance in their quarterly EMMA posting as of the first day of their fiscal year beginning after December 15, 2018, accounting firms said. Those entities would likely still have significant remaining costs to complete their adoption of the leases guidance because the financial information postings on EMMA often exclude GAAP-compliant disclosures.

The language in FASB’s proposal is not clear on where those entities would stand in light of the proposal and therefore it needs to be clarified, Deloitte said in its April 28 letter.

“We recommend that the Board clarify its intent regarding the applicability of the deferral to these entities when interim financial information has been made available but does not present complete financial statements prepared in accordance with U.S. GAAP,” Deloitte said.

The FASB in late April issued Proposed Accounting Standards Update (ASU) No. 2020-300Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842) Effective Dates for Certain Entities, to give companies more time to implement two significant accounting standards in light of the coronavirus pandemic.

The proposal would delay revenue rules for privately-owned franchisors and lease accounting rules by one year for all private companies and for not-for-profit entities that have not yet adopted the provisions.

This is the second delay to Topic 842, Leases, extended to private companies and nonprofits in four months. The accounting standard requires companies to record the full magnitude of their long-term lease obligations on the balance sheet, a first under GAAP. Prior rules allowed those figures to be recorded off balance sheets.

The delay, if finalized, means companies will not have to adopt the changes until 2022. Accounting firms said the extra time will help, as many nonprofits have had to use their resources to deal with the pandemic.

Companies said some auditors and financial statement preparers might be confused.

“We believe there is confusion among preparers and auditors as to whether entities that have posted interim financial information in the EMMA system would be eligible for the deferral,” Plante & Moran said in its May 6 letter. “We request the Board clarify in the final standard whether the proposed deferral would apply to these entities.”


This article originally appeared in the May 11, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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