FASB effective date delay proposals to include private company lease accounting

FASB voted Wednesday to add a project to its technical agenda to propose delaying the effective dates of its standards on revenue recognition and lease accounting for certain entities because of challenges related to the coronavirus pandemic.

The board voted unanimously to consider amending the effective date of FASB Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers, including subsequent amendments, for franchisors that are not public business entities.

FASB also voted unanimously to consider amending the effective date of ASC Topic 842, Leases, including subsequent amendments, for:

• Private companies and private not-for-profit entities; and
• Any not-for-profit 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 that has not yet issued financial statements.

FASB directed its staff to draft a proposal with a 15-day comment period.

For calendar-year-end public companies, FASB’s revenue recognition standard is effective as of Jan. 1, 2019, for annual reporting periods. Because the guidance is effective for annual (but not interim) reporting periods, many private companies are currently working to adopt the guidance, and the audit of their first set of financial statements under Topic 606 is in process for many of these companies.

Franchisors have raised questions about the timing of revenue recognition under Topic 606 for initial franchise fees, which typically are paid in a lump sum to the franchisor when a franchise agreement is signed. The franchising industry has requested that FASB evaluate how to reduce the costs of implementation of applying Topic 606 to initial franchise fees.

For those entities, FASB plans to propose deferring the effective date for the revenue recognition standard by one year, so it will take effect for annual reporting periods beginning after Dec. 15, 2019, and interim reporting periods within annual reporting periods beginning after Dec. 15, 2020. The proposal would make the amendment optional.

The board also will add a research project to its agenda to evaluate how to reduce the costs of implementation of applying the revenue recognition standard to initial franchise fees.

Lease accounting considerations

The lease accounting standard was effective for fiscal years beginning after Dec. 15, 2018, including interim periods within those fiscal years, for:

• Public business entities; and
• Not-for-profits that have issued or are a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter market. FASB calls these entities “public not-for-profits.”

The lease accounting standard is scheduled to take effect for private companies and private not-for-profits for fiscal years beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021. The proposal would defer the effective date for those entities to fiscal years beginning after Dec. 15, 2021, and interim periods within fiscal years beginning after Dec. 15, 2022.

For public not-for-profits, the standard would delay the lease accounting standard effective date to fiscal years beginning after Dec. 15, 2019, including interim periods within those fiscal years. FASB Chairman Russell Golden said many of the public not-for-profits that may need this relief have June 30 financial statement year ends.

“A lot of those entities are universities and hospitals, and I think the deferral will go a long way,” Golden said.

Golden also indicated that FASB will consider additional effective date delays, if necessary, as a result of the pandemic.

“We will continue focus and continue to monitor the progression toward transitioning to those standards that will be effective in 2021 and 2022 and beyond, as well as the sunset provision in the recently issued simplification regarding the transition from LIBOR,” he said.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA’s coronavirus resources page.

— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.