On June 3, 2020, the Financial Accounting Standards Board (FASB) issued a final Accounting Standard Update (ASU) 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, which defers the effective dates for certain entities to implement ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and ASU 2016-02, Leases (Topic 842).
ASU 2014-09 was originally effective for private and nonprofit entities with fiscal years beginning after December 15, 2017. In August of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date for private and nonprofit entities to annual reporting periods beginning after December 15, 2018.
For the majority of nonprofits, this meant that they were required to implement the standard effective as of January 1, 2019 ( for organizations with a fiscal year ending December 31, 2019) or on July 1, 2019 (for organizations with a June 30, 2020, fiscal year end). As a reminder, this standard primarily impacts earned revenue streams for nonprofit organizations, such as program service fees, tuition, membership revenue, consulting revenue and patient service revenue, to give a few examples.
Regarding private companies and nonprofit organizations, the FASB had received feedback from various stakeholders that these entities are experiencing challenges finalizing their adoption of ASU 2014-09 due to challenges resulting from the global COVID-19 pandemic. The FASB’s response to this was to extend the deferral to certain entities that have not yet issued their financial statements, or made the financial statements available for issuance, reflecting the adoption of the revenue standard.
The amendments in this update defer, for one year, the required effective date of the revenue standard for certain entities, including nonprofit organizations, that have not yet issued their financial statements (or made financial statements available for issuance) reflecting the adoption of the revenue standard. Those entities may elect to adopt the guidance for annual reporting periods beginning after December 15, 2019, or follow the original effective date of annual reporting periods beginning after December 15, 2018.
If your organization has a December 31, 2019, year end and you have not yet issued or made your financial statements available for issuance, you now have the option to defer the implementation of ASU 2014-09 to your fiscal year end of December 31, 2020. Nonprofit organizations with a June 30, 2020, year end also have the option to defer until June 30, 2021. Nonprofit organizations will still be required to implement ASU 2018-08, which impacts accounting for grants and contributions. There has been no deferral provided for that standard.
ASU 2016-02 was originally effective for private and nonprofit organizations not considered public business entities for fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, which among other things deferred the effective dates for private and nonprofit organizations to fiscal years beginning after December 15, 2020.
For most nonprofit organizations, this would have meant implementation would be required for fiscal years ending December 31, 2021, and June 30, 2022. ASU 2019-10 was issued due to the transition challenges of public companies, which are often more significant in small private and nonprofit entities. These challenges have recently also been magnified by COVID-19’s impact.
The FASB was unable to host previously scheduled roundtables to discuss the implementation challenges further, due to the pandemic. With the issuance of ASU 2020-05, the effective date for the adoption of the lease standard is now deferred for private, nonprofit and public nonprofit entities that have not yet issued their financial statements (or made their financial statements available for issuance) reflecting the adoption of the lease standard.
The amendments in the ASU defer the effective date for one year for entities such as private and nonprofit entities and public nonprofit entities that have not yet issued their financial statements (or made financial statements available for issuance) reflecting the adoption of the lease standard. Therefore, under the amendments, the lease standard is effective for private and nonprofit entities for fiscal years beginning after December 15, 2021. Additionally, the lease standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, for public nonprofit entities that have not yet issued financial statements (or made financial statements available for issuance) reflecting the adoption of the lease standard.
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June 04, 2020
