The Financial Accounting Standards Board (FASB) met on April 8, 2020 to discuss and respond to the effect the COVID-19 pandemic has had on the preparation of US GAAP financial statements. The Board understands that given the pandemic, companies have needed to shift their resources away from the implementation of new accounting standards. Therefore, the board decided to provide relief to those companies by giving them the option to delay the implementation of certain upcoming standards. Particularly, the implementation of ASC 606 (Revenue from Contracts with Customers) for franchisors who are not public business entities, and ASC 842 (Leases) for private companies, private nonprofits and certain public nonprofits.
The board proposed to defer the effective dates of ASC 606 for franchisors that are not public business entities by one year to annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. The board noted the implementation had created challenges for franchisors when applying the standard to franchise fees related to preopening activities.
The board also proposed to defer ASC 842 for private companies and private NFPs to now be effective for fiscal years beginning after December 15, 2021, and interim periods beginning after December 15, 2022 and for public NFPs to be effective for fiscal years beginning after December 15, 2019, including interim periods if they have not already issued financial statements.
The FASB is working to accelerate the deferral for public NFPs, as many of these are hospitals or universities with June 30 year ends. The FASB continues to reach out to stakeholder to understand the difficulties companies are experience with implementation of the leasing standard.
Finally, the board discussed ASC 842 application regarding lease modifications framework, as many companies are receiving rent abatements because of the pandemic. If the lease included economic relief in the original agreement, it would be accounted for outside of the modification frame work. If the economic relief was agreed to after the original agreement as a result of COVID-19, the entity can make a policy election on how to account for leases rather than analyzing each lease individually.
The board also commented that companies’ ability to implement other standards, with effective dates of 2022 and beyond, will be impacted by the COVID-19 pandemic. The board is committed to understand how the crisis is affecting transition plans and addressing the need for more time.