On May 20, 2020, the Financial Accounting Standards Board (FASB) met to discuss comments received on a proposed Accounting Standards Update (ASU), “Revenue From Contracts With Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities.” At the end of its discussion, the board voted to finalize its deferral of the effective dates of the following ASUs for certain private companies and not-for-profit entities (NFPs):
- ASU 2014-09, “Revenue From Contracts With Customers (Topic 606)”
- ASU 2016-02, “Leases (Topic 842)”
The board’s vote changes and clarifies certain aspects of the proposed ASU, the most significant of which extends the Topic 606 deferral to entities beyond those in the franchisor industry.
Deferral of the effective date of Topic 606
All nonpublic business entities, including NFPs, that have not yet issued or made available for issuance financial statements in which Topic 606 has been adopted may defer the adoption of Topic 606 by an additional year. The board’s original proposal limited the deferral of the Topic 606 effective date to franchisor entities due to certain implementation challenges specific to that industry. However, after hearing from various industry groups that a deferral would benefit all private companies that might be struggling from the effects of the COVID-19 pandemic, the board decided to extend the one-year deferral to all nonpublic business entities, including NFPs, that have not yet issued or made available for issuance financial statements in which Topic 606 has been adopted. For eligible entities, Topic 606 is now effective for fiscal years beginning after Dec. 15, 2019, and interim periods within fiscal years beginning after Dec. 15, 2020.
In addition, the board considered but ultimately decided not to defer the effective date of ASU 2018-08, “Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made.” While a deferral would have retained the alignment between the effective dates of Topic 606 and ASU 2018-08, the board decided the guidance in the ASU would be helpful to entities as they account for assistance received due to the COVID-19 global pandemic.
Deferral of the effective date of Topic 842
The board’s vote also affirms its proposal to defer the effective date of Topic 842 for nonpublic business entities, including NFPs, for an additional year. Topic 842 will now be effective for fiscal years beginning after Dec. 15, 2021, and interim periods in fiscal years beginning after Dec. 15, 2022. In addition, NFPs 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 also are eligible for a one-year effective date deferral if they have not yet issued or made available for issuance financial statements in which Topic 842 has been adopted. For this subset of NFPs, Topic 842 is effective for fiscal years (and interim periods therein) beginning after Dec. 15, 2019.
Note: An entity that qualifies for either of the effective date deferrals may still choose to early adopt the standards in accordance with the standards’ original effective dates.
In addition, the FASB clarified that the effective date deferrals apply to all nonpublic business entities, including NFPs, that have not yet issued or made available for issuance GAAP-compliant financial statements in which Topic 606 or Topic 842 has been adopted. The FASB further clarified that a not-for-profit entity that has already filed interim financial information in the Electronic Municipal Marketplace Access (EMMA) system in which Topic 842 has been adopted would still qualify for the Topic 842 effective date deferral assuming GAAP-compliant financial statements have not yet been issued or made available for issuance.
The FASB will issue a final ASU in the near future. For more information, refer to the FASB’s tentative board decisions on the FASB website.
