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FASB Tentatively Deferring New Lease Standard & Clarifies COVID-19 Accounting Issues

Posted by Kelli Bernstein on Apr 9, 2020 4:59:46 PM

Conceptual image of micro circuit. Security concept-1

The FASB met April 8, 2020, to discuss accounting issues surrounding COVID 19.  A summary of the issues they discussed include the following:

  • Tentatively deferring for one year the effective dates of the new lease standard (ASC 842) for private companies to January 1, 2022 for calendar year-end companies (this is in light of the fact that the FASB recognizes that private companies may have to redirect their resources to other more pressing matters).  The FASB will be issuing a proposed ASU addressing this shortly, with a 15-day comment period.

  • The FASB also discussed some of the technical inquiries they have been receiving related to COVID 19.  This includes:

    • Leases – rent concessions: Due to temporary closures or changes to operating hours of office buildings, etc., some landlords may be providing rent concessions including decreased rent for COVID 19 effected periods or interest-free rent deferrals.  The FASB Board members agreed, that for leases where the total lease cash flows will remain substantially the same or less than those after the COVID 19 related effects, companies may choose to forgo the evaluation of the enforceable rights and obligations of the original lease contract. Instead, the company would account for rent concessions, whatever their form (i.e. rent deferral, abatement or other), either:

      • As if they are part of the enforceable rights and obligations of the parties under the existing lease contract; or

      • As a lease modification.

    • Interest income recognition on loans with ‘payment holidays’: The guidance currently stipulates that interest income is not recognized to the extent that the carrying amount of the loan would increase to an amount greater than the amount at which the borrower could settle the loan, applies when a loan that does not have an increasing interest rate is modified. The FASB is addressing different approaches for this situation.

    • The FASB also addressed the timing of other current projects on its technical agenda, and decided to defer the issuance of any other proposed ASUs until later in 2020. In addition, other projects that were slated for completion in the 2nd quarter of 2020 will not be completed until later in 2020.  The only project they will continue at this time to move forward with in the near term is its project related to reporting of gifts-in-kind by not-for-profit organizations.

Contact us if you have any questions.

Topics: Accounting & Auditing, COVID-19

Kelli Bernstein

Kelli Bernstein

Kelli is a Vice President in the Assurance Services Group and is a key member of the firm’s not-for-profit core group. She oversees the firm’s quality control procedures. In addition, she is involved with researching technical accounting issues.