Monthly newsletter that briefly describes key regulatory and professional developments that occurred in the field of accounting.
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.
Highlights of the April 2016 edition of Accounting Roundup include the following:
- The FASB’s release of an ASU amending certain aspects of the guidance in ASU 2014-09 (the Board’s new revenue standard) on (1) identifying performance obligations and (2) licensing.
- The IASB’s issuance of a final standard clarifying the guidance in IFRS 15 (the IASB’s counterpart revenue standard) on (1) identifying performance obligations, (2) principal-versus-agent considerations, and (3) licensing.
- The inaugural meeting of the FASB’s credit losses TRG and the Board’s decision to issue a final standard on credit impairment.
- The increased use and scrutiny of non-GAAP measures, including recent SEC comments on this topic.
- The SEC’s release of a request for comment that seeks feedback on modernizing the business and financial disclosure requirements of Regulation S-K.
First Quarter in Review — 2016
The first quarter of 2016 was a busy one for the FASB. The Board issued its long-awaited standard on accounting for leases, ASU 2016-02, which introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in ASU 2014-09, the FASB’s new revenue recognition standard. The FASB also released:
- An ASU that amends the guidance in U.S. GAAP on the classification and measurement of financial instruments.
- An ASU that clarifies the principal-versus-agent guidance in the Board’s new revenue standard.
- An ASU that changes the effective date and transition guidance in certain private-company ASUs.
- An ASU that simplifies the accounting for share-based payments.
- An ASU that simplifies the equity method of accounting.
- Three ASUs based on EITF consensuses.
- Two proposed ASUs related to employee benefit plans.
- A proposed ASU on certain cash flow classification issues.
In other news, at the 12th annual Life Sciences Accounting and Reporting Congress in Philadelphia, SEC Chief Accountant James Schnurr gave a speech in which he indicated 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. Mr. Schnurr commented that non-GAAP measures are intended to “supplement . . . and not supplant“ the information in the financial statements.
On the international front, the IASB issued its own leasing standard, IFRS 16, which brings most leases on the balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Although the FASB’s and IASB’s leases project was a convergence effort and the boards conducted joint deliberations, the IASB’s standard differs from the FASB’s in several notable ways. For instance, the IASB’s standard has a single lessee accounting model while the FASB’s has a dual lessee accounting model.
Highlights of the February 2016 edition of Accounting Roundup include the following:
- The FASB’s release of ASU 2016-02, its new standard on accounting for leases.
- The SEC staff’s remarks on implementation issues associated with the FASB’s and IASB’s new revenue standard.
- The SEC’s release of a final rule on cross-border security-based swaps and a proposed rule on covered broker-dealer provisions.