As a result of COVID-19 and the disruption it is causing, FASB has issued an Accounting Standards Update (ASU) 2020-05, Revenue from Contracts with Customers (ASC 606) and Leases (ASC 842) Effective Dates for Certain Entities regarding deferral of effective dates for Revenue from Contracts with Customers and Leases.
Revenue from Contracts with Customers (ASC 606)
According to FASB, “The deferral of the effective date applies to private companies that have not yet issued their financial statements (or made financial statements available for issuance) reflecting the adoption of the revenue recognition standard as of June 3, 2020.
The final ASU gives nonpublic entities the flexibility to adopt the revenue recognition standard on the current implementation date or deferring implementation for one year, that is, for annual reporting period beginning after December 15, 2019.
Due to the economic challenges as a result of the pandemic, FASB has offered a one year deferral of lease accounting standard (ASC 842). ASC 842 was effective for fiscal years beginning after Dec. 15, 2018, including interim periods within those fiscal years, for:
- Public business entities; and
- Not-for-profits that have issued or are a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter market. FASB calls these entities “public not-for-profits.”
The lease accounting standard was scheduled to take effect for private companies and private not-for-profits for fiscal years beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021. ASU 2020-05 defers the effective date for those entities to fiscal years beginning after Dec. 15, 2021, and interim periods within fiscal years beginning after Dec. 15, 2022.
For public not-for-profits, the standard delays the lease accounting standard effective date to fiscal years beginning after Dec. 15, 2019, including interim periods within those fiscal years.
As with any financial strategies, you need to consider the impact to your not-for-profit. Be sure to speak with your financial advisor to determine the best approach for your organization.
Lindquist, von Husen & Joyce provides recognition of contribution and multi-year grant revenue recognition guidance for not-for-profits and affordable housing audit and compliance requirements. Contact your engagement partner at LvHJ.
You may also be interested in our recent blog where we discuss the pitfalls of revenue recognition with tips to manage them in your financial statements.