Recent FASB Developments – Fourth Quarter 2016
This article provides a comprehensive overview of important, recent developments that have changed the financial reporting environment. Our detailed breakdown covers relevant guidance and rules issued by the Financial Accounting Standards Board (FASB) over the last quarter as well as a list of effective dates for recently issued accounting pronouncements.
Final FASB Guidance
All final FASB guidance can be accessed on the FASB website located under the Standards tab, Accounting Standards Updates, here.
Accounting Standards Update 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
- Issued: December 2016
- Summary: ASU 2016-20 amends the new revenue standard. The amendments do not alter the core principle of the standard, but clarify certain narrow aspects of the standard including contract cost accounting, disclosures, illustrative examples, and other matters. For additional information, refer to our article on the topic, here.
- Effective Date: The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements of Topic 606.
Accounting Standards Update 2016-19: Technical Corrections and Improvements
- Issued: December 2016
- Summary: ASU 2016-19 includes changes intended to clarify the FASB ASC, correct unintended application of guidance, or make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities.
- Effective Date: Most of the amendments do not require transition guidance and are effective upon issuance. Several amendments have specific transition requirements, and early adoption is permitted for those items.
Accounting Standards Update 2016-18: Restricted Cash
- Issued: November 2016
- Summary: ASU 2016-18 updates Topic 230, Statement of Cash Flows, to require that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted cash will not be presented as a separate line item in the operating, investing or financing sections of the cash flow statement. The ASU includes examples of the revised presentation guidance, and additional presentation and disclosure requirements apply.
- Effective Date: The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The amendments should be applied retrospectively to each period presented. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
Accounting Standards Update 2016-17: Interests Held through Related Parties That Are under Common Control
- Issued: October 2016
- Summary: ASU 2016-17 amends the variable interest entity (VIE) guidance within Topic 810, Consolidation. It does not change the two required characteristics for a single decision maker to be the primary beneficiary (“power” and “economics” – paragraph 810-10-25-38A), but it revises one aspect of the related analysis. The amendments change how a single decision maker of a VIE treats indirect variable interests held through related parties that are under common control when determining whether it is the primary beneficiary of that VIE. The ASU requires consideration of such indirect interests on a proportionate basis, instead of being the equivalent of direct interests in their entirety, thereby making consolidation less likely.
- Effective Date: The amendments are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted. However, if an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of that fiscal year. Entities that have not yet adopted ASU 2015-02 are required to adopt ASU 2016-17 at the same time they adopt ASU 2015-02 and should apply the same transition method elected for ASU 2015-02. Entities that have already adopted ASU 2015-02 are required to apply ASU 2016-17 retrospectively to all relevant prior periods beginning with the fiscal year in which ASU 2015-02 initially was applied.
Accounting Standards Update 2016-16: Intra-Entity Transfers of Assets Other Than Inventory
- Issued: October 2016
- Summary: ASU 2016-16 eliminates from Topic 740, Income Taxes, the recognition exception for intra-entity asset transfers other than inventory so that an entity’s consolidated financial statements reflect the current and deferred tax consequences of those intra-entity asset transfers when they occur. For intra-entity asset transfers of inventory, recognition of current and deferred income tax consequences will continue to be deferred until the inventory has been sold to an outside party or otherwise left the consolidated group.
- Effective Date: The amendments are effective for public business entities for annual reporting periods beginning after December 15, 2017 and interim reporting periods within those fiscal years, and for entities other than public business entities for annual reporting periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. An entity may elect early adoption, but it must do so for the first interim period of an annual period if it issues interim financial statements.
Proposed FASB Guidance
The following is a summary of significant proposed guidance that was issued or was open for comment during the quarter. All proposed FASB guidance can be accessed on the FASB website located under the Exposure Documents tab, here.
Proposed Accounting Standards Update: Distinguishing Liabilities from Equity (Topic 480): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
- Issued: December 2016
- Comment Deadline: February 6, 2017
- Summary: The proposed amendments in Part I of the exposure draft would change the accounting for certain equity-linked financial instruments (or embedded features) with down round features. The proposed amendments would require that when determining whether certain financial instruments should be classified as liabilities or equity instruments, an entity would not consider the down round feature when assessing whether the instrument is indexed to its own stock. However, an entity would recognize the effect of the feature when triggered. For financial instruments with down round features that have been triggered during the reporting period, an entity would disclose that the feature has been triggered, the value of the effect of the down round feature being triggered, and the financial statement line item in which that effect is recorded. The proposed amendments in Part II of the exposure draft are a recharacterization of the indefinite deferral of certain provisions of Subtopic 480-10, which are currently presented as pending content in the Codification, to a scope exception. These amendments will not have an accounting effect.
- Effective Date: For Part I, the Board will determine the effective date and whether the proposed amendments may be applied before the effective date after it considers stakeholder feedback. Part II would not require any transition guidance because those amendments do not have an accounting effect.
Proposed Accounting Standards Update: Stock Compensation (Topic 718): Scope of Modification Accounting
- Issued: November 2016
- Comment Deadline: January 6, 2017
- Summary: The proposed amendments would clarify that an entity should apply modification accounting in Topic 718 when the terms or conditions of a share-based payment award are changed, unless all the following are the same immediately before and after the modification:
- The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the award.
- The vesting conditions of the award.
- The classification of the award as an equity instrument or a liability instrument.
