On June 3, 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-05 – Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842). This ASU makes changes to the implementation dates for two previously released updates to accounting guidance: ASU 2014-09 (Revenue Recognition) and ASU 2016-02 (Leases).
The pending accounting updates on leases and revenue recognition have been in process for many years and represent significant changes to accounting rules relating to how entities recognize revenue and record lease arrangements in their financial statements. Due to the COVID-19 outbreak, the required effective implementation dates for these two important accounting standards have been modified through ASU 2020-05 as follows:
ASU 2014-09 (Revenue Recognition) implementation was previously required to be implemented for all periods beginning after December 15, 2018. Based on this timing, the COVID-19 outbreak and related economic disruptions occurred while many private companies and non-profits were finalizing the implementation of this change in their annual financial statements. The update delays the effective date for any private companies or non-profits that had not previously issued their 2019 financial statements prior to release of ASU 2020-05 to the period beginning after December 15, 2019, effectively providing a one-year deferral of the required implementation date.
ASU 2016-02 (Leases) implementation was recently delayed to be effective for all periods beginning after December 15, 2020 due to general concerns about the burden on private companies to comply with the complex changes contained in the update. Due to the COVID-19 outbreak, the FASB has determined that additional time is warranted for the transition and has further delayed the effective date of ASU 2016-02 for private companies and non-profits to the period beginning after December 15, 2021.