It’s not uncommon for the FASB to delay accounting standards because companies are struggling to implement the new rules in time. A delay of ASU No. FASB ASC 606 requires an entity to identify the distinct goods or services promised in a contract. The final standard will clarify that interim financial information posted to the Electronic Municipal Market Access (EMMA) system—non-GAAP financial information that does not include full disclosures—would not disqualify an entity from taking advantage of this lease deferral. As noted in a previous GRF industry alert, on April 8, 2020, the Financial Accounting Standards Board (FASB), added a project to its technical agenda to propose delaying the effective dates of its standards on revenue recognition and lease accounting for certain entities due to challenges related to the COVID-19 pandemic. This may include cu stomer options to acquire additional free or discounted goods; warranties; or non-refundable, up-fron t fees. It’s not uncommon for the FASB to delay accounting standards because companies are struggling to implement the new rules in time. ASC 606 is the new revenue recognition standard that affects all businesses that enter into contracts with customers to transfer goods or services – public, private and non-profit entities. All other non-public entities may elect the option to delay the implementation of ASC 606 until December 15, 2020 and thereafter. The newly passed ASU 2020-05 will postpone the date that ASC 606 goes into effect for the organizations listed that have yet to issue their financial statements or make their financial statement readily available to be provided to annual periods. Based on the feedback received, FASB voted to expand the scope of the ASC 606 delay to all entities for financial statements that have not yet been issued or made available for issuance. The postponed effective date applies for franchisors that are not public business entities. Does the FASB’s Delay on ASC 606 Spell Relief? All rights reserved. If you are inclined to delay the adoption of ASC 606 and are backed by private equity (or other substantial investors), it would be prudent to discuss this delay with them. In addition, the proposal would have delayed ASC Topic 606, Revenue from Contracts with Customers (ASC 606) for franchisors that are not public business entities. 2018-08 would have aligned that guidance with the revenue recognition deferral. 4 The deferrals apply only if those entities have not yet issued their financial statements (or made their financial statements available for issuance) as of June 3, 2020. ASC 606 stands for Accounting Standards Codification (ASC) as Topic 606: Revenue from Contracts with Customers. ASC 606 is a new revenue recognition standard that has been put in place to improve the revenue recognition portion of financial statements and increase the consistency of financial reporting across industries. ASC 606: Benefits of Early Adoption of the New Revenue Recognition Standard Firm of the Future Team Last year, the Financial Accounting Standards Board delayed the effective date of the Accounting Standards Update No. Close Start adding items to your reading lists: Sign in. Surprise! Revenue Delay For SaaS businesses specifically, ASC 606 will unify and simplify the approach to accounting. November 2016 (Updated June 2019) We have prepared a white paper, Revenue recognition: Overview of ASC 606, which provides a high-level summary of the guidance in Topic 606, Revenue from Contracts with Customers, of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC).The guidance in ASC 606 was originally issued by the FASB … Under ASC 606, one doesn’t need a signed contract, but any contract can be valuable with enforceable rights and obligations. Lease & Revenue Delay Approved for Private Companies & NFPs, What’s New (and Not New) with Unrelated Business Income, What Businesses & Individuals Need to Know About the Latest COVID-19 Stimulus Bill, Legislation Passed by Congress Includes Education Stabilization Fund for Higher Education Institutions, The Critical Role of Today's CFO: Private School Edition. 212-618-1868. Entities that have already issued financial statements under the revenue recognition standards of ASC 606 shall continue to do so. Many products are sold with an explicit or implied warranty that the product or service will function as intended. Ultimately, the decision will be up to each organization whether they want to take advantage of the one-year deferral or adopt the accounting and reporting requirements of ASC 606 as planned. This proposal was issued in an effort to provide immediate relief to entities struggling with disruption as a result of the COVID-19 pandemic. 20th Floor Whereas before a variety of interpretations of the guidelines existed, from 2018 we should see the end of such discrepancies, leaving less room for different interpretation — because, as mentioned earlier, compliance is with ASC 606 is not optional. ASC 606, Revenue from Contracts with Customers, for privately-held franchisors. ASC 606 is a framework that enables more consistent revenue recognition for businesses engaged in contract-based selling. As of reporting periods beginning December 2018, there’s a new standard in town. The postponed effective date applies for franchisors that are not public business entities. Surprise! Welcome to our first video series on the new revenue recognition standard – ASC Topic 606, Revenue from Contracts with Customers. Early adoption would continue to be permitted. Additionally, the FASB staff provided guidance regarding several technical