by Magnus Orrell and Joseph Renouf, Deloitte & Touche LLP

Welcome to the August 2016 edition of Accounting Roundup. Highlights of this issue 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.

Be sure to monitor upcoming issues of Accounting Roundup for new developments. We value your feedback and would appreciate any comments you may have on this publication. Take a moment to tell us what you think by sending us an e-mail at accountingstandards@deloitte.com.

Leadership Changes

IFRS Foundation Monitoring Board: On August 19, 2016, the IFRS Foundation Monitoring Board announced that the Ministry of Finance of the People’s Republic of China has been appointed as a member. The appointment became effective on August 11, 2016.

Accounting — New Standards and Exposure Drafts

Agenda Consultation

FASB Solicits Feedback on Agenda Consultation

Affects: All entities.

Summary: On August 4, 2016, the FASB issued an invitation to comment to solicit stakeholder feedback on which financial accounting and reporting topics should be added to the FASB’s agenda. The invitation to comment was developed on the basis of an annual survey, conducted by the FASAC, that sought feedback from stakeholders on what the Board’s future standard-setting priorities should be. Topics that the invitation to comment identifies as warranting particular attention include:

• Intangible assets, including research and development.
• Pensions and other postretirement benefit plans.
• Distinguishing liabilities from equity.
• Reporting performance and cash flows.

Next Steps: Comments are due by October 17, 2016. Public roundtable meetings on the invitation to comment are expected to be held in the fourth quarter of 2016.

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

Financial Statement Presentation

FASB Proposes Concepts Statement on Presentation

Affects: All entities.

Summary: On August 11, 2016, the FASB issued an ED 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. The new chapter would address the information that entities should include in their general-purpose financial statements as well as “how appropriate presentation can contribute to achieving the objective [footnote omitted] of financial reporting.” The FASB plans to use the information in this chapter as a basis for developing future presentation requirements.

Next Steps: Comments on the ED are due by November 9, 2016.

Other Resources: For more information, see the press release and FASB in Focus newsletter on the FASB’s Web site.

Not-for-Profit Entities

FASB Issues ASU on Not-for-Profit Financial Statements

Affects: NFPs.

Summary: On August 18, 2016, the FASB issued ASU 2016-14, which simplifies how an NFP (1) classifies net assets and (2) presents information in financial statements.

The purpose of the ASU is to improve “presentation and disclosures to help not-for-profits provide more relevant information about their resources (and the changes in those resources) to donors, grantors, creditors, and other users.” According to the FASB in Focus newsletter on the ASU, the new standard addresses:

• “Complexity and understandability of net asset classifications.”
• “Deficiencies in information about liquidity and availability of resources.”
• “Lack of consistency in the type of information provided about expenses and investment return.”
• “Misunderstandings about and opportunities to enhance the utility of the statement of cash flows.”

Next Steps: The ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Earlier application is permitted for an annual fiscal period or for the first interim period within the fiscal year of adoption.

Other Resources: For more information, see the press release, FASB in Focus newsletter, cost-benefit analysis, and video discussion of the new standard on the FASB’s Web site.

FASB Proposes Amendments to Consolidation Guidance for Not-for-Profit Entities

Affects: NFPs.

Summary: On August 3, 2016, the FASB issued 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. The proposal would retain certain guidance that was in ASC 810-20 before the effective date of ASU 2015-02 by including it in ASC 958-810. That guidance requires that an NFP that is a general partner of a for-profit limited partnership be presumed to control the for-profit limited partnership, regardless of the extent of its ownership interest, unless the presumption can be overcome. Like the guidance in ASC 810-20, the proposal indicates that the presumption can be overcome if the limited partners have either substantive kick-out rights or substantive participation rights.

Editor’s Note ASU 2015-02 supersedes the guidance in ASC 810-20, thereby eliminating the presumption of control by the general partner, and adds new guidance to the general subsection of ASC 810-10 on when limited partners should consolidate a legal entity. This guidance presumes that a reporting entity would first navigate through the variable interest entity (VIE) subsection of ASC 810-10 before applying the guidance in the general subsection. However, since NFPs are generally outside the scope of the VIE subsection and the general subsection of ASC 810-10 (as amended by ASU 2015-02) does not address when a general partner should consolidate a limited partnership, questions have arisen regarding the application of the consolidation guidance to NFPs after the effective date of ASU 2015-02. The proposed ASU would resolve these questions by retaining the guidance in ASC 810-20 for NFPs and including it in ASC 958-810.

Next Steps: Comments on the proposed ASU are due by October 3, 2016.

Other Resources: Deloitte’s August 5, 2016, journal entry.

Statement of Cash Flows

FASB Issues ASU on Cash Flow Classification

Affects: All entities.

Summary: On August 26, 2016, the FASB issued ASU 2016-15, which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The ASU’s amendments add or clarify guidance on eight cash flow issues:

• Debt prepayment or debt extinguishment costs.
• Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing.
• Contingent consideration payments made after a business combination.
• Proceeds from the settlement of insurance claims.
• Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies.
• Distributions received from equity method investees.
• Beneficial interests in securitization transactions.
• Separately identifiable cash flows and application of the predominance principle.

