Pandemic Relief for-profit and nonprofit entities
On June 3, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-05, bringing relief for both for-profit and nonprofit entities. The standard allows entities who have not yet issued their financial statements to DELAY the implementation of ASU 2014-09, Revenue Recognition from Contracts with Customers (ASC 606).
ASC 606 replaces virtually all accounting standards related to revenue recognition. It had been required for non-public entities to implement for years beginning after December 15, 2018, resulting in many entities already undergoing implementation. Note – early implementation of ASC 606 is allowed.
FASB had initially proposed ASC 606 be delayed for non-public franchisors only, due to technical issues related explicitly to franchisors. Citing the feedback FASB received, specifically the time and technical difficulties many entities faced to implement this standard, which was amplified by the current business environment due to the COVID-19 pandemic, FASB changed their stance.
This new Accounting Standard DOES NOT affect revenue recognition changes related to nonprofits or any other entity receiving contributions. ASU 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (ASC 958) had an original implementation date for years beginning after December 15, 2018, and this date remains. Many nonprofits will ultimately need to implement both ASC 606 and ASC 958 related to their revenue recognition.
Nonprofits will now need to decide to early implement ASC 606 or spread the change over the next two reporting periods.
Also delayed by the new Accounting Standard, for all non-public entities, including nonprofits, was ASU 2016-02, Leases (ASC 842). The lease accounting rules will have a significant impact on companies’ financial statements leasing real property, equipment, vehicles, and other fixed assets. It requires entities to report most leases as both an asset and liability and has been an enormous undertaking for many entities. So much so, FASB had, in late 2019, delayed the effective date from 2020 year-ends to 2021 year-ends.
Now the effective date has been pushed again, and non-public entities DO NOT need to adopt this standard until years beginning after December 15, 2021, resulting in a December 31, 2022, initial reporting date for year-end calendar entities.
Although these are welcomed delays for many entities (and a little late for others), it is important to remember these standards are NOT going away, and early implementation is available for both Revenue Recognition and Leases. Companies with a change in their revenue recognition calculations related to ASC 606, if not opting to early implement, can use this opportunity to calculate their ASC 606 revenue for the current year-end accurately. This will make the transition in the future easier.
Entities that will have limited changes and obstacles in implementation can opt to early implement and continue to move forward with ASC 606. Since many entities have completed their December 31, 2019, financial statements, financial institutions, bonding companies, investors, grantors, etc. have become familiar and knowledgeable of this standard. Each entity’s situation is different, and we are here to help guide you through these options and any potential changes.