FASB Defers Effective Dates of Revenue and Leasing Standards for Certain Entities
Overview
On June 3, 2020, the FASB issued ASU 2020-05,1 which amends the effective dates of the Board’s standards on revenue (ASC
6062) and leasing (ASC 8423) to give immediate relief to certain entities as a result of the
widespread adverse economic effects and business disruptions caused by the
coronavirus disease 2019 (COVID-19) pandemic. Specifically, the Board deferred
the effective dates of (1) ASC 606 for private companies and private
not-for-profit (NFP) entities and (2) ASC 842 for private companies, private NFP
entities, and public NFP entities.4 The deferrals apply only if those entities have not yet issued their
financial statements (or made their financial statements available for issuance)
as of June 3, 2020.
While the Board acknowledged that it will continue to evaluate the effective
dates of its other standards, the ASC 606 and ASC 842 deferrals were a top
priority given the upcoming adoption deadlines for private entities and public
NFP entities.
Revenue Standard
ASU 2020-05 permits private entities5 that have not yet issued their financial statements or made financial
statements available for issuance as of June 3, 2020, to adopt ASC 606 for
annual reporting periods beginning after December 15, 2019, and for interim
reporting periods within annual reporting periods beginning after December 15,
2020. However, since the deferral is not mandatory, private entities may still
elect to adopt ASC 606 in accordance with previous guidance (i.e., for annual
reporting periods beginning after December 15, 2018, and for interim reporting
periods within annual reporting periods beginning after December 15, 2019).
Connecting the Dots
The Board initially proposed limiting the deferral of ASC 606’s effective
date to franchisors that are not PBEs, primarily because it had received
questions from stakeholders in the franchise industry about the revenue
recognition of initial franchise fees. However, after reviewing feedback
indicating that many other private entities were experiencing challenges
related to adopting ASC 606 under a compressed timeline because of the
COVID-19 pandemic, the Board decided to extend the deferral to all
private entities.
In addition, as described in Deloitte’s Heads Up, “FASB Decides to Defer Certain
Effective Dates and Provides Guidance on COVID-19,” the Board
unanimously decided at its meeting on April 8, 2020, to add a research
project to its agenda to evaluate whether it can reduce the costs of
applying ASC 606 to initial franchise fees. Accordingly, the amendments
in ASU 2020-05 will give the Board time to conduct that evaluation.
Leasing Standard
In November 2019, the FASB issued ASU 2019-10,6 which amended the effective dates of certain major new accounting
standards, including ASC 842, to give implementation relief to certain types of
entities. The following table shows the leasing standard’s effective dates (1)
as originally issued, (2) as amended by ASU 2019-10, and (3) as amended by ASU
2020-05:
Public Entities7
|
Public NFP Entities8
|
All Other Entities9
| |
---|---|---|---|
As originally issued (ASU 2016-02)10
|
Fiscal years beginning after December
15, 2018, and interim periods therein
|
Fiscal years beginning after December
15, 2018, and interim periods therein
|
Fiscal years beginning after December
15, 2019, and interim periods within fiscal years
beginning after December 15, 2020
|
As amended by ASU 2019-10
|
No changes
|
No changes
|
Fiscal years beginning after December
15, 2020, and interim periods within fiscal years
beginning after December 15, 2021
|
As amended by ASU 2020-05
|
No changes
|
Fiscal years beginning after December
15, 2019, and interim periods therein
|
Fiscal years beginning after December
15, 2021, and interim periods within fiscal years
beginning after December 15, 2022
|
Early adoption continues to be permitted in any interim or annual period. If an
entity adopts the leasing standard in an interim period, it should reflect such
early adoption as of the beginning of the annual period.
Connecting the Dots
Clarification for Public NFP Entities
The Board acknowledged in the Basis for Conclusions of ASU 2020-05 that
certain public NFP entities are required to post interim financial
information or interim financial statements to the Electronic Municipal
Market Access (EMMA) system, which is publicly accessible. The Board
clarified in paragraph BC32 that public NFP entities are eligible for
the deferral as long as they have not already posted to EMMA interim or
annual financial statements that comply with U.S. GAAP. Thus, public NFP
entities that have issued or made available for issuance financial
information other than U.S. GAAP–compliant financial statements are
eligible to defer the effective date of ASC 842 as permitted under ASU
2020-05.
Potential Future Additional Relief
The SEC staff announcement codified in ASC 842-10-S65-1 provides relief
from the requirement to apply the PBE effective date in ASU 2016-02 to
entities that meet the definition of a PBE solely because their
financial statements or financial information is included in a filing
with the SEC, such as a disclosure required by SEC Regulation S-X, Rules
3-05, 3-09, 3-14, or 4-08(g). The dates specified in the SEC staff
announcement were not amended in connection with the issuance of ASU
2019-10. However, at the 2019 AICPA Conference on Current SEC and PCAOB
Developments, the SEC staff announced that it would not object if those
specified PBEs adopt ASC 842 by using ASU 2019-10’s effective dates that
apply to non-PBEs. This position was subsequently codified in ASU
2020-02.11 As of the date of this publication, the SEC staff has not provided
similar guidance on ASU 2020-05’s deferral of the effective dates of ASC
842 for non-PBEs to fiscal years beginning after December 15, 2021, and
interim periods within fiscal years beginning after December 15, 2022.
We encourage affected entities to monitor any future developments.
Footnotes
1
FASB Accounting Standards Update (ASU) No. 2020-05, Revenue From
Contracts With Customers (Topic 606) and Leases (Topic 842):
Effective Dates for Certain Entities.
2
FASB Accounting Standards Codification (ASC) Topic 606, Revenue From
Contracts With Customers.
3
FASB Accounting Standards Codification Topic 842, Leases.
4
A public NFP entity is an NFP entity that has issued or is a conduit bond
obligor for securities that are traded, listed, or quoted on an exchange
or an over-the-counter market.
5
The deferral does not apply to public business entities (PBEs), public
NFP entities, and employee benefit plans that file or furnish financial
statements with or to the SEC.
6
FASB Accounting Standards Update No. 2019-10, Financial Instruments —
Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and
Leases (Topic 842): Effective Dates.
7
Public entities are PBEs, public
NFP entities (with the exception of public NFP
entities that have not yet issued their financial
statements or made financial statements available
for issuance as of June 3, 2020), and employee
benefit plans that file or furnish financial
statements with or to the SEC.
8
The deferral provided by ASU
2020-05 only applies to public NFP entities and
private entities that have not yet issued their
financial statements or made financial statements
available for issuance as of June 3, 2020.
9
See footnote 8.
10
FASB Accounting Standards Update
No. 2016-02, Leases.
11
FASB Accounting Standards Update No. 2020-02, Financial
Instruments — Credit Losses (Topic 326) and Leases (Topic
842): Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No. 119 and Update to SEC Section on
Effective Date Related to Accounting Standards Update No.
2016-02, Leases (Topic 842).