Accounting — New Standards and Exposure Drafts

Consolidation

FASB Amends Its Consolidation Model

Affects: All entities.

Summary: On February 18, 2015, the FASB issued ASU 2015-02, which amends the consolidation requirements in ASC 810 and significantly changes the consolidation analysis required under U.S. GAAP. The amendments include the following:

• Limited partnerships will be variable interest entities (VIEs), unless the limited partners have either substantive kick-out or participating rights. Although more partnerships will be VIEs, it is less likely that a general partner will consolidate a limited partnership.
• The ASU changes the effect that fees paid to a decision maker or service provider have on the consolidation analysis. Specifically, it is less likely that the fees themselves will be considered a variable interest, that an entity will be a VIE, or that consolidation will result.
• The ASU significantly amends how variable interests held by a reporting entity’s related parties or de facto agents affect its consolidation conclusion. Specifically, the ASU will result in less frequent performance of the related-party tiebreaker test (and mandatory consolidation by one of the related parties) than under current U.S. GAAP.
• For entities other than limited partnerships, the ASU clarifies how to determine whether the equity holders (as a group) have power over the entity (this will most likely result in a change to current practice). The clarification could affect whether the entity is a VIE.
• The deferral of ASU 2009-17 for investments in certain investment funds has been eliminated. Therefore, investment managers, general partners, and investors in these investment funds will need to perform a drastically different consolidation evaluation.

Although the ASU is expected to result in the deconsolidation of many entities, reporting entities will need to reevaluate all their previous consolidation conclusions.

Next Steps: For public business entities, the guidance in the ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. For entities other than public business entities, the guidance is effective for annual periods beginning after December 15, 2016, and interim periods beginning after December 15, 2017. Early adoption is allowed for all entities (including during an interim period), but the guidance must be applied as of the beginning of the annual period containing the adoption date.

Other Resources: Deloitte’s February 19, 2015, Heads Up. 

Financial Instruments

FASB Proposes Enhancements to Disclosures About Embedded Derivatives

Affects: All entities.

Summary: On February 24, 2015, the FASB issued a proposed ASU that would establish new disclosure requirements for hybrid financial instruments with bifurcated embedded derivatives. The proposal stems from the Board’s decision in its classification and measurement project to retain existing U.S. GAAP guidance on the bifurcation of embedded derivatives. Although the Board chose not to amend the existing bifurcation guidance, it hopes that the proposed disclosure requirements will address stakeholders’ concerns regarding the transparency and usefulness of information about such instruments in the financial statements.

In the proposal’s Basis for Conclusions, the Board acknowledges that “even though the host contract and the bifurcated embedded derivative encompass one legal contract, [under existing U.S. GAAP] they often are disclosed in the footnotes as if they are two separate instruments.“ The proposal requires entities to disclose the link between bifurcated embedded derivatives and their host contracts so that financial statement users can “analyze the overall economics and cash flows for the entire hybrid financial instrument.“

Next Steps: Comments on the proposed ASU are due by April 30, 2015.

Other Resources: Deloitte’s February 27, 2015, Heads Up. 

International

IASB Proposes Clarifications to Liability Classification Under IAS 1

Affects: Entities reporting under IFRSs.

Summary: On February 10, 2015, the IASB published an ED that proposes a more general approach to the classification of liabilities under IAS 1 on the basis of the contractual arrangements in place as of the reporting date. The amendments proposed in the IASB’s new ED would:

• Indicate that the “classification of liabilities as either current or non-current is based on the rights that are in existence at the end of the reporting period“ by amending paragraphs 69(d) and 73 of IAS 1 so that both paragraphs refer to the “right to defer settlement“ and both specify that only rights in place “at the end of the reporting period“ affect such classification.
• Clarify “the link between the settlement of the liability and the outflow of resources from the entity“ by incorporating guidance into paragraph 69 of IAS 1 explaining that settlement refers to the “transfer to the counterparty of cash, equity instruments, [or] other assets or services.“
• Reorganize the guidance in IAS 1 regarding classification of liabilities as current or noncurrent by deleting paragraphs 74–76 of IAS 1 and moving the provisions from these paragraphs to the expanded and renumbered paragraphs 72R and 73R of IAS 1“so that similar examples are grouped together.“

Although the ED does not propose an effective date, it indicates that the amendments would be applied retrospectively and that early application would be permitted.

Next Steps: Comments on the ED are due by June 10, 2015.

Other Resources: For more information, see Deloitte’s February 10, 2015, IFRS in Focus as well as the press release on the IASB’s Web site. 

Accounting — Other Key Developments

Private Companies

FAF Trustees Seek Comments on PCC

Affects: Private companies.

