Article written by:
Jeff Harden, CPA
Director, Assurance & Business Advisory Services
On June 3, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-05, which grants a one-year effective date delay for certain companies and organizations applying the revenue recognition (ASC 606) and leases (ASC 842) guidance. In its basis for conclusions, the FASB acknowledged the adverse effect the COVID-19 pandemic is having on the global economy, as well as the associated significant and widespread business and capital market disruptions. As such, ASU 2020-05 is intended to provide immediate, near-term relief for private companies and nonprofit organizations in implementing two of the most substantial accounting changes in recent decades.
The following summarizes the key provisions of ASU 2020-05:
- Private companies and nonprofit organizations that have not yet issued their financial statements (or made financial statements available for issuance) can choose to apply ASC 606, Revenue from Contracts with Customers to annual reporting periods beginning after December 15, 2019 (i.e. fiscal year 2020 for calendar-year entities), and interim reporting periods within annual reporting periods beginning after December 15, 2020.
- In regard to ASC 842, Leases, private companies and private nonprofit organizations can apply the standard to fiscal years beginning after December 15, 2021 (i.e. fiscal year 2022 for calendar-year entities), and interim reporting periods within fiscal years beginning after December 15, 2022. Public nonprofit organizations that have not yet issued (or made available to issue) financial statements reflecting the adoption of ASC 842 can apply the standard to fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
The aforementioned one-year deferrals are optional, and early adoption continues to be permitted.
To discuss this information in more detail, please contact your GBQ advisor.