Colleges and universities should get more time to overhaul how they report the top line in their income statements, a large higher education group told U.S. accounting rulemakers.
Schools reeling from major financial disruptions because of the coronavirus pandemic need an extra year to comply with major new revenue recognition accounting rules, the National Association of College and University Budget Officers told the Financial Accounting Standards Board.
The group said FASB should extend the same one-year deferral on the revenue standard the rulemaker is offering to privately held franchisers because colleges and universities are struggling with other coronavirus-related tasks.
We “suggest expanding the deferral option to other organizations, namely not-for-profit organizations,” wrote Susan Menditto, the group’s accounting policy director.
Menditto was responding to a proposal FASB released April 21 to give an extra year to privately held franchisers to comply with ASC 606, a standard FASB published in 2016 to erase reams of industry-specific revenue rules and come up with a near-universal way to report the all-important revenue figure.
Publicly traded companies adopted the new rules in 2018. Privately held companies and not-for-profits were supposed to follow the rules for annual periods beginning after Dec. 31 2019. But privately held franchisers like Goldfish Swim School and Moms on the Run had trouble figuring out how to account for fees new franchises pay to them to set up new outlets.
Under the rules as written, many told FASB the revenue they record would nosedive, which could affect how state franchise regulators view them.
As FASB tries to come up with a simpler way for the franchisers to record up-front fees, it offered an across-the-board delay on the new rules for the industry. Comments on the proposal were due May 6.
If finalized, privately held franchisers could hold off on following the new revenue accounting requirements until annual periods beginning after Dec. 15, 2019.
Because many colleges and universities have fiscal year-ends of May 31, June 30, or Aug. 31, they are preparing to adopt the revenue standard right now. But a break similar to the one FASB is offering to privately held franchisers would give them an extra year of breathing room.
Eastern Virginia Medical School told FASB it faces the complex task of tallying revenues from tuition and fees as well as health and laboratory services, residency programs, and research grants on top of providing medical care during a public health crisis.
“Allowing us to delay implementation until next fiscal year would allow our financial team to keep their focus on our students, patients, customers, and employees,” the school’s controller wrote. " We are having to pull our financial team off of COVID19 efforts in order to continue with the Revenue Recognition documentation required by our external auditors.”
Lease Accounting Relief
In addition to providing more time to privately held franchisers on the major revenue standard, the proposal also offers an extra year to all private companies and most not-for-profit groups so they can comply with separate new lease accounting requirements.
The lease accounting standard, published as ASC 842 in 2016, requires companies to report rented assets like storefronts, heavy equipment, and fleets of trucks on their balance sheets for the first time. It is a major undertaking for most businesses because leasing is such a pervasive practice.
Private companies were supposed to overhaul their accounting in 2021. The proposal would give privately held companies and certain not-for-profit groups until 2022.
All of the trade groups, audit firms, and businesses writing to FASB said they supported the delay.
“Delaying the effective date of Topic 842 will allow these companies time to prepare during 2021, when COVID-19 is (hopefully) not a distraction,” wrote Paul N. Wilmesmeier, CFO Geneva Capital LLC in Alexandria, Minn.