If you’re feeling burned out from coping with extreme circumstances brought on by the COVID-19 pandemic, you’re not alone. Fortunately, the Financial Accounting Standards Board (FASB) and Congress are offering some compliance-related relief for certain entities.

Deferral of Revenue Recognition Rules

Let’s start with Accounting Standards Update (ASU) No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities. It postpones the effective dates for two standards. First, it grants a one-year deferral for privately owned companies and nonprofit organizations that have not yet adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606).

Under the deferral, private companies and nonprofit organizations that qualify can choose to apply the updated revenue recognition rules to annual reporting periods beginning after December 15, 2019. Qualifying entities also can defer the rules for interim reporting periods within annual reporting periods beginning after December 15, 2020. Early adoption is allowed.

The updated revenue recognition guidance was issued in 2014 to replace hundreds of industry-specific accounting rules with a principles-based five-step model for reporting revenues earned from certain types of customer contracts. This is the second delay granted for the revenue recognition standard.

The FASB issued the previous deferral in 2015. It allowed public companies to apply the updated guidance to annual reporting periods beginning after December 15, 2017, and private companies to apply it to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.

Public companies and some nonprofits have already adopted the rules. But, when the COVID-19 pandemic hit, many private companies were in the process of preparing their first annual financial statements under the updated guidance. So, the FASB approved an additional deferral.

Deferral of Lease Rules

The second deferral under ASU 2020-05 applies to the updated lease guidance. Specifically, it grants a one-year delay of ASU No. 2016-12, Leases (Topic 842), for the following entities:

  • All private companies,
  • Private nonprofit organizations, and
  • Public nonprofit organizations that have not yet adopted the rules.

Under the deferral, private companies and private nonprofit organizations can choose to apply the standard to fiscal years beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022. Public nonprofit organizations that have not yet issued (or made available to issue) financial statements reflecting the adoption of the lease guidance can choose to apply the standard to fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is allowed.

The updated lease guidance was issued in 2016 to require companies — for the first time — to record the full magnitude of their long-term lease liabilities and assets on the balance sheet. Public companies had to adopt the rules for fiscal years beginning after December 15, 2018, and it would have taken effect for private companies with fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Previously, the FASB had issued a one-year deferral in November 2019 for private companies.

Need Help?

These standards are some of the most substantial accounting changes to hit the U.S. marketplace in decades. The FASB recognizes that many companies will need more time to evaluate and process the changes under these unprecedented conditions. If you have questions about implementing these changes, contact your accounting and auditing advisors.

© 2020