The Financial Accounting Standards Board (FASB) last week said it will propose a one-year delay in new standards on operating leases and franchisor revenue recognition so organizations can focus on getting through the pandemic.
The measures are "intended to provide stakeholders with accounting relief and clarity during the COVID-19 crisis," FASB Chair Russell Golden said.
Other new standards scheduled to take effect in the next year or two could also be pushed back.
"We recognize that there are other standards with effective dates of 2022 and beyond," he said. "Companies implementing them are also suffering from a dislocation of accounting staff and a reallocation of resources. I want to assure them that the FASB is committed to understanding how the COVID-19 crisis is impacting their transition plans, and we will continue to address issues at a future Board meeting, including addressing the need for more time related to adoption."
Lease standards
The delay in new lease accounting standards mainly affects private companies and nonprofits. These organizations were scheduled to put the standards in place at the end of this year and now have until the end of 2021. Public companies have been implementing the new standards since the end of last year.
Under the changes, operational leases are disclosed on the balance sheet, both as an asset and a liability, in the same way as capital leases. Currently, operating leases are disclosed as expenses on the income statement and in the footnotes to the financials.
The new standards were developed several years ago as a way to shine a spotlight on the risk these leases can pose. Some organizations have thousands of these leases, which can expose them to liability.
FASB has already delayed implementation of the standards for private companies and nonprofits once before. Analysts have raised concerns that allowing different treatment among public and private companies can make analyses difficult.
Revenue recognition
The delay in how franchisors account for revenue applies only to private companies. The new standard is intended to create a unified way for how they account for revenue regardless if it's from sales or services. Franchisors have raised concerns that accounting of initial franchise fees under the revenue-recognition rules isn’t clear and imposes significant implementation costs.
The delay applies to annual reporting periods beginning at the end of 2019. Although many companies have already started implementing the change, not all have, and the delay would benefit those that haven’t.
FASB said it would use the delay to do research into the concerns. "FASB will ... add a project to its research agenda to see if there are opportunities to provide revenue recognition implementation expedients to franchisors," it said.
FASB is a private nonprofit. It is expected to follow up shortly with a formal proposal for the delays and invite public comment. After the comment period, it will decide whether or not to make the delays official, possibly at its next board meeting, scheduled for early May.
