As noted in a previous GRF industry alert, on April 8, 2020, the Financial Accounting Standards Board (FASB), added a project to its technical agenda to propose delaying the effective dates of its standards on revenue recognition and lease accounting for certain entities due to challenges related to the COVID-19 pandemic. The particular Accounting Standards Codifications (ASCs) in the proposal for delays were Topic 606, Revenue From Contracts With Customers, and Topic 842, Leases.

On June 3, 2020, FASB issued Accounting Standards Update (ASU) 2020-05, as a limited deferral of the effective dates of the following Updates (including amendments issued after the issuance of the original Update) to provide immediate, near-term relief for certain entities for whom these Updates are either currently effective or imminently effective:

  1. Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (Revenue)
  2. Accounting Standards Update No. 2016-02, Leases (Topic 842) (Leases).

Who is Affected?

For Topic 606, Revenue From Contracts with Customers, the deferral of the effective date applies to certain entities that have not yet issued their financial statements (or made financial statements available for issuance) reflecting the adoption of Revenue. Note that the effective date for a public business entity, a nonprofit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and an employee benefit plan that files or furnishes financial statements with or to the SEC is NOT affected by the amendments in this Update.

For Topic 842, Leases, the deferral of the effective date applies to entities in the “all other” category and public nonprofit entities that have not yet issued their financial statements (or made financial statements available for issuance) reflecting the adoption of Leases.

Why the Deferral?

According to FASB, the Board noted that “challenges associated with transition to a major ASU such as Topic 606 and Topic 842 are often magnified for private companies, smaller public companies, and nonprofit entities. Those challenges have been significantly amplified by the current business and capital market disruptions caused by the COVID-19 pandemic.” Furthermore, the Board had previously scheduled a roundtable discussion to address implementation by public companies to assist private companies in their efforts and to determine whether additional practical expedients or other amendments are warranted as private companies prepare for final implementation. This roundtable has been postponed because of the COVID-19 pandemic, and the Board anticipates that the earliest it could be held would be later this year. The Board decided that the deferral for those entities noted above was needed at this time because of the rapidly approaching year-end or financial statement issuance dates for public nonprofit entities and because the effective date for entities in the “all other” category is imminent.

Main Provisions

The amendments in this Update defer, for one year, the required effective date of Topic 606, Revenue From Contracts with Customers for those entities noted above. Those entities may elect to adopt the guidance for annual reporting periods beginning after December 15, 2019, and for interim reporting periods within annual reporting periods beginning after December 15, 2020. Early adoption continues to be permitted.

The amendments in this Update defer, for one year, the required effective date of Topic 842, Leases, for the following:

  1. for entities in the “all other” category to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, and
  2. for public nonprofit entities that have not yet issued their financial statements (or made financial statements available for issuance) reflecting the adoption of Leases to fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption continues to be permitted for Leases as well.

Next Steps

Keeping abreast of industry alerts is critical. Visit GRF’s COVID-19 Response page for the latest updates, as well as subscribe to our industry alerts for breaking news straight to your inbox. For technical questions about Topic 606 and Topic 842, contact Tricia Katebini, CPA, MBA, Senior Manager, at tkatebini@grfcpa.com or 301-951-9090.