By Denise Lugo
The FASB on June 3, 2020, published a new accounting standard that grants a one-year delay on leases and revenue recognition accounting rules for a subset of companies—providing the nation’s largest business demographic a commodity they need most: time.
The standards are two of the most substantial accounting changes to hit the U.S. marketplace in decades. Accountants have told the board the coronavirus crisis has placed added burdens on their implementation efforts and they need more time to evaluate and process the changes.
“The FASB issued the ASU to allow certain companies and organizations who have not yet applied the revenue recognition and leases guidance to delay their implementation by one year,” FASB Chairman Russell Golden said. “We believe the deferral will provide these stakeholders a measure of relief during this unprecedented time.”
The changes were issued under Accounting Standards Update (ASU) No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, to defer two standards: ASU. 2014-09, Revenue from Contracts with Customers (Topic 606), for privately owned companies and nonprofits that have not yet adopted the standard, and ASU No. 2016-12, Leases (Topic 842), for all private companies, private not-for-profit organizations, and public nonprofits that have not yet adopted the rules.
Under the deferral, private companies and not-for-profit organizations that qualify can choose to apply revenue recognition rules to annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020.
For leases rules, private companies and private not-for-profit organizations can apply the standard to fiscal years beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022. Public not-for-profit organizations that have not yet issued (or made available to issue) financial statements reflecting the adoption of the leases guidance can apply the standard to fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
The date delays are optional. Earlier adoption is allowed.
This is the second batch of delays being granted to the standards. The revenue rules were issued in 2014 to replace hundreds of industry-specific accounting rules with a principles based five-step model for reporting revenues earned from certain types of customer contracts. A deferral was issued in 2015 to enable public companies to apply it to annual reporting periods beginning after December 15, 2017, and private companies to apply it to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.
Public companies and some nonprofits have already adopted the rules, but many private companies are currently preparing and having their first annual financial statements under the new guidance audited.
Similarly, lease accounting rules were issued in 2016 to require companies–for the first time–to record the full magnitude of their long-term lease liabilities and assets on the balance sheet.
Public companies had to adopt the rules for fiscal years beginning after December 15, 2018, and it would have taken effect for private companies with fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The board issued a year deferral in November 2019 for private companies.
This article originally appeared in the June 04, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.
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