The Financial Accounting Standards Board (FASB) held a virtual board meeting on May 20th, where they voted 6-1 to provide a one-year deferral of ASC 606 for all private companies that have not yet issued their financial statements — and yes, that does include organizations with December 31, 2019 year-ends if they have not yet issued their financial statements.
Back in April, the board issued an exposure draft (ASU 2020-300) that proposed the deferral of the lease standard by one year for all private companies and to defer revenue recognition by one year for franchisors. Comments were due May 6, 2020. A pile of comment letters arrived on the FASB’s desk requesting it consider deferring revenue recognition for all private entities that have not yet issued their financial statements due to the complications that have been presented to companies related to the COVID-19 coronavirus pandemic — and the FASB listened.
What does this ASC 606 deferral mean for your organization?
The decision, which has been finalized as Accounting Standards Update No. 2020-05, does give companies flexibility. If an organization was well on its way to using the new rules, they could certainly continue down that path and adopt the provisions of ASC 606. Ultimately, the decision will be up to each organization whether they want to take advantage of the one-year deferral or adopt the accounting and reporting requirements of ASC 606 as planned.
“The FASB issued the ASU to allow certain companies and organizations who have not yet applied the revenue recognition and leases guidance to delay their implementation by one year,” stated FASB Chairman Russell G. Golden. “We believe the deferral will provide these stakeholders a measure of relief during this unprecedented time.”
During the meeting, the board also considered but voted against a delay in the effective date for ASU No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. The board concluded that the guidance in ASU No. 2018-08 will be helpful to nonpublic entities as they report funds they receive related to the pandemic.
The FASB also confirmed its decision from April to amend the effective date of its lease accounting standard for private companies and not-for-profits. For private companies and private not-for-profits, the effective date will be for fiscal years beginning after December 15, 2021. Early adoption is still permitted.
For additional information on these deferrals and effective dates of various accounting standards, please reach out to your Wipfli relationship executive.