FASB Votes to Propose Delay of New Revenue Recognition Standards for Franchisors and Lease Standards for All Non-Public Companies and Not-for-Profit Public Business Entities

Acknowledging the disruption caused by the COVID-19 pandemic and the strain it has put on the resources of many organizations, the FASB voted on April 8, 2020 to propose a one-year deferral of the effective dates of the new revenue standards for franchisors and lease standards for all non-public companies and not-for-profit public business entities. After the unanimous vote was announced, FASB members expressed hope that delaying the effective dates of these standards would allow entities that are especially vulnerable to focus on their operational concerns amid the ongoing health crisis.

According to a statement on the Board’s website, the Board expects to issue the proposal “in the coming days.” Once issued, the proposal will be subject to a 15-day comment period.

ASC 606 - Revenue from Contracts with Customers

In 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASC 606) which replaced most industry-specific revenue recognition guidance with a principles-based five-step reporting model for reporting revenues earned from contracts with customers. The new standard became effective for public companies in 2018 and in 2019 for private companies.

Under the FASB’s proposal, franchisors that are not public business entities, and that have not yet issued financial statements reflecting the adoption of ASC 606, would now be allowed to delay implementation of the new revenue standard until their annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. The FASB cited significant concerns raised by franchisors regarding the cost and complexity of adopting ASC 606, particularly as it relates to the timing of revenue recognition for initial franchise fees. In order to support these entities, the FASB also announced that it has added a research project to its agenda to discover ways that implementation costs could be reduced.

A franchisor is considered to be any party who grants business rights (the franchise) to another party (the franchisee) who will operate the franchised business. The proposed amendment is expected to further clarify the scope of companies subject to the new effective date.

ASC 842 - Leases

In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) which primarily adds new requirements for lessee accounting for operating leases, the most significant of which is the new requirement to record long-term lease obligations on the balance sheet. The new standard became effective for public companies in 2019, and was scheduled to become effective in 2021 for private companies.

Under the FASB’s proposal, public not-for-profits (those that have issued, or are conduit obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market) that have not yet issued financial statements would now be allowed to delay implementation of the new lease standard until their annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Additionally, private companies and all other not-for-profit entities not included above would be allowed to delay implementation of the new lease standard until their annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

Please visit our Coronavirus resource page at schneiderdowns.com/our-thoughts-on/category/Coronavirus for related content.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2020 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on

Reshoring and Manufacturers
Third Party Risk Management Planning During COVID-19
Reflections from the Recent Employee Benefit Plan Season
CARES Act Funding to Help Ohioans Impacted by COVID-19
The Impact of COVID-19 on Community Colleges
Don’t Forget About Your HEERF Reporting Requirements

Register to receive our weekly newsletter with our most recent columns and insights.

Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us

contact us

Map of Pittsburgh Office
Pittsburgh

One PPG Place, Suite 1700
Pittsburgh, PA 15222

contactsd@schneiderdowns.com
p:412.261.3644     f:412.261.4876

Map of Columbus Office
Columbus

65 East State Street, Suite 2000
Columbus, OH 43215

contactsd@schneiderdowns.com
p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102