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The effects of COVID-19 on businesses are still felt today.
For example, accounting professionals, even now, are untangling standard updates and delays from 2 years ago. In this article for our NFP series, we discuss how COVID-19 affected and still affects revenue recognition implementation and disclosures.
ASU 606 and NFPs
FASB’s Accounting Standards Codification (ASC) 606 is often called the Revenue from Contract with Customers standard. In 2014, FASB issued Topic 606 with an effective date as early as 2018 for some organizations. However, when the COVID-19 pandemic shook the world, FASB issued ASU 2020-05, which delayed by a year the effective date for entities that had not yet adopted ASU 606.
Many NFPs fell into this category. And while the delay during the pandemic helped NFP leaders focus on the immediate needs of their organizations and those they serve, accounting practices cannot be ignored forever.
After all, strong accounting measures help determine the health of a NFP and, thus, play an important part.
Where ASU 606 Gets Tricky
ASU 606 streamlined for organizations, including NFPs, how to recognize revenue from customer contracts. (Prior to ASU 606, guidelines for revenue recognition was found in throughout various standards, making it troublesome to understand for accounting professionals and nonprofit leaders.)
Once an entity adopts ASU 606 (must be within its effective date, plus the 1-year delay provided by ASU 2020-05), it uses a 5-step process for revenue recognition. Those steps include (1) identify the contract with a customer, (2) determine within the contract the performance requirements, (3) identify the transaction price, (4) allot the transaction price to the performance requirements and (5) recognize revenue once performance requirement is met.
Consequently, ASU 606 changed how many organizations went about financial reporting for outside entities. And one of the greatest, most difficult changes came with the disclosures required. In fact, many companies found disclosures under ASU far trickier than anticipated.
How Morgan & Associates Can Help
At our CPA and advisory firm, we have associates who specialize in nonprofit accounting. We can help you and your organization understand ASU 606, including the disclosure requirements, and get you back on track after COVID-19 wreaked havoc on your accounting measures.
Fill out the form below to speak with one of our accountants.
