COVID-19 Impacts on Businesses - Free Case Study Sample

Introduction

The standard that will be considered in this case is the “revenue from Contracts with Customers (Topic 606) and Leases (Topic 842),” which became effective in June 2020. The COVID-19 pandemic is having adverse effects on the business processes in the world and disrupting the business operation in the financial markets. The Financial Accounting Standards Board (FASB) is working on ensuring that it is assisting the various stakeholders to ensure that they manage to overcome the challenges that are presented by the occurrence of this pandemic. It was issued as a deferral (limited nature) of the amendments given herein.

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Various Stakeholders

The various stakeholders that are in the franchise industry were not willing to adhere to the raised guidelines for they claimed that they were not delivering the desired output. They stated that the revenue application to the franchise agreements was not delivering the desired outcome, especially when it came to recognising the revenue made in the franchise fees. The franchiser failed to understand the amount the funds (fee) that was supposed to be recognised as revenue upon the opening of a franchise location. They were also not aware of the amount that was supposed to be deferred to facilitate the accounting process with entities in the growth phase or the start-ups getting affected by the changes.

Outreach Meetings

Despite holding outreach meetings and offering educational materials, a solution has not been realized. Therefore, with the “revenue from Contracts with Customers (Topic 606) and Leases (Topic 842),” the FASB is seeking for a deferral of the effective date to ensure that there is a development of a cost-effective solution in the revenue recognition issue. The Board has added a research project that is aimed at ensuring that there is a detailed analysis of the issue. It has received feedback letters from not-for-profit (NFP) and private organizations stating that they are experiencing problems in facilitating the transition with the compressed timeline and the problems that are raised by the existence of the COVID-19. Therefore, has been a deferral of the to the businesses that have not issued their books of accounts with the revenue adoption instead of franchisors’ referral limiting an indication that it will have a significant impact of the financial statements that are presented by the financial institutions.

Leases

On the matter regarding leases, there was an issuance of Accounting Standards Update No. 2019-10, Financial Instruments, and this touched on the credit losses (Topic 326), hedging and leasing process. The Update 2019-10 was also deferred for the stakeholders raised issues with the transition to a major update, and the problem has been made worse by the disruption encountered in the market due to the COVID-19 pandemic. The organizations that are affected by the standard are the ones that have not issued their books of accounts that are reflecting the revenue recognition. Therefore, the books of accounts that they will offer to the various stakeholders that are interested in their affairs will not incorporate the details that are requested by the previous standards provided by the Board. The deferrals have been accepted by the regulatory authority to ensure that a desirable solution is realized on this matter of leases and revenue recognition of the franchisors’ fee.

Conclusion

The Board wanted to ensure that the different stakeholders whose operations are affected by the virus are getting near-term relief. These updates should be active in these entities, and the amendment includes the Accounting Standards Update No. 2014-09, which was also focusing on the revenue generated from the contracts made with the clients. The other amendment that triggered the development of the Topic 606 standard is the Accounting Standards Update No. 2016-02 that focuses on leases. These two proposals were issued with the desire to cover certain employee-benefits and public entities.