Recently, the Financial Accounting Standards Board (FASB) voted to delay implementation of the new revenue recognition standards for nonpublic companies that have not yet issued their financial statements for calendar year 2019 and those with fiscal year ends ending after December 31, 2019. Leading up to this standard, the FASB proposed an optional extension of revenue recognition implementation specifically for franchisers due to the extensive concerns reported by these entities. However, due to the recent COVID-19 pandemic, this optional deferral period has been extended to all nonpublic entities that have not yet issued their financial statements for annual periods beginning after December 15, 2018.
While this is exciting news for some, it is important to note that this is an optional election; if you have already begun implementation of the new revenue recognition standard, it may be more cost effective to continue the adoption. The board notes their main concerns to be that, amid the pandemic, certain entities may not have the financial or technological resources to successfully implement this new standard.
But wait, there’s more!
In addition to deferring revenue recognition adoption, the FASB also elected to defer the effective date for the new lease standard covered in ASU 2016-02 (ASC 842). The lease standard which had previously been postponed late last year for all nonpublic entities has, however, been delayed yet again. As a reminder, the new lease standard requires that operating leases with terms greater than 12 months must be reflected on the balance sheet. While the new lease standard was set to take effect for fiscal years beginning after December 15, 2020, this standard is now effective for fiscal years beginning after December 15, 2021. Similar to the revenue recognition standard, early adoption of this standard is permitted. However, if you company has a significant number of leases, we are sure that you will gladly take this additional one-year deferral.
Contact your Henry+Horne tax professional with any questions.