On Wednesday, May 20, 2020, the Financial Accounting Standards Board (FASB) voted to give private companies and not-for-profit organizations an extra year to comply with the new revenue recognition and lease standards. The announcement effectively gives these entities additional time as they struggle to adjust to the coronavirus pandemic and institute new accounting standards.
Per the latest delay, if a privately held company or not-for-profit has yet to adopt FASB’s new major revenue recognition accounting standard (ASC 606, Revenue from Contracts with Customers), they can elect a one-year deferral. In addition, rather than adopting the new lease accounting rules (ASC 842, Leases) in 2021, private companies and many not-for-profits can elect to wait until 2022.
The vote comes in response to a proposal put forth by FASB in April to defer the effective date of the revenue recognition and lease standards in response to the pandemic. Under the proposal, the change would only affect franchisor businesses in order to rectify a technical, franchise-specific question that emerged pre-coronavirus.
However, after FASB announced the idea, several other groups asked for extensions on the revenue standard as well. Ultimately the Board decided to extend the deferral to all private companies and not-for-profits. These entities were expected to begin applying the revenue recognition standard this year, but will now be able to wait until next year. Note that public companies have been using the new revenue recognition standard since 2018.
The final standard is expected to be issued during the first week of June.
The Board first issued the new revenue recognition standard in 2014 as part of a major convergence project with the International Accounting Standards Board. It was set to take effect for public companies in 2017 and private companies in 2018. However, many companies had difficulty adjusting to the extensive changes and in 2015, FASB voted to push back the dates for public companies until 2018 and for private companies and most not-for-profits until 2019 or 2020, depending on their reporting period.
With the May 20 vote, these organizations now have an extra year to apply the revenue recognition standard. The effective date will now be for 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.
Public companies implemented the new lease standard at the start of 2019 and private companies and not-for-profits were to follow suit at the beginning of this year. Last October, FASB decided to postpone the effective date of the leases standard for private companies and not-for-profits, though it had already taken effect for public companies. It will now be pushed back for another year.
Now, per the latest vote, private companies and many not-for-profits can wait until 2022 to adopt the new lease accounting rules. For private companies and private not-for-profits, the effective date will be for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022.
For public not-for-profits (entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-the-counter market) that have not yet issued financial statements (or made them available for issuance), the effective date will be fiscal years starting after December 15, 2019, including interim periods within those fiscal years.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.