The FASB is proposing the postponement of effective dates of ASU 2016-02, Leases (Topic 842) and ASU 2014-09, Revenues from Contracts with Customers (Topic 606) for certain entities in an effort to provide much needed relief as a result of the COVID-19 global pandemic. This deferral relief would be for those entities for which the guidance is either currently effective or imminently effective.
For ASU 2014-09, the Exposure Draft discussed stakeholders in the franchise industry that have raised concerns about the adoption of this guidance in regards to how the guidance relates to initial franchise fees. The timing of when revenues on these fees is to be recognized is unclear within ASU 2014-09.
During the process of reviewing comment letters to the Exposure Draft, the FASB recognized that all nonpublic entities have had to allocate resources to day-to-day changes in operations making financial accounting tasks extremely challenging. As a result, the FASB is proposing to defer, for one year, the effective date of ASU 2014-09 for nonpublic entities, including not-for-profit organizations, that have not yet issued their financial statements. Nonpublic business entities would still be allowed to adopt ASU 2014-09 for periods beginning after December 15, 2018. Application of the deferral would be made at the entity level based on individual revenue streams. The FASB indicates a plan to vote on this change from the original Exposure Draft on a final, written ballot.
The FASB also considered a delay of ASU 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. As a reminder, contributions received by a not-for-profit entity are outside the scope of ASC Topic 606. The FASB determined that this ASU would not be delayed as the content has guidance that relates to the CARES Act and PPP loans as well as other grants provided during the pandemic. However, not-for-profit entities can still take advantage of the deferral of ASU 2014-09.
For ASU 2016-02, the FASB acknowledged in previously issued ASUs the challenges, which have been further amplified with the current pandemic, associated with implementation of major ASUs for private companies, smaller public companies and not-for-profit entities. Additionally, roundtables with public companies to discuss implementation issues and potential practical expedients have been postponed due to the COVID-19 global pandemic. The FASB is proposing the deferral of the implementation date of ASU 2016-02 to fiscal years beginning after December 15, 2021 for private companies, smaller public companies, not-for-profits, and employee benefit plans. ASU 2016-02 would be effective for public not-for-profits for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption would continue to be permitted.
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