Have you taken a class from Jeff Sailor? He’s one of our favorites and one of the funniest. For more than 10 years, Jeff has served as an AICPA peer reviewer, focusing on small firms and sole practitioners. Jeff has managed his own accounting firm in Ocala, Florida, since 1984. During that time, he has also developed unique auditing approaches and auditing software.
To read more about Jeff or see his coursework, check here.
FASB Extends Effective Dates for Revenue Recognition and Leases
At their board meeting on Wednesday, May 20, the FASB decided to extend the effective dates for the two biggest standard changes to come along in years: revenue recognition and leases. These extensions will only apply to private companies. The board felt that extensions were needed given the current economic and health tribulations.
Revenue from Contracts with Customers
The effective date for Topic 606, Revenue from Contracts with Customers, was to be for periods beginning after December 15, 2018. This would mean that the standard would have to be applied to calendar year 2019 financial statements. The board voted to extend the effective date to periods beginning after December 15, 2019, effectively making it effective for 2020.
I realize that many of you, myself included, have already issued financial statements with the adoption of 606. This extension will not apply to entities that have already issued their 2019 financial statements reflecting the adoption of 606. Obviously, early implementation will be allowed.
For many entities, the adoption of Topic 606 was not a major event, as it requires a framework rather than specific set of rules. Many entities have found that they were already in compliance with the framework using current accounting practices. For certain industries, however, this has been quite a challenge and this extension will provide those entities more time to properly assess implementation.
In a related side note, the effective date for Update 2019-08, which addressed contributions made to and received by not-for-profit entities, was not extended. While this update was related to Topic 606, the board did not feel an extension was necessary.
Accounting for Leases
The big break for private companies comes with the extension of the effective date by one year for Topic 842, Accounting for Leases. The new effective date will be for fiscal years beginning after December 15, 2021, effectively putting it off until 2022 for calendar year entities. Interim statements will get one more year.
In spite of the long roll out, this new lease standard has presented challenges for many entities due to the complexities related to capitalizing all leases on the statement of position. In addition to the technical issues, many practitioners have found that applying the standard could have an adverse effect on various ratios the entities may use for financing and related activities.
While this decision will not make those problems go away, it will allow private entities more time to properly implement the standard.
Good luck with these and other endeavors, and I hope to see you in a seminar sometime in the near future.