With the COVID-19 pandemic bringing unexpected challenges over the course of the last few months, FASB has officially issued Accounting Standards Update (ASU) 2020-05 providing privately-held entities and private nonprofit organizations with a one-year deferral of the ASC 606, Revenue from Contracts with Customers, effective dates, and ASC 842, Leases.
The newly passed ASU 2020-05 will postpone the date that ASC 606 goes into effect for the organizations listed that have yet to issue their financial statements or make their financial statement readily available to be provided to annual periods. These regulations apply to periods beginning of December 15, 2019, and interim reporting periods with annual reporting periods that begin after December 15, 2020.
It is crucial that note that ASU 2020-05 will also delay the effective date of ASC 842 in relation to both private companies and private nonprofits to fiscal years that begin after December 15, 2021, and interim periods within fiscal years that begin after December 15, 2022. In regards to public nonprofit organizations—those that have public conduit debt and have yet to issue their financial statements or made their financial statements available—may choose to implement ASC 842 to fiscal years that begin after December 15, 2019, including all interim periods within said fiscal years.
It is at the organization’s discretion to adopt both ASC 606 and ASC 842 earlier than the specified date.
When deciding whether or not to be an early adopter of ASC 606, entities should consider their current stage in the revenue standards implementation process as well as determine any costs that may be associated with deferring ASC 606. Evaluating every aspect of the adoption process will help organizations determine which decision is in their best interest.
While many dates have been altered and delayed, ASU 2020-05 does not change the dates in which ASU 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made goes into effect. The ASU 2018-08 effective dates for all private nonprofits that are resource recipients will remain for annual periods that begin after December 15, 2018. For private nonprofit organizations that are resource providers, the effective dates will remain for annual periods that begin after December 15, 2019.
For more information regarding this ASU update, be sure to contact your CRI advisor.