In an effort to alleviate stress for private companies during the unprecedented challenges of the COVID-19 pandemic, the Financial Accounting Standards Board (FASB) has voted to delay the effective dates of the revenue recognition and lease accounting standards. FASB board members are expected to vote in favor of an Accounting Standards Update (ASU) reflecting this change on a final, written ballot.
Nonpublic entities who have yet to issue financial statements will have a one-year extension for revenue recognition. The effective date for the lease accounting standard will be for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022.
The vote came after several pleas from the accounting industry and the AICPA to delay the effective dates as private companies were still working to implement new technology and processes for meeting the demands of the new standards.
The new revenue recognition standard was approved by FASB in 2014 for public and private companies that file under the Generally Accepted Accounting Principles (GAAP). After some delays, the standard was made effective for public companies beginning with annual reporting periods after December 15, 2017 and was effective for nonpublic companies with annual reporting periods after December 15, 2018.
The goals of the new standard according to FASB are to:
- “Remove inconsistencies and weaknesses in existing revenue requirements
- Provide a more robust framework for addressing revenue issues
- Improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets
- Provide more useful information to users of financial statements through improved disclosure requirements
- Simplify the preparation of financial statements by reducing the number of requirements to which an organization must refer”
The new lease accounting standard was issued in 2016 and was to be effective for private companies in 2020 but was already delayed once in October of 2019. It seeks to simplify and provide a more consistent reflection of lease commitments onbalance sheets, versus the previous standard which kept operating leases off balance sheets and was not a true reflection of obligations.
For questions and assistance with understanding your obligations related to the revenue recognition and lease accounting standards, please contact John Comunale, CPA via our online contact form.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.