In light of the many questions and accounting issues that have arisen in connection with COVID-19, the Financial Accounting Standard Board (FASB) held a meeting on April 8, 2020 to discuss a number of topics.
The main item of note from the FASB meeting was the decision to delay the effective dates for the lease standard, as well as the revenue recognition standard for the franchisor industry. While the FASB proposals will have a 15-day comment period, the expectation is that the proposed items discussed below will be approved. We will continue to monitor and provide updates once the comment period opens and ends.
Here is some further insight:
- Lease Implementation – The new effective date for private companies and private not-for-profit (NFP) entities to comply with the requirements of the leasing standard will now be annual reporting periods beginning after December 15, 2021 (calendar year-end December 31, 2022).
For public not-for-profit engagements (more commonly known as conduit bond obligors), the new effective date will be for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption will continue to be permitted. This deferral would apply to entities that have not yet issued their financial statements.
- Revenue Recognition Implementation Issues for the Franchisor Industry – The effective date for Franchisors to comply with ASC 606 Revenue Recognition from Contracts with Customers, that are not public business entities (and for which statements have not been issued) will be amended to indicate an effective date of annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. This provides franchisors with an additional year to comply with the requirements of ASC 606.
The FASB also discussed certain technical updates as part of the meeting. Below are highlights of the specific topics:
- Lease Concessions as a Result of COVID-19 – The FASB discussed its response surrounding the accounting for lease concessions specific to COVID-19 and how the lease concessions should be accounted for in accordance with the lease modification guidance in ASC 842 and ASC 840. The FASB anticipates posting a Q&A document on this topic in the coming days.
- Treatment of Interest Income by a Lender for a “Loan Payment Holiday” – Many financial institutions are allowing their borrowers to temporarily stop making normal payments as a result of COVID-19. This is deemed to be a loan modification, however, would not result in a troubled debt restructuring under FASB ASC 310-40. The FASB considered two views for the treatment of interest income over the loan payment holiday:
- View 1— Upon modification, a new effective interest rate in accordance with Subtopic 310-20 is determined that equates the revised remaining cash flows to the carrying amount of the original debt and is applied prospectively for the remaining term of the loan. That is, interest income is recognized during the payment holiday period.
- View 2— Upon modification, the institution should recognize interest income on the loan in accordance with the contractual terms. Under this view, the institution would recognize no interest income during the payment holiday and would resume recognizing interest income when the payment holiday ends.
The FASB believes that both views to be appropriate.
- Treatment of Delays in the Timing of a Forecasted Transaction due to COVID-19 – The FASB considered whether delays in the timing of a forecasted transaction that was being treated as a hedge are outside the control or influence of the entity (if the delay was a result of COVID-19) and if the entity is able to apply the extenuating circumstances exception within ASC 815. The FASB staff indicated that delays caused by COVID-19 would meet the extenuating circumstances exception within ASC 815.
- Suspension of Mark-to-Market – The request was for the FASB to suspend mark-to-market accounting. For this question, the FASB provided a reminder for an entity to consider ASC 820, thus indicating that there does not appear to be any relief surrounding fair value and mark-to-market accounting as a result of COVID-19.
For more information, please reach out to our experts at the Bonadio Group.
The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We therefore make no warranties, expressed or implied, on the services provided hereunder.
