FASB met on April 8, 2020, to address pressing issues stemming from the COVID-19 pandemic. Specifically:
- Accounting Standards Codification (ASC) 842: Leases – One-year delay proposed for private companies and not-for-profit (NFP) entities
- ASC 606, Revenue from Contracts with Customers – Delay proposed only for franchisors that are not public business entities (PBE)
Proposed Lease Delay (ASC 842) – NFPs & Private Companies
FASB is proposing a one-year delay for private companies and all NFP entities. Among the tentative decisions ruled on was delay of the effective date of Topic 842 (Leases) for private companies and private NFP entities. The standard was set to take effect for fiscal years beginning after 12/15/2020, and interim periods within fiscal years beginning after 12/15/2021. FASB unanimously agreed to offer an extra year to comply with major new lease accounting rules.
The change means the lease standards will be amended for private companies and private not-for-profit entities to annual reporting periods beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022.
Additionally, the rules will be amended for nonprofit 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 (public NFPs) and which have not yet issued financial statements. For these entities, the rules will change to take effect for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption will still be permitted.
This proposal is now in a 15-day public comment period before it can be finalized.
Proposed Revenue Delay (ASC 606) – Franchisors
Franchisors have raised questions about the timing of revenue recognition under ASC 606 for initial franchise fees (IFF). The IFF is a fee paid to a franchisor in exchange for establishing a franchise relationship, along with the provision of some initial services. Before ASC 606, under Topic 952, Franchisors, the IFF is recognized when the franchise location opens. Under ASC 606, the franchisor determines whether the pre-opening activities contain any distinct goods or services in order to determine the appropriate timing of revenue recognition.
Under the proposal, the effective date for franchisors, that are not public entities, would be for annual reporting periods beginning after December 15, 2019, and interim periods beginning after December 15, 2020.
This proposal will have a 15-day comment period; a final statement is expected by early May.
We will continue to follow this developing situation. As with most things COVID-19 related, changes are coming at a rapid pace. Please let us know if you have any questions regarding these FASB rulings, or if we can be of service.