Next Steps: For public business entities, the guidance in the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted for all entities. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable.

Other Resources: Deloitte’s August 30, 2016, Heads Up.

Accounting — Other Key Developments

AICPA

AICPA Issues Working Drafts on Revenue Recognition Issues for the Telecommunications Sector

Affects: Entities in the telecommunications sector and their auditors.

Summary: On August 1, 2016, the AICPA’s Telecommunications Entities Revenue Recognition Task Force released for public comment working drafts on the following topics associated with the implementation of the FASB’s new revenue standard, ASC 606, in the telecommunications sector:

• Portfolio accounting — Topics addressed include definitions and scope, evaluating the concept of “similar characteristics”; the meaning of “not differ materially” and when entities should assess it; allocation of the transaction price to multiple performance obligations under a portfolio approach; applying guidance on contract modifications, contract costs, and financing components to contract portfolios; and considerations related to presentation and disclosures, including disclosures about disaggregation of revenue.
• Contract costs — Discusses costs of obtaining and fulfilling a contract that are eligible for deferral, the amortization period for deferred contract costs, and the evaluation of impairment for deferred contract costs. This working draft also includes a number of examples illustrating the concepts it covers.

Next Steps: Comments on the working drafts are due by October 1, 2016.

Other Resources: For more information, see the Telecommunications Revenue Recognition Task Force page on the AICPA’s Web site.

Banking

OCC Updates Bank Accounting Advisory Series

Affects: Banking entities.

Summary: On August 18, 2016, the OCC released an update to its Bank Accounting Advisory Series (BAAS), which “expresses the office’s views on accounting topics relevant to national banks and federal savings associations.” The August 2016 update of the BAAS contains revisions related to the following topics:

• Contingencies.
• Fair value accounting.
• Deferred taxes.
• Transfers of financial assets and servicing.
• Acquisitions.

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

Defined Benefit Plans

Employers’ Accounting for Defined Benefit Plans — Alternatives for Applying Discount Rates in the Measurement of Benefit Cost Under a Bond-Matching Approach

Affects: All entities.

Summary: Some companies develop their discount rate assumption for measuring the projected benefit obligation or accumulated projected benefit obligation by using a bond-matching approach (sometimes also referred to as a hypothetical bond portfolio or a bond-model approach). In light of the SEC staff’s recent acceptance of the use of a spot rate approach for measuring interest cost by entities that develop their discount rate assumption by using a yield curve approach, entities and actuaries have been exploring whether other acceptable methods similar to the spot rate approach could be developed for entities that use a bond-matching approach to measure their defined benefit obligation.

In an August 2, 2016, meeting with representatives of the Big Four accounting firms and a large actuarial firm, the SEC staff stated that it objected to a proposed approach to adapting bond matching that would facilitate the use of a spot rate method for measuring interest cost. Under this approach, the implied spot rates at each maturity that are present in the entity-specific hypothetical bond portfolio for the measurement of the interest cost component of net periodic benefit cost would be derived and used in a manner similar to the spot rate approach.

Other Resources: Deloitte’s August 24, 2016, Financial Reporting Alert.

XBRL

FASB Releases Proposed 2017 Financial Reporting Taxonomy for Public Comment

Affects: All entities.

Summary: On September 1, 2016, the FASB released for public comment its proposed 2017 U.S. GAAP financial reporting taxonomy, which “contains updates for accounting standards and other recommended improvements.”

Next Steps: Comments on the proposed taxonomy are due by October 31, 2016. The final taxonomy is expected to be approved by the SEC in early 2017.

Other Resources: For more information, see the press release on the FASB’s Web site. In addition, the FASB is also holding a webcast on October 4, 2016, to discuss taxonomy-related issues.

Auditing Developments

PCAOB

PCAOB Issues Annual Report on Interim Inspection Program for Broker-Dealers

Affects: Auditors.

Summary: On August 18, 2016, the PCAOB issued an annual report on its interim inspection program for broker-dealers, which addresses audit deficiencies and independence findings the PCAOB discovered in audit firm inspections it conducted during 2015. Accounting areas in which the PCAOB noted deficiencies included revenue recognition, fair value measurements, risks of material misstatement due to fraud, the net capital rule, the customer protection rule, and engagement quality review.

Other Resources: For more information, see the press release and fact sheet on the PCAOB’s Web site.

International

IAASB Issues Discussion Paper on Credibility and Trust in Emerging Forms of External Reporting

Affects: All entities.

Summary: On August 18, 2016, the IAASB issued a discussion paper that explores how the credibility and trust in emerging forms of external reporting (e.g., integrated reporting) can be improved. Topics addressed in the discussion paper include:

• “[F]actors that can enhance credibility and trust, internally and externally, in relation to emerging forms of external reports.”
• “[T]ypes of professional services covered by the IAASB’s international standards most relevant to these reports, in particular assurance engagements.”
• “[K]ey challenges in relation to assurance engagements.”
• “[T]he type of guidance that might be helpful to support the quality of these assurance engagements.”

