FASB Delays Revenue Recognition and Leasing Standards
Recognizing the strain that the Covid-19 crisis is having on private businesses, the Financial Accounting Standards Board (FASB) has voted to delay the implementation of ASC 606 (revenue recognition) by one year.
The vote came down Wednesday, May 20, 2020 and gives all private entities and nonprofit organizations that have not yet issued their financial statements an extra year to adopt the new standards.
Originally, the Board planned to amend the effective date just for private franchisors but received opposition from other private companies and industry associations. For instance, the Technical Issues Committee (TIC) of the American Institute of Certified Public Accountants (AICPA) explained in a comment letter that due to the pandemic, private businesses have had to turn all their attention to their own survival, making even routine accounting tasks extremely challenging.
Acting on that feedback, FASB has set the new effective date for annual reporting periods beginning after December 15, 2019 and interim reporting periods within annual reporting periods beginning after December 15, 2020. Early adoption is permitted.
Past Revenue Recognition Delays
This isn’t the first time that FASB has delayed the revenue recognition standard. In 2014, the new standard was issued to converge with the International Accounting Standards Board and was set to go into effect for public companies in 2017 and private companies in 2018. Many companies had difficulty adjusting to the extensive changes and FASB pushed back the dates for public companies to 2018 and private companies and nonprofits until 2019 or 2020, depending on their reporting period.
The Board also reaffirmed its decision to push back the effective date of its lease accounting standard for private companies and nonprofits.
The lease standard has been in effect for public companies since the start of 2019 and was supposed to take effect at the beginning of 2020 for private companies and nonprofits. In October 2019, FASB postponed that start date and it is now pushed back for another year. The current effective date is for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted.
FASB expects to release the final standard detailing the new timetables in early June.
Note: The above information provided does not become official authoritative guidance prior to a new auditing standard update (ASU) being drafted and ratified. The May 20, 2020 board vote effectively makes this a formality, but it is important to be aware that any financial statements issued during the interim period between the FASB board vote and the ratification of the new ASU are still subject to compliance with ASC 606. Issuance of a financial statement during that interim period that does not comply with ASC 606 would be considered a departure from generally accepted accounting principles.
Article compiled by Josh Pollet. Contact us at firstname.lastname@example.org for additional information.
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