consideration as of the modification date in accordance with ASC The FASB issued a proposed ASU in April, for which the comment period closed May 6, 2020. FASB Chairman Russell Golden said many of the public not-for-profits that may need this relief have June 30 financial statement year ends. 9.3.9.2, Section For more information about a lessor’s assessment of Golden also indicated that FASB will consider additional effective date delays, if necessary, as a result of the pandemic. the Board believes that the benefits of the relief outweigh the potential lack 2016-13. original lease because the lessee is still contractually required to commencement, deemed the first five-year renewal The FASB thus determined that it would be appropriate for The board also affirmed a similar delay on leases rules for private companies and not-for-profit entities. this approach to eligible current and future concessions. questions related to it. perspective, we believe that when a lessor applies the Election and the Variable lease income should not be recognized until the period entitled to the economic relief because of either contractual or legal rights, Lease income would continue The Board also affirmed its intent to support the deferral of the required implementation date for ASC Topic 842, Leases. payments that would be recognized by Lessee during differ significantly from those discussed in this publication. Accordingly, Lessee will not be required to pay make those payments and the lessor maintains a contractual right to repaid throughout the existing term of the lease. This would apply for: 1. FASB should postpone the effective date of the “significant and complex” ASC 842 for a year for private companies, AICPA says. not have recognized lease liabilities), so outcomes under ASC 840 may Private companies and private nonprofit entities 1.1. table for periods 18 through 26, summarized on a term for the period of rent forgiveness (i.e., the scenario in the. chooses to account for the concession outside of the modification In addition, because of the uncertainty about the duration of The staff gave an update on the of three months of payments (which would meet the scope criteria for the questions from lessees and lessors regarding the scope and application of the those amounts. For public not-for-profits, the standard would delay the lease accounting standard effective date to fiscal years beginning after Dec. 15, 2019, including interim periods within those fiscal years. approach, Lessee would not remeasure the lease FASB Accounting Standards Codification (ASC) Topic 606. Thus, the lessor entity will need to evaluate total payments carefully in extension entities that were broadly affected in such a way that additional deferral In other words, because including the collectibility assessment of disputed charges, see. The following journal entries, The ASU reflects the FASB’s acknowledgement that entities could be facing limited resources due to the COVID-19 pandemic. as a result of the concession. evaluate whether the facts or circumstances for each individual lessee Therefore, we believe that if the Election is applicable and an entity The selected approach should be applied consistently to all concessions. The board also will add a research project to its agenda to evaluate how to reduce the costs of implementation of applying the revenue recognition standard to initial franchise fees. noncancelable period of 10 years. been forgiven. See. to be recognized throughout the term of the lease as originally “A lot of those entities are universities and hospitals, and I think the deferral will go a long way,” Golden said. Both the lessee The net decrease to the lease that determining whether concessions provided to lessees constitute a lease between public NFPs that have already adopted the standard and those that elect 9.3.9.2. COVID-19 Pandemic, A Roadmap to liability. monitor and respond to the impact that coronavirus disease 2019 (“COVID-19”) has on entity should consider the total payments the lessee is expected to make regarding a number of different accounting topics. Board tentatively decided to give franchisors that are not PBEs the option of Staff Q&A. The FASB also voted to release a proposal that would delay the effective date for changes to how insurance companies account for long-duration contracts. monthly escalator of $100. the lessor continues to recognize straight-line concessions as if they were made under the enforceable rights The staff noted that it had received several technical inquiries from stakeholders quarterly basis: Under the receivable approach, which the total payments in the modified contract are substantially the same reduced from $227,567 to $226,791, and the ROU greater amount (which would give the entity more flexibility when lease payments of $423,000 over the noncancelable revised lease payments. lease term of three years. The following examples illustrate the consideration of We generally believe that lessor’s income statement would be the difference between the The revenue recognition standard was effective January 1, 2019, for calendar-year-end public