The FASB has tentatively approved an optional one-year implementation deferral for ASC 606 – Revenue from Contracts with Customers. ASC 606 requires a detailed review of existing and pending contracts with customers and follows a 5-step process to determine the timing and recognition of revenue related to such contracts. Non-public and not-for-profit entities that have not yet adopted ASC 606 are eligible for the deferral option.
What is the change?
ASC 606 does not have to be implemented immediately for those entities that haven’t already adopted the standard. The FASB has tentatively approved a one-year optional deferral for implementing ASC 606 – Revenue from Contracts with Customers. Private and not-for-profit entities that have not filed financial statements for annual reporting periods after December 15, 2019 or interim reporting periods within annual periods beginning after December 15, 2020 can opt to delay implementing the standard for one year.
Who is impacted by the deferral?
The deferral applies to non-public (private) business entities and not-for-profit entities that have not yet issued financial statements following ASC 606. Entities that have already issued financial statements under the revenue recognition standards of ASC 606 shall continue to do so. All other non-public entities may elect the option to delay the implementation of ASC 606 until December 15, 2020 and thereafter. It should be noted that the announced deferrals are only finalized upon release of an official ASU (pending but expected as of May 22, 2020).
Previously, the FASB had planned on offering the deferral option to only non-public business franchisors. The new announcement expands the deferral option to all non-public and not-for-profit entities that have not yet filed with the new requirements of ASC 606.
Why did the FASB allow deferred implementation of ASC 606?
Adopting ASC 606 requires significant time and expertise to add the required disclosures related to the standards in the notes to the financial statements. The FASB is concerned that private and not-for-profit entities are spending a material amount of their time addressing their financial situation addressing the COVID-19 pandemic and have not had the ability to make the necessary changes to their financial reporting. The deferral allows entities to continue to focus on their operations and finances without having to devote time and resources to a reporting change.