FASB delay of leases standard ASC 842

Due to the Covid-19 situation, the FASB on April 8 voted to propose a one-year delay on implementation for ASC 842 (the new leases standard) and for ASC 606 (Revenue from Contracts with Customers) for entities that haven't yet implemented them. For leases, this includes public not-for-profits (that is, NFPs with bonds or other securities quoted on an exchange or over-the-counter market), who were to have implemented ASC 842 this past year, but who may not yet have reported results, as well as private firms, who were to implement next year (following a previous one-year delay from the original requirement). The new effective dates are: 

  • For putlic NFPs: Fiscal years beginning after December 15, 2019, including interim periods within those fiscal years
  • For private companies and other NFPs: Fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022

Officially, this is still a proposal, approval is virtually assured, and companies can act on the presumption that this will be approved. Early adoption is still permitted, so companies can choose to ignore this deferral and maintain current implementation plans if they wish.

The FASB staff also provided an important response to questions about rent abatements offered due to the pandemic (taken from PwC's summary of the meeting):

Question: Are lease concessions related to COVID-19 required to be accounted for as lease modifications?

FASB response: The FASB believes that lessees and lessors may make an election to either apply the lease modification guidance or the variable rents guidance under ASC 840 and ASC 842 for lease concessions related to COVID-19 as long as the total cash flows as a result of the concession are substantially the same or less than those in the contract before the concession. A preparer can make this election without the need to determine whether a force majeure clause exists in the lease.

The SEC has said it will accept accounting for temporary COVID-19 concessions as either variable rents (as if they were enforceable under the contract) or as a modification.

We [PwC] understand that using a simplified modification approach (e.g., not updating the discount rate) would not be acceptable as that is not currently permitted under GAAP.