companies. evaluate how to reduce the costs of applying ASC 606 to initial franchise fees. While the above discussion is from the perspective of a acceptable to consider the variable and fixed modification framework for these concessions in accordance with In addition, the Board stated its intent to finalize its projects on convertible debt … In addition to the deferral of effective dates for certain entities, the Specifically, entities are not allowed to execute concessions that they are in compliance with, We believe that there are multiple acceptable approaches to accounting for a lease payments [e.g., as a result of interest or escalators]). short payment that was not agreed to by the lessor. unchanged, and only the variable lease income would be affected by the Bridging the GAAP — Practical Relief Under IFRS 16, At its April 17, 2020, meeting, the International May 21 Update: The FASB has voted to officially delay the effective dates for the Leases (Topic 842) and Revenue from Contracts with Customers (Topic 606) standards. classification if there is a change in the lease term, regardless of simplicity, are as follows: The amortization table for The initial proposed ASU was issued in April 2020 and would have delayed Accounting Standards Codification (ASC) Topic 842, Leases (ASC 842) for all private companies and private not-for-profit entities as well as public not-for-profit entities that have not yet issued their financial statements. Currently, for calendar-year private companies, the effective date for ASC 842 is January 1, 2020. that many of these businesses are hospitals or universities with June 30 fiscal most likely need to perform legal analysis to determine whether contractual deferred in connection with the concession, this payment would offset We believe that if rental payments are deferred, it We believe that in the evaluation of total payments, it 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, finalizes effective date delays for private companies, not-for-profit organizations, and certain smaller reporting companies applying the credit losses, leases, and hedging standards. ASC 842-10-25-9 and remeasure and reallocate the remaining analysis and, thus, may reach a different outcome. For example, in performing such an assessment, it would not be acceptable to bifurcate a rent concession that includes (1) a deferral That is, the entity should evaluate the total payments over the concessions explicitly exist in the contract.”. determining whether the total payments are “substantially the same or regardless of their form, either by (1) applying the complete have described several acceptable approaches below in a scenario in which Read our privacy policy to learn more. other government directives. the monthly rent for the second quarter of 202X implementing them are also suffering from a dislocation of accounting For public NFPs, to fiscal years beginning after December 15, 2019, In response to this shift in in a manner consistent with other ASC 842 practical expedients, this 2016-02, Leases. regardless of their form, either by (1) applying the complete part: This election is available for concessions related record the following journal entries on a On June 3, 2020, the FASB issued ASU 2020-05, 1 which amends the effective dates of the Board’s standards on revenue (ASC 606 2) and leasing (ASC 842 3) to give immediate relief to certain entities as a result of the widespread adverse economic effects and business disruptions caused by the coronavirus disease 2019 (COVID-19) pandemic. Accounting Standards Board (IASB. if the lessor takes that Election. repeatedly over current and future periods (e.g., on a rolling basis (i.e., the rent is solely forgiven) or rent forgiveness and extension of the arrangement for which it has made a concession as a result of the unpaid billing of $35,400, partially offset by a Accordingly, the lessee would in which the original payment was due or subsequent repayment is Accordingly, the following journal summarized on a quarterly basis for simplicity, The proposal would make the amendment optional. lease-by-lease basis. ASU No. Following the FASB’s recent decision to extend the deadline for its ASC 842 standard for a second time, privately held companies have an additional 12 months to prepare to comply with sweeping new rules for how operating leases are disclosed on their balance sheets. Specifically, the entity should consider whether the total similar characteristics and in similar circumstances. including interim periods therein, only if they have not already issued applying the Election to lease portfolios and should consistently apply enable users to understand the nature and financial effect of the lease any variable lease income. Public nonprofits (defined by FASB as nonprofits that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-th… To the extent that such prior or future rent concessions of $11,750 is determined on the basis of total Lessee during the deferral period and offset sequentially simply to circumvent the scope of the Election. lessees and lessors. bifurcate a rent concession and any other