During the Financial Accounting Standards Board (FASB) board meeting on May 20, the Board voted to defer the adoption of ASC Topic 606, Revenue from Contracts with Customers, (Topic 606) for all entities that have not yet adopted the standard, by one year from the previous adoption date. It also approved a one-year deferral of the leasing standard for non-public business entities and not-for-profits. The deferrals are designed to provide flexibility to entities that may be struggling with preparing and issuing financial statements due to the unique circumstances presented by the COVID-19 pandemic.
The FASB’s vote was on a ballot for drafting a final Accounting Standards Update (ASU). It is expected that once the FASB formally issues the ASU, entities that have not issued (or made available for issuance) financial statements that include the adoption of Topic 606 will be able elect to defer adoption of Topic 606 until the annual period beginning after Dec. 15, 2019 (i.e. calendar year end Dec. 31, 2020). Entities may still elect to adopt at the original effective date.
As a note for context, the proposed deferral was initially aimed specifically at franchisors, however the Board expanded the scope of the deferral in order to aid calendar year entities that have yet to complete their 2019 financial statements and entities with fiscal year ends, due to the challenges faced by those entities in dealing with the repercussions from the COVID-19 pandemic.
Eligible entities may want to consider deferring if they are still working on the adoption, as long as they can wait to issue those financial statements until after the final ASU is released. The FASB has not provided a timeline for when the final ASU will be issued.
Leasing Standard Delay
The Board also voted to approve the deferral of the effective date for ASC Topic 842 Leases (Topic 842), for non-public business entities and private not-for-profit entities one year until the period beginning after Dec. 15, 2021 (i.e. calendar year end Dec. 31, 2022).
Based on the Board’s vote, public not-for-profit entities — those that have issued or are conduit debt obligors for securities that are traded, listed, or quoted on an exchange or over-the-counter (OTC) market — will also receive a one-year deferral. This would result in the effective date of Topic 842 to be the period beginning after Dec. 15, 2019 (i.e. calendar year end Dec. 31, 2020).
Entities will be eligible to take advantage of the delay if upon issuance of the final ASU they have not issued or made available for issuance financial statements that reflect the adoption of ASC 842. Not-for-profits that have issued financial information — but not a complete set of financial statements — that reflect the adoption of Topic 842 would still be eligible to apply the deferral.
The potential impacts from the coronavirus has been extensive and this deferral by the FASB is another indication and acknowledgment of the far-reaching impact that the pandemic has had. For more information on how the delays may affect your organization, please contact us.
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