Summary: On February 26, 2015, the FAF board of trustees released a request for comment on whether the PCC, which was established in May 2012, is accomplishing its objectives. The request for comment solicits stakeholders’ views on potential improvements to the PCC, including:

• Continuing “to establish working groups for select FASB projects.“
• Creating “a consistent and continuous feedback mechanism“ between the FASB and PCC with respect to active FASB projects.
• Continuing to provide feedback on projects on the active FASB agenda.
• Participating with the FASB in outreach with private-company stakeholders.

Next Steps: Comments are due by May 11, 2015.

Other Resources: For more information, see the press release on the FAF’s Web site. 

PCC Holds February Meeting

Affects: Private companies.

Summary: At its February 13, 2015, meeting, the PCC discussed the following topics:

• Definition of a public business entity — The PCC “decided to not amend the existing definitions of a nonpublic entity.“ Thus, the existing definitions of this term in the FASB Accounting Standards Codification continue to be applicable.
• Balance sheet classification of debt — In light of its “significant concerns about the FASB’s project on the balance sheet classification of debt,“ the PCC requested that the Board seek additional feedback from shareholders on
  this topic.
• Effective dates for PCC accounting alternatives — The PCC “added a project to its agenda to consider allowing elective adoption after the effective date for existing PCC accounting alternatives.“
• Share-based payments — The PCC asked the FASB staff to further research a private-company alternative related to share-based payments.
• Uncertain tax positions — The PCC discussed an issue related to disclosures about open tax years when “there are no material uncertain tax positions.“

Next Steps: The next PCC meeting is scheduled for May 5, 2015.

Other Resources: For more information, see the media meeting recap on the FASB’s Web site. 

Revenue

FASB and IASB Tentatively Decide to Clarify New Revenue Standard

Affects: All entities.

Summary: At their February 19, 2015, joint meeting, the FASB and IASB tentatively decided to clarify certain aspects of their new revenue recognition standard (issued as ASU 2014-09 by the FASB and IFRS 15 by the IASB) in response to implementation questions from stakeholders, many of which have been discussed at meetings of the boards’ joint transition resource group on revenue recognition. Portions of the standard that would be clarified include those related to licenses of intellectual property and identifying performance obligations.

Next Steps: The FASB directed its staff to draft a proposed ASU for possible ratification by the Board at a future meeting. While the IASB tentatively agreed to make certain revisions to IFRS 15, it did not decide on the timing of an ED. However, it is possible that a draft may be exposed in June or July of 2015.

Other Resources: For more information, including a table summarizing and comparing the boards’ tentative decisions, see Deloitte’s February 19, 2015, Heads Up. 

Auditing Developments

AICPA

AICPA Releases Attestation Standard on Agreed-Upon Procedures Engagements

Affects: Auditors that perform agreed-upon procedures engagements.

Summary: On February 25, 2015, the AICPA issued an attestation interpretation of the guidance in AT 201 on agreed-upon procedures engagements. Specifically, the interpretation clarifies the meaning of the term "due diligence services" in light of the requirements in the SEC’s final rule on nationally recognized statistical rating organizations, under which "the issuer or underwriter of any [asset-backed security must] make publicly available the findings and conclusions of any third-party due diligence report obtained by the issuer or underwriter."

Governmental Accounting and Auditing Developments

GASB

GASB Issues Guidance on Fair Value Measurements

Affects: Entities reporting under financial accounting and reporting standards for state and local governments.

Summary: On March 2, 2015, the GASB issued Statement 72, which enhances the transparency and comparability of fair value measurements and disclosures in state and local governments’ financial statements. Statement 72 clarifies the definition of fair value and provides guidance on fair value valuation techniques, the fair value measurement hierarchy, and disclosures.

Next Steps: Statement 72 is effective for financial statements for periods beginning after June 15, 2015. Early adoption is encouraged.

Other Resources: For more information, see the press release on the GASB’s Web site. 

Regulatory and Compliance Developments

Federal Reserve

Federal Reserve, OCC, and FDIC Seek Feedback on Reducing Regulatory Burden

Affects: Insured depository institutions.

Summary: On February 13, 2015, the Federal Reserve, FDIC, and OCC issued a proposed rule that requests comment on regulations for insured depository institutions that may be outdated or unnecessarily burdensome. The proposed rule, which is being released in response to a mandate of the Economic Growth and Regulatory Paperwork Reduction Act of 1996, is the second in a series of four proposals seeking feedback on this topic (the first was issued in June 2014). Regulation categories addressed in the February 2015 proposal include capital, banking operations, and the Community Reinvestment Act.

Next Steps: Comments on the proposed rule are due by May 14, 2015.

Other Resources: For more information, see the press release on the Federal Reserve’s Web site. 

SEC

SEC Issues Rules on Security-Based Swaps

Affects: SEC registrants.

