In a short 35-minute Financial Accounting Standards Board (FASB) board meeting on May 20, 2020, the FASB made a surprise move when it voted to expand the deferral of Revenue Recognition guidance to all entities, and not just provide relief to the franchisor industry, as expected. The Board also voted to defer the effective dates of Leases guidance by one more year.
The FASB Board voted to defer by one more year the required implementation date of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), for any entity that has not adopted the new guidance yet. What this means is that entities with years ending after December 15, 2019 that have not issued their 2019 financial statements, including entities with June 30, 2020 year ends, have the option to wait until the following year to implement ASU No. 2014-09. The deferral applies to all non-public entities, including Not-for-Profits (NFPs).
In deciding whether to implement the new guidance early or take advantage of the additional year’s deferral, Management may wish to consider the magnitude of the impact on implementation. As the guidance must be applied as of the beginning of the year of adoption, Management should compare the impact at the beginning of the fiscal year most recently completed versus what the impact would be if implemented using the end of year.
For example, the timing of contracts may be such that implementing at the beginning of the most recently completed year will require more work to evaluate the impact, or will result in a larger deferral of revenue than might be the case at the end of the year. In those cases, Management may wish to defer adoption so the end of year becomes the start of the implementation period.
The new required dates of implementation for non-public entities that have not adopted ASU 2014-09 yet apply to annual reporting periods beginning after December 15, 2019, and interim reporting periods beginning after December 15, 2020. Early adoption is still permitted.
The FASB Board also voted as expected to defer the required implementation date of ASU No. 2016-02, Leases (Topic 842) by another year for private entities, to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Board clarified that public NFPs that have not issued financial statements with the implementation also may defer adoption for another year, for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption continues to be allowed for all entities.
Finally, the FASB Board voted not to defer the effective date of ASU No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made.
The deferral dates of the Revenue Recognition and Leases guidance are effective immediately, though the FASB will issue a formal release in the coming weeks.