Next Steps: Comments on the discussion paper are due by December 15, 2016.

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

Governmental Accounting and Auditing Developments

FASAB

FASAB Issues Guidance on Establishing Opening Balances for General Property, Plant, and Equipment

Affects: Entities applying federal financial accounting standards.

Summary: On August 4, 2016, the FASAB issued Statement 50, which amends its existing standards to permit entities that meet certain criteria “to apply alternative methods in establishing opening balances for general property, plant, and equipment (PP&E).” Such alternative methods would include “(1) using deemed cost to establish opening balances of general PP&E, (2) selecting between deemed cost and prospective capitalization of internal use software, and (3) allowing an exclusion of land and land rights from opening balances with disclosure of acreage information and expensing of future acquisitions.”

Next Steps: Statement 50 is effective for periods beginning after September 30, 2016. Early adoption is encouraged.

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

GASB

GASB Proposes Guidance on Certain Debt Extinguishment Issues

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

Summary: On August 29, 2016, the GASB issued an ED that governmental entities “would apply when extinguishing debt prior to its maturity.” Specifically, the proposal would provide guidance on “transactions in which only existing resources are placed in a trust for the purpose of extinguishing debt.”

Next Steps: Comments on the ED are due by October 28, 2016.

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

Regulatory and Compliance Developments

SEC

SEC Proposes Rule on Exhibit Hyperlinks

Affects: SEC registrants.

Summary: On August 31, 2016, the SEC issued a proposed rule that would “require registrants that file registration statements and periodic and current reports that are subject to the exhibit requirements under Item 601 of Regulation S-K, or that file on Forms F-10 or 20-F, to include a hyperlink to each exhibit listed in the exhibit index of these filings.” In addition, the hyperlinks must be in HTML format.

Next Steps: 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 Issues Final Rule Granting Regulatory Access to Data Held by Security-Based Swap Data Repositories

Affects: SEC registrants.

Summary: On August 29, 2016, the SEC issued a final rule that amends Rule 13n-4 of the Securities Exchange Act of 1934 to give certain regulators and other authorities access to security-based swap data repositories. Specifically, the final rule:

• Requires “either a memorandum of understanding or other arrangement between the Commission and the recipient of the data to address the confidentiality of the security-based swap data provided to the recipient.”
• Identifies “the five prudential regulators named in the statute, as well as the Federal Reserve banks and the Office of Financial Research, as being eligible to access data.”
• Addresses “factors that the Commission may consider in determining whether to permit other entities to access data.”

Next Steps: The final rule will become effective on November 1, 2016.

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

SEC Issues Final Rule for Investment Advisers

Affects: SEC registrants.

Summary: On August 25, 2016, the SEC issued a final rule to improve the reporting and disclosure requirements for investment advisers. Specifically, the final rule amends:

• Form ADV to (1) require investment advisers to disclose additional information (e.g., about their “separately managed account business”), (2) include an approach under which “private fund adviser entities operating a single advisory business” can use a single Form ADV to register, and (3) make certain technical corrections to “Form ADV items and instructions.”
• Investment Advisers Act rules to (1) require advisers to maintain additional records of performance-related calculations and communications and (2) “remove transition provisions that are no longer necessary.”

Next Steps: The final rule will become on October 31, 2016, and advisers will need to begin complying with the amendments on October 1, 2017.

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

SEC Requests Comments on Certain Regulation S-K Disclosure Requirements

Affects: SEC registrants.

Summary: On August 25, 2016, the SEC published a request for comment as part of its disclosure effectiveness initiative. The request for comment seeks feedback on certain disclosure requirements in Subpart 400 of Regulation S-K related to management, certain security holders, and corporate governance matters. The Commission plans to take the comments received into account when developing its study on Regulation S-K, which is required by the Fixing America’s Surface Transportation Act.

Next Steps: Comments are due by October 31, 2016.

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

Dbriefs for Financial Executives

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• Monday, September 19: Quarterly Accounting Roundup: Important Developments With a Special Focus on Non-GAAP Measures.
• Wednesday, September 21, 3:00 p.m. (EDT): What CFOs Need to Know About Blockchain: A New Source of Enterprise Value?
• Monday, September 26: Financial Reporting for Taxes: Year-End Updates, Annual Disclosures, and 2016 Hot Topics.
• Wednesday, September 28: Cyberattackers and Your Intellectual Property: Valuing and Guarding Prized Business Assets.
• Thursday, September 29: Advancing Board Effectiveness With a New Strategic Framework.
• Friday, September 30, 11:00 a.m. (EDT): EITF Roundup: Highlights From the September Meeting.

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Featured Publication

Deloitte recently issued the 2016 edition of A Roadmap to Consolidation — Identifying a Controlling Financial Interest. This update reflects changes to the consolidation guidance made by ASU 2015-02 (issued in February 2015) and incorporates additional interpretations and guidance in response to recent developments, including FASB and SEC activity.

Other Deloitte Publications

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.

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