Summary: On February 11, 2015, the SEC issued two final rules (Final Rule Release Nos. 34-74244 and 34-74246) that require registered security-based swap data repositories (SDRs) to “establish and maintain certain policies and procedures regarding how transaction data are reported and disseminated.“ In addition, certain registered SDRs must “establish and maintain policies and procedures that are reasonably designed to ensure that they comply with applicable reporting obligations.“

The SEC also released a proposed rule that would “assign reporting duties for certain security-based swaps not addressed by the adopted rules, prohibit registered SDRs from charging fees to or imposing usage restrictions on the users of publicly disseminated security-based swap transaction data, and provide a compliance schedule for certain provisions of Regulation SBSR.“

Next Steps: The final rules will become effective 60 days after the date of their publication in the Federal Register. Comments on the proposed rule are due 45 days after the date of its publication in the Federal Register.

Other Resources: For more information, see the press release on the SEC’s Web site. 

SEC Proposes Hedging Disclosure Requirements

Affects: SEC registrants.

Summary: On February 9, 2015, the SEC issued a proposed rule that would enhance corporate governance by requiring registrants to disclose employee and director information that may affect shareholders’ interests. Specifically, the proposal, which is being issued in response to a requirement in Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, would require a registrant to disclose, in a proxy or information statement, whether “the registrant permits any employees (including officers) or directors of the registrant, or any of their designees, to purchase financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) or otherwise engage in transactions that are designed to or have the effect of hedging or offsetting any decrease in the market value of equity securities.“

Next Steps: Comments on the proposed rule are due by April 20, 2015.

Other Resources: For more information, see the press release on the SEC’s Web site. 

SEC Releases Cybersecurity Publications

Affects: All entities.

Summary: On February 3, 2015, the SEC issued the following two publications related to cybersecurity risks at brokerage and advisory firms:

• Risk alert — Summarizes the findings associated with an examination of over 100 investment advisers and broker-dealers conducted by the SEC’s Office of Compliance Inspections and Examinations (OCIE). The OCIE observed the entities’ practices related to “identifying risks related to cybersecurity; establishing cybersecurity governance, including policies, procedures, and oversight processes; protecting firm networks and information; identifying and addressing risks associated with remote access to client information and funds transfer requests; identifying and addressing risks associated with vendors and other third parties; and detecting unauthorized activity.“
• Investor bulletin — Provides investors with advice on how to protect their online investment accounts
  (e.g., selecting a strong password, two-step verification, careful use of public networks).

Other Resources: For more information, see the press release on the SEC’s Web site. 

International

IOSCO and CPMI Release Guidance on Disclosures Related to Central Counterparties

Affects: Banking entities.

Summary: On February 26, 2015, IOSCO and the CPMI issued a set of standards that provide guidance on quantitative information that central counterparties should disclose to stakeholders. The new guidance is consistent with the principles of the CPSS-IOSCO December 2012 disclosure framework, which is an effort to “improve the overall transparency of financial market infrastructures.“

Other Resources: For more information, see the press release on the BIS’s Web site. 

Basel Committee Requests Feedback on Guidance on Expected Credit Losses

Affects: Banking entities.

Summary: On February 2, 2015, the Basel Committee issued a consultative document that requests comment on “supervisory expectations for banks relating to sound credit risk practices associated with implementing and applying an expected credit loss (ECL) accounting framework.“ The objective of the proposal is to update its 2006 guidance on sound credit practices in light of the global transition to an ECL framework. (The 2006 guidance was based on an incurred-loss framework.)

Next Steps: Comments on the consultative document are due by April 30, 2015.

Other Resources: For more information, see the press release on the BIS’s Web site. 

Deloitte Publications

Leadership Changes

GASB: On February 24, 2015, the FAF board of trustees announced that it has reappointed Michael H. Granof as a GASB member for a second term beginning on July 1, 2015, and ending on June 30, 2020.

IASB: On February 17, 2015, the IFRS Foundation trustees announced that they have reappointed Darrel Scott for a second term beginning on July 1, 2015, and lasting three years.

IFRS Foundation: On February 23, 2015, the IFRS Foundation trustees announced that they have appointed Gavin Francis and Goro Kumagai as vice-chairmen of the IFRS Advisory Council.

IFRS Monitoring Board: On February 3, 2015, the IFRS Monitoring Board announced that it has reappointed Masamichi Kono as chairman for a second term that begins on March 1, 2015, and ends in February 2017.

SEC: In February 2015, the SEC announced the following appointments: (1) David Grim — acting director of the Commission’s Division of Investment Management; (2) Heather Seidel — chief counsel for the Division of Trading and Markets; and (3) Pamela C. Dyson — chief information officer.

Appendix A: Current Status of FASB Projects

Please see Appendix A in the attached PDF.

Appendix B: Significant Adoption Dates and Deadlines

Please see Appendix B in the attached PDF.

Appendix C: Glossary of Standards and Other Literature

Please see Appendix C in the attached PDF.

Appendix D: Abbreviations

Please see Appendix D in the attached PDF.