inquiries it has received related to the impact of COVID-19. This could be an oral, written or implied agreement. In a nutshell, Topic 606 covers revenue from contracts with customers and identifies performance and licensing obligations. Identify performance obligations. The Board decided that the deferral for those entities noted above was needed at this time because of the rapidly approaching year-end or financial statement issuance dates for public nonprofit entities and because the effective date for entities in the “all other” category is imminent. Implementing ASC 606 could have unexpected effects on your business. Create your account. Lease Delay As a result, for such franchisors only, the revenue standard will be effective for periods beginning after December 15, 2019 and interim reporting periods within annual reporting periods beginning after December 15, 2020. Meanwhile, FASB considered but rejected feedback asking for a delay in the effective date for ASU No. The amendments in this ASC 606—Revenue recognition Since the issuance of the new revenue recognition standard, Deloitte has been lighting the way for clients. The particular Accounting Standards Codifications (ASCs) in the proposal for delays were Topic 606, Revenue From Contracts With Customers, and Topic 842, Leases. Disclaimer Statement and Privacy Policy. These changes will be effective upon the issuance of a final accounting standard update that will be released shortly. 1. 301-951-9090, 14 Wall Street For NFP entities that have issued—or are a conduit bond obligor for—securities that are traded, listed or quoted on an exchange or an over-the-counter market, the delay is only effective if the organization has not yet issued or made available for issuance its generally accepted accounting principles (GAAP) financial statements. Get the information you need with BKD Thoughtware®. FASB is proposing a one-year delay for private companies and all NFP entities. On April 8 th, FASB delayed for one year the implementation of the new ASC 606 revenue recognition standards for private companies, citing the coronavirus pandemic. The FASB also voted to defer the effective date for ASC 606, Contracts with Customers, for franchisors that are not public business entities for one year. If you have questions, contact your BKD Trusted Advisor™ today. What is the Purpose of ASC 606? Both public and privately held companies should be ASC 606 compliant now based on the 2017 and 2018 deadlines. As per ASC 606, the revenue needs to be recognized for each obligation under a… The major ASUs include ASU 2016-02 - Leases, ASU 2016-13 – Current Expected Credit Losses (CECL), and ASU 2017-12 – Hedging. The delay is only effective if the entities have not yet issued or made available for issuance their financial statements. On June 3, 2020, FASB issued Accounting Standards Update (ASU) 2020-05, as a limited deferral of the effective dates of the following Updates (including amendments issued after the issuance of the original Update) to provide immediate, near-term relief for certain entities for whom these Updates are either currently effective or imminently effective: For Topic 606, Revenue From Contracts with Customers, the deferral of the effective date applies to certain entities that have not yet issued their financial statements (or made financial statements available for issuance) reflecting the adoption of Revenue. Another big change here that could be difficult in interpreting. ASU 2014-09 REVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606) Overview On May 28, 2014, the FASB completed its Revenue Recognition project by issuing Accounting Standards Update No. Conclusion IFRS 15 is effective for all entities in a matter of a few months and, based on recent surveys, companies are way behind. Given the criticality of revenue recognition in financial reporting, ASC 606 is worth a moment to review. Topic 606 includes implementation guidance on determining whether an entity’s promise to grant a license provides a custom er with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is sati sfied over time). Revenue is recognized when the entity satisfies the performance obligations, regardless of when payment is received. Download white paper. Our understanding of the new standard combined with industry insight can help both public and private companies anticipate the sometimes challenging terrain ahead. ASC 606 and IFRS 15 are the latest revenue recognition standards designed to reflect the new business standards. This time the FASB took a more comprehensive look at the problem. ASC 606-10-55-65 provides a usage and sales-based royalty exception, which precludes a company from recognizing revenues from sales-based or usage-based fees associated with licenses of IP until the subsequent sale or usage occurs. ASC 606 was developed jointly by the FASB and the International Accounting Standards Board (IASB). Our FRD publication on ASC 606, Revenue from Contracts with Customers, has been updated to (1) expand our discussion of the variable consideration allocation exception and add two illustrations and (2) add discussion of a recent technical correction to the Codification. This can be driven by standard business practices or sometimes specific laws. On April 8 th, FASB delayed for one year the implementation of the new ASC 606 revenue recognition standards for private companies, citing the coronavirus pandemic. ASC 606 is a framework that enables more consistent revenue recognition for businesses engaged in contract-based selling. 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