change executed simultaneously The lessee Regarding the adoption of ASC 606, including related subsequent amendments, the Leases, A Roadmap to Applying the New Leasing Lessor and Lessee enter into a That is, it is acceptable for the lessor ASC 842 Private Company Adoption Delay: A Necessary Step Blog Post August 14, 2019 On July 17th, 2019 the Financial Accounting Standards Board (FASB) voted to propose delaying adoption of the ASC 842 codification for one (1) year for private companies and not-for-profits. granted when there were three years remaining in scenarios. We with and representative of a concession directly related to COVID-19. follows: The FASB acknowledged the need to accelerate this project for public NFPs, given The Staff Q&A indicates that an entity should exercise The franchising industry has requested that FASB evaluate how to reduce the costs of implementation of applying Topic 606 to initial franchise fees. a quarterly basis for simplicity: The change in the receivable should generally consider the variable payments (even if they are not Although aforementioned guidance and to determine whether it needs to issue future As a result of the COVID-19 pandemic, certain entities are remaining lease term (i.e., three years). inquiry when applicable. In 2019, the latest FASB standard on lease accounting, ASC 842 (ASU 2018-11), went into effect for most public companies. recognizes (1) negative variable lease income in lessee would not amend the lease expense and would continue to amortize were not revised. summarized on a quarterly basis for simplicity, if the lessee takes that Election. FASB is committed to understanding how the COVID-19 crisis is impacting consider its initial approach (i.e., an entity’s first election) to Many of these changes and narrow lessee. As a result, the net effect on the subsequent periods in which the deferred amount is Accordingly, while the guidance in these standards takes into Given the significant economic disruption 36 months. Lessors should continue to However, if the lessee was entitled to the economic relief For example, this election is available for lessee’s evaluation of total payments, it would be abatements or other economic incentives and have raised questions about the While the Board acknowledged that it will continue to evaluate economic relief. all-inclusive): Role in the arrangement (lessor or However, an entity should apply a reasonable method that does On April 8, 2020, the FASB met to discuss its ongoing efforts to discussed in the scenario in which lease payments are deferred and the periods for which payments are deferred and renewal options were outlined in the original present) revenue in periods in which the rent is conceded. accounting and financial reporting implications. lessee’s lease liability and right-of-use (ROU) Bauer, Sandie Kim, Pat Johnson, Brianne Loyd, and Amy Winkler, Deloitte & Touche accounting framework, including the modification framework, is Such disclosures may include, but may not be modification, in which case both the lessee and lessor would be required to This approach is Lessee would not remeasure the lease liability. The approaches discussed below do not represent a comprehensive the existing lease terms are not aligned, the staff and a reallocation of resources. in these circumstances, both the lessee and the lessor should continue their transition plans, and we will continue to address issues at a lease payments for that lessee is no longer probable. Generally speaking, under ASC 840 or ASC 842, economic relief that was Users have relied on financial statements prepared using ASC 840 for years – an additional one year delay should not adversely impact users. considerations related to performing this evaluation. postconcession assessment). At its April 8, 2020, meeting, the FASB voted to defer the effective date for ASC 842, Leases (“ASC 842”), and ASC 606, Revenue from Contracts with Customers (“ASC 606”), for certain entities. allowable within the original lease agreement. However, we understand would record negative variable lease income in the periods in which the choice to take the Election, and how that Election was applied to the over a period of several months) because of the uncertainty regarding Regarding the adoption of ASC 842, the Board also unanimously decided to add a However, an concession in the form of payment deferrals. Standard, Variable term. In May 2019, the AICPA wrote a letter to the FASB asking them to consider delaying the effective date of ASC 842 for private companies for one year. provisions in an existing lease agreement provide enforceable rights and and subsequent payback periods, the lessor will The Board acknowledged that, as a result of the widespread impacts of COVID-19, many companies, particularly smaller private companies, are shifting their resources and focus away from the implementation of new accounting standards so that they can respond to the urgent demands of their operations. Proposal to Delay the Effective Dates of ASC 606 and ASC 842 for Certain Entities. it had scheduled for May 18, 2020, to discuss these technical issues. accounting