FASB proposes to delay leases and rev rec standards due to coronavirus
The Financial Accounting Standards Board issued a proposed accounting standards update that would delay the effective date for one year for some private companies and nonprofits in applying its leases standard, and for franchisor businesses in applying the revenue recognition standard, because of the impact of the coronavirus pandemic.
Earlier this month, the FASB board members voted remotely to propose the delay to help businesses and nonprofits trying to cope with the far-reaching impact of the pandemic (see our story).
“The FASB’s proposal to delay time-sensitive standards would provide a measure of relief to certain companies and organizations focused on the COVID-19 crisis,” said FASB chairman Russell Golden (pictured) in a statement Tuesday. “It’s the first in a series of steps the board is taking to ensure our stakeholders can successfully implement GAAP guidance during this time.”
The deferral of the effective date for the leases standard would be limited to private companies, private not-for-profit organizations and public not-for-profit organizations that haven’t yet issued their financial statements. It would give near-term relief to those entities for whom the leases standard is currently effective who have rapidly approaching year-end dates and for entities for whom the leases effective date is imminent.
Under the proposed update, private companies and private not-for-profit organizations would have the option to apply the new standard for fiscal years starting after Dec. 15, 2021, and to interim periods within fiscal years beginning after Dec. 15, 2022. Public not-for-profit organizations that haven’t yet issued financial statements would have the option to apply the standard for fiscal years beginning after Dec. 15, 2019, including interim periods within those fiscal years.
Last October, FASB decided to postpone the effective date of the leases standard for private companies and nonprofits, though it had already taken effect for public companies (see our story). The leasing standard was set to take effect in January 2020 for private companies and nonprofits, but FASB decided last year to move it to January 2021 for those entities. The proposal would now delay that effective date for another year.
The proposed effective date deferral for revenue recognition would be limited to private company franchisors. Those stakeholders would have the option to apply the new standard for annual reporting periods starting after Dec. 15, 2019, and interim reporting periods within annual reporting periods starting after Dec. 15, 2020.
Nate Vander Hamm, a shareholder at Top 100 Firm Mayer Hoffman McCann, thinks the deferrals will be helpful for clients. “The implementation of a new standard is always difficult for companies,” he said. “Given the challenges that they are already dealing with through COVID issues and trying to understand the CARES Act and things like that, I think that’s a good, logical step that the FASB has made.”
Some franchise businesses have been asking for relief from the revenue recognition standard. BrightStar Care CEO Shelly Sun, a CPA and home health care franchisor with over 300 locations, and a former chair of the International Franchise Association, visited Capitol Hill in February to lobby for changes in the standard, saying it would harm over 100,000 franchise businesses around the country.
“The effect of this change is to create negative net worth for franchisors,” Sun told Accounting Today last month. “They would be unable to access lending to continue to grow and expand because no one wants to lend on a negative net worth concept. To franchise prospects who are looking at your concept versus the bigger guys without being able to ascertain the difference, it would look like you’re insolvent. Would you as a brand-new franchisee be willing to risk your family and retirement to invest in a brand that looks insolvent? I would argue no, so the big get bigger and the small go out of business.”
FASB is encouraging its stakeholders to review and submit comments on the proposed accounting standards update by May 6, 2020.