Monthly newsletter that briefly describes key regulatory and professional developments that occurred in the field of accounting.
Third Quarter in Review — 2016
In the third quarter of 2016, the FASB released a number of proposed and final standards. In addition to issuing two final Accounting Standards Updates (ASUs) — on (1) simplification of a not-for-profit entity’s (NFP’s) financial statements and (2) classification of certain cash receipts and cash payments in the statement of cash flows — the Board issued proposed ASUs that would amend its guidance on the following topics:
- Long-duration insurance contracts.
- The amortization period for callable debt securities purchased at a premium.
- Employee benefit plans.
- Hedge accounting.
- The income tax disclosure requirements.
- The consolidation guidance for NFPs.
- Technical corrections and improvements to the Board’s new revenue standard, ASU 2014-09.
In addition, the FASB published for public comment an (1) invitation to comment that requests stakeholder feedback on which financial accounting and reporting topics should be added to the FASB’s agenda and (2) exposure draft of a proposed concepts statement that would add a new chapter (Chapter 7) on presentation of financial information to the Board’s conceptual framework for financial reporting.
In other news, in recent speeches, the SEC staff has reminded registrants about best practices to follow in the periods leading up to the adoption of ASU 2014-09 (on revenue), ASU 2016-02 (on leases), and ASU 2016-13 (on credit losses). The staff’s comments, which reiterated themes it has addressed over the past year, focused on internal controls over financial reporting, auditor independence, and disclosures related to implementation activities.
On the international front, the IASB recently published amendments to its insurance contracts standard, IFRS 4. The amendments address concerns about the different effective dates of IFRS 9 and the IASB’s forthcoming insurance contracts standard, which is expected to be issued as IFRS 17 in March 2017.
Highlights of the August 2016 edition of Accounting Roundup include the following:
- The FASB’s issuance of (1) an ASU that simplifies how not-for-profit entities (NFPs) classify net assets and present financial statement information, (2) an ASU that adds and clarifies guidance on certain cash flow issues, (3) a proposed ASU that would amend the consolidation guidance to clarify when an NFP that is a general partner should consolidate a for-profit limited partnership or similar legal entity, and (4) a proposed concepts statement that would add a new chapter on presentation to the Board’s conceptual framework.
- The AICPA’s release of two working drafts on revenue recognition issues for the telecommunications sector.
- The SEC’s issuance of (1) final rules related to security-based swaps and investment advisers, (2) a proposed rule on HTML-related filing requirements, and (3) a request for comment on certain Regulation S-K disclosure requirements.
Highlights of the July 2016 edition of Accounting Roundup include the following:
- The FASB’s issuance of proposed ASUs that would (1) provide guidance on an employee benefit plan’s presentation and disclosure of interests in a master trust and (2) amend the income tax disclosure requirements in ASC 740.
- The AICPA’s release of its second set of working drafts designed to help entities in various industries implement the requirements in the FASB’s revenue standard, ASU 2014-09.
- The SEC’s issuance of a proposed rule that would amend certain of its disclosure requirements that may be redundant, duplicative, or outdated, or may overlap with other SEC, U.S. GAAP, or IFRS disclosure requirements.
Second Quarter in Review — 2016
In the second quarter of 2016, the FASB continued to amend certain aspects of its new revenue standard, ASU 2014-09, issuing (1) an ASU clarifying the guidance on licensing and identifying performance obligations, (2) an ASU making narrow-scope revisions and providing practical expedients, and (3) a proposed ASU suggesting certain technical corrections (i.e., minor changes and improvements). In addition, the Board held the first FASB-only meeting of the TRG for revenue recognition, which the FASB and IASB had jointly created to address potential issues related to the implementation of the revenue standard. Although the IASB also published a set of amendments to its counterpart revenue standard, IFRS 15, it had previously announced that it has completed its decision-making process related to clarifying the new revenue standard and that it no longer plans to schedule TRG meetings for IFRS constituents.
The FASB also issued a final standard on credit losses — which adds to U.S. GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses — as well as proposals related to common control, goodwill accounting, nonfinancial assets, and restricted cash. Meanwhile, the IASB (1) proposed revisions to the definition of a business and the accounting for previously held interests and (2) published amendments clarifying the requirements related to the classification and measurement of share-based payment transactions.
In other international news, the United Kingdom’s vote to depart from the EU in a June 23 referendum (the “Brexit” vote), and the related financial reporting considerations, have recently grabbed headlines. The impact of this development on entities will vary significantly by industry sector and by other entity-specific factors. However, given the vote’s shock to global financial markets and their immediate reaction to it, all entities should consider how they are affected and what they may need to communicate to the market.
Another hot topic this quarter has been non-GAAP financial measures. Recently, press coverage and SEC scrutiny of such measures have exploded. For example, in a recent speech, SEC Chief Accountant James Schnurr noted that the “SEC staff has observed a significant and, in some respects, troubling increase . . . in the use of, and nature of adjustments within, non-GAAP measures” as well as their prominence. He further noted that non-GAAP measures are intended to “supplement . . . not supplant” the information in the financial statements. As a result of such concerns, the Commission has recently updated its C&DIs on non-GAAP measures. In addition, the CAQ has issued a publication exploring the ramifications of the increased focus on non-GAAP measures for audit committees, and IOSCO has released a report highlighting its expectations regarding disclosure of such measures.
Highlights of the May 2016 edition of Accounting Roundup include the following:
- The FASB’s issuance of (1) an ASU that makes limited-scope amendments to the Board’s new revenue standard and provides practical expedients and (2) a proposed ASU that would simplify goodwill accounting.
- The SEC’s continuing focus on non-GAAP measures, including its recently updated C&DIs on this topic.
- The PCAOB’s reproposed auditing standard on auditors’ reports on audits of financial statements in situations in which the auditor expresses an unqualified opinion.