On April 8, 2020, the Financial Accounting Standards Board (FASB) held a virtual board meeting to address and vote on concerns and considerations raised by its various stakeholders resulting from the extensive impact that the COVID-19 pandemic continues to have on business operations and the global economy. During the meeting, FASB staff addressed concerns specific to effective dates for ASC 606 and ASC 842 as well as technical inquiries received in recent days leading up to the board meeting.
Voting consideration was given to the following matters:
- One-year effective date deferral of Topic 606: Revenue from Contracts with Customers, including subsequent amendments, for franchisors, that are not public business entities. In the meantime, the FASB will also add a project to its research agenda to see if there are opportunities to provide revenue recognition implementation expedients to franchisors.
- One-year effective date deferral of Topic 842: Leases, including subsequent amendments, for (i) private companies and private not-for-profit companies (which are part of the all other entity category in Leases) and (ii) not-for-profit companies 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 that have not yet issued financial statements (public not-for-profits).
The Board unanimously voted (7-0) in approval of the matters above and will issue an exposure draft that provides for a brief 15-day comment letter period.
Resulting Effective Dates
Topic 606: Revenue from Contracts with Customers, including subsequent amendments, for franchisors, that are not public business entities:
- One-year deferral effective for Franchisors with annual reporting periods beginning after Dec. 15, 2019, and interim reporting periods with annual reporting periods beginning after Dec. 15, 2020.
Topic 842: Leases, including subsequent amendments:
- One-year deferral effective for private companies and private not-for-profits for fiscal years beginning after Dec. 15, 2021, and interim periods with fiscal years beginning after Dec. 15, 2022.
- One-year deferral effective for public not-for-profits to fiscal years beginning after Dec. 15, 2019, to include interim periods within those fiscal years.
Additionally, the FASB staff addressed certain technical inquiries they have received within the past few days. One such inquiry of note was specific to guidance on the proper accounting treatment of lease concessions provided as a result of COVID-19 business operations disruption and whether the matter should be accounted for utilizing lease modification guidance under ASC 840 and 842. The FASB staff believes that it would be appropriate to account for concessions resulting from, and specific to, COVID-19 disruption as though an enforceable right exists in the contract, even if such enforceable right language is not explicitly stated in the contract. Therefore, entities can elect not to apply the modification guidance under ASC 840 and 842. The FASB staff additionally emphasized that reasonable judgment should be applied in these situations.
Other technical inquiries resulting from implications due to COVID-19 were briefly addressed, and the FASB will publish a full Q&A on their site in the coming days to further address these issues, which included but are not limited to:
- Recognition of interest income during "loan repayment holidays"
- Hedge accounting
- Fair value considerations
- SBA loan origination fees
The FASB staff additionally noted that various projects originally on the board's docket will be temporarily suspended, and priority will be given to those matters impacted by the COVID-19 pandemic. You can find Chairman Russell Golden's statement on today's meeting here.
We strongly encourage stakeholders to check the FASB site for continuous updates. DHG will continue to provide information as events develop, and we encourage you to reach out to your DHG advisor for further questions. For questions, contact your DHG advisor or firstname.lastname@example.org.