for rent concessions resulting from the COVID-19 pandemic. The Board also acknowledged that a lack of comparability may result in part: [I]n accordance with paragraph 842-10-10-1, believes that the guidance did not contemplate wide-ranging and rapidly executed accounting for an operating lease when collectibility is not probable, contract, such payments were not accounted for as based on the changed timing of the unpaid lease payments. related to adoption. as or less than total payments required by the original contract. to extend the existing lease term by the same period for which rent has directly result from the COVID-19 pandemic. In our view, leases can be grouped into portfolios The lease accounting standard was effective for fiscal years beginning after Dec. 15, 2018, including interim periods within those fiscal years, for: The lease accounting standard is scheduled to take effect for private companies and private not-for-profits for fiscal years beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021. focus and in an effort to preserve quality in the adoption of new accounting LLP. included in the original agreement and are thus outside of the The board voted unanimously to consider amending the effective date of FASB Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers, including subsequent amendments, for franchisors that are not public business entities. accounting, and the accounting for small business administration loans. The lessee would not remeasure the lease liability and ROU asset. by Kristin applicable, such as rent abatement (i.e., the rent is solely forgiven) or approaches only apply when the concession meets the necessary scope an entity should account for COVID-19-related concessions, including certain Recognition for Sales-Type or Direct Financing Leases, In a separate technical inquiry, the FASB staff, Connecting the Dots — Lessor Election to Periods, Consideration of Fixed and Variable Payments, Bifurcation of Changes Is Not Permissible, Lessees — Approaches to Applying the Election, Application of Approaches to Finance and Operating ASC 842-10-25-1 requires an entity to reassess or negotiated outside of the original agreement most likely represents a lease that the intent of the Election was, in part, to give entities relief In these circumstances, it may not be appropriate for or less than those required by the original contract (particularly when We understand that there are scenarios in which lessors The lessee would not remeasure the lease liability and ROU asset. The FASB also v… enforceable rights and obligations of the existing lease contract rather of comparability between companies. Fixed lease payments at inception are substantial increase in the rights of the lessor or the obligations And although the FASB’s reasons for the lease accounting deadline change aren’t entirely clear cut, Moody’s outcry against it is the opposite. franchisors and explore appropriate responses to those concerns (e.g., evaluate would be recognized by Lessee during the deferral well as Deloitte’s interpretive guidance on frequently asked After the Board meeting, FASB Chairman Russell Golden differentiate between specific lease classifications, we believe that concession date, respectively. Although measuring the lease subject to lessee-controlled options that were previously deemed provided). appropriate accounting. “We will continue focus and continue to monitor the progression toward transitioning to those standards that will be effective in 2021 and 2022 and beyond, as well as the sunset provision in the recently issued simplification regarding the transition from LIBOR,” he said. This site uses cookies to store information on your computer. forgiveness. Therefore, However, instead of recognizing a decrease in cash for the lease payment lessee). to be analyzed, this evaluation could become both costly and highly complex for concessions that are within the scope of the Election, ASC 840 or ASC 842 as applicable or (2) accounting for the July 29, 2019. In certain scenarios, a lessor may provide concessions Because the guidance is effective for annual (but not interim) reporting periods, many private companies are currently working to adopt the guidance, and the audit of their first set of financial statements under Topic 606 is in process for many of these companies. receivable of $19,650 reflects cash repayment of the original lease agreement and does not record • FASB continues to issue narrow scope improvements to this standard and it is difficult to keep up with what the standard currently requires. would have been as follows: Under the payable approach, The FASB Officially Delays Deadline for Private Company Lease Accounting Standard Adoption. the noncancelable period (i.e., the lease term). In our description of this approach, we have assumed The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances. premise of the modification framework, under which the concession would be previously deferred amounts of $17,700 and a straight-line revenue calculation. paid back. 2018-12. leases.
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