- Effective Date: The Board will determine the effective date and whether the proposed amendments may be applied before the effective date after it considers stakeholder feedback.
Proposed Accounting Standards Update: Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services
- Issued: November 2016
- Comment Deadline: January 6, 2017
- Summary: The proposed amendments would clarify Topic 853 to specify that the grantor (usually a governmental entity), rather than the third-party users of infrastructure, is the customer of the operation services in all cases for service concession arrangements. The amendments are intended to eliminate the diversity in practice regarding the customer determination for such operation services, and to reduce complexity and enable more consistent application of other aspects of the pending revenue standard (Topic 606), which are affected by this customer determination.
- Effective Date: The effective date and transition requirements would depend on whether or not an entity has already adopted Topic 606 at the time this standard is finalized. Generally, entities would be required to apply this standard concurrently with application of Topic 606.
Proposed Accounting Standards Update: Technical Correction to Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities—Endowment Reporting
- Issued: October 2016
- Comment Deadline: November 11, 2016
- Summary: The proposed amendments would clarify the minimum requirements for the reconciliation that a not-for-profit entity (NFP) is required to disclose if it has endowment funds. Specifically, it would remove the words “that contain no purpose restrictions” from paragraph 958-205-50-1B(e)(3), which were added by the amendments in ASU 2016-14.
- Effective Date: The Board will determine the effective date after considering stakeholder feedback on the proposed amendments. Earlier application of the proposed amendments would be permitted at the beginning of any fiscal year before the effective date.
Other FASB Activities
The following section provides high level summaries of other relevant FASB publications and activities.
Emerging Issues Task Force
The Emerging Issues Task Force (EITF) met on November 17, 2016. The following conclusions reached by the EITF do not represent final or proposed guidance until they are ratified by the FASB.
Issue 16-B: Employee Benefit Plan Master Trust Reporting
- Status: The Task Force reached a final consensus on the following Issue. The FASB ratified on November 30, 2016. A final ASU is expected early in 2017.
- Summary: The final consensus affirmed that that a plan should present its interest in the master trust and the change in its interest in that master trust as single line items in the statement of net assets available for benefits and the statement of changes in net assets available for benefits, respectively. Some incremental disclosures will be required.
- Effective Date: The final consensus is expected to effective for fiscal years beginning after December 15, 2018, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period.
FASB Transition Resource Group for Credit Losses
- Summary: The FASB established the Transition Resource Group (TRG) for Credit Losses early in 2016 to solicit, analyze, and discuss implementation issues that could arise when organizations implement ASU 2016-13. The group will then share their views with the FASB, which will help the Board determine what, if any, action is appropriate to address those issues. The TRG also will provide stakeholders with a forum to learn about the new standard from others involved with implementation. The TRG met on April 1, 2016 to discuss whether the measurement guidance of ASU 2016-13 clearly communicates the Board’s decisions. Additional meeting dates have not yet been announced.
- Background: The FASB issued ASU 2016-13 in June 2016 establishing the current expected credit loss (CECL) model, which requires entities to recognize upon inception and at each reporting date an allowance for the current estimate of contractual cash flows they do not expect to collect over an instrument’s life. The model applies to financial assets measured at amortized cost (e.g., loans, trade receivables, debt securities) and certain off off-balance sheet credit exposures.
FASB Transition Resource Group for Revenue Recognition
- Summary: The TRG for Revenue Recognition met on November 7, 2016 to discuss the following issues:
- Over Time Revenue Recognition
- Capitalization and Amortization of Incremental Costs of Obtaining a Contract
- Royalty with Minimum Guarantee
- Payments to Customers
- Also during the quarter, the FASB issued an ASU containing technical corrections and improvements to the revenue standard (see Final FASB Guidance, above).
- Background: The TRG for Revenue Recognition was established in 2014 to solicit, analyze, and discuss stakeholder issues arising from implementation of the recently issued standard, ASU 2014-09 (Topic 606), Revenue from Contracts with Customers; to inform the FASB and IASB about those implementation issues, which will help the Boards determine what, if any, action will be needed to address those issues; and to provide a forum for stakeholders to learn about the new guidance from others involved with implementation.
AICPA Financial Reporting Executive Committee
The Financial Reporting Executive Committee (FinREC) is the senior committee of the AICPA for financial reporting. It is authorized to make public statements on behalf of the AICPA on financial reporting matters. During the quarter, topics discussed by FinREC included:
FinREC has issued several working drafts that provide industry-specific considerations and illustrative examples related to the implementation of ASU 2014-09, Revenue from Contracts with Customers. FinREC continued to issue working drafts for comment in 2016. Industries affected by the most recent working drafts include airlines, gaming, telecommunications and timeshares with comment periods ending February 1, 2017 or March 1, 2017.
In January 2017, the AICPA published the first edition of its Audit and Accounting Guide: Revenue Recognition. This edition addresses general accounting considerations, general auditing considerations, and accounting implementation issues in the aerospace & defense and asset management industries. The guide will be updated as additional implementation issues are finalized.
Complete details and additional AICPA resources are available on the AICPA website, here.
Accounting and Valuation Guide
FinREC continued deliberations on a new interpretive practice guide, Valuation of Portfolio Company Investments of Venture Capital and Private Equity Firms and Other Investment Companies. Deliberations included market participant assumptions, calibration and other valuation related matters.
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