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February

Highlights from the FASB’s February 26 meeting

Feb 27, 2014

At its February 26, 2014, meeting, the FASB made decisions related to the following three topics: classification and measurement, development-stage entities, and not-for-profit financial reporting.


Financial instruments — Classification and measurement

The FASB redeliberated its proposed Accounting Standards Update, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, and discussed the potential need for a new contractual cash flow characteristics assessment and fair value option for hybrid financial assets.

The Board tentatively decided (1) not to include an assessment test for cash flow characteristics of financial assets, (2) to “require equity investments to be measured at fair value with changes in the fair value recognized in net income (FV-NI), except for certain investments that are accounted for under the equity method of accounting and those that qualify for the practicability exception to fair value measurement,” and (3) to permit the use of a fair value option for hybrid financial instruments if the hybrid instrument contains an embedded derivative that requires bifurcation and separate accounting.

For more information, see the related Deloitte Accounting Journal entry and the meeting minutes on the FASB's Web site.

 

Development-stage entities 

The FASB redeliberated and affirmed its proposed Accounting Standards Update, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, which would remove the concept of a development-stage entity from U.S. GAAP. The Board directed the staff to draft final standard for vote by written ballot.

For more information, see the related Deloitte Accounting Journal entry and the meeting minutes on the FASB's Web site.

 

Not-for-profit financial reporting

The FASB tentatively decided that when presenting revenue, expenses, and other changes in net assets, not-for-profit (NFP) entities are (1) allowed to use a one- or two-statement approach, (2) required to present the intermediate measure of operations except when a statement also contains a change in unrestricted net assets during a period, and (3) not required to report a subtotal before the intermediate measure of current operations.

In addition, the Board tentatively decided to require NFP entities to “include a net presentation of investment expenses against investment return on the face of the statement of activities, with the types and amounts of investment expenses disclosed in the notes to the financial statements.”

For more information, see the meeting minutes on the FASB's Web site.

SASB issues provisional standards for financial sector

Feb 26, 2014

The Sustainability Accounting Standards Board (SASB) has issued provisional standards for industries in the financial sector. The standards are the second set in a planned series of industry-related standards by the SASB on accounting for environmental, social, and governance (ESG) issues that could be material to a corporation’s performance.

The standards focus on material sustainability matters that corporations are already required to disclose in their Form 10-K or 20-F filings with the U.S. Securities and Exchange Commission. They provide standardized accounting metrics and concentrate on ESG issues applicable to seven financial industries:

  • Commercial banks
  • Investment banking and brokerage
  • Asset management and custody activities
  • Consumer finance
  • Mortgage finance
  • Security and commodity exchanges
  • Insurance

The SASB plans to develop standards for more than 80 industries in 10 sectors. Its standards-setting process “includes evidence-based analysis with in-depth industry research and engagement with a broad range of stakeholders. The end result of this process is the creation of a complete, industry-specific accounting standard which accurately reflects the material issues for each industry.”

The Board’s first set of standards focus on the health care industry.

The provisional standards are available for download on the SASB's Web site (registration required).

SEC proposes method of disclosing asset-level data in offerings of asset-backed securities

Feb 26, 2014

To address constituent concerns related to proposed asset-level disclosures in asset-backed securities (ABS) offerings, the SEC’s Division of Corporation Finance has issued a memorandum describing an approach for asset-level disclosures that takes into account the sensitivity of this information. Instead of filing the information on EDGAR, issuers would make it available to investors on their own Web sites.

In addition, the SEC reopened the comment periods for two related ABS rules for 30 days to gather feedback on the proposed approach. Comments are due on March 28, 2014 (further extended in release 33-9568 to April 28, 2014).

For more information, see the release, memorandum, as well as the statement by Commissioner Michael Piwowar, on the SEC’s Web site.

FAF issues post-implementation review report on Statement 157

Feb 26, 2014

The Financial Accounting Foundation (FAF) has issued its post-implementation review (PIR) report on FASB Statement No. 157, “Fair Value Measurements” (codified in ASC 820). The report concludes that Statement 157 “adequately resolved all of the issues underlying its stated need” and that some stakeholders indicated that its implementation costs were “significant.” It also recommends that the FASB continue its efforts to summarize and clearly document its cost-benefit considerations and broaden its outreach activities.

The PIR’s objectives were to (1) determine whether Statement 157 is accomplishing its stated purpose, (2) evaluate Statement 157’s implementation and continuing compliance costs and related benefits, and (3) recommend ways to improve the FASB’s standard-setting process.

For more information, see the press release and PIR report on the FAF’s Web site.

G20 finance ministers and central bank governors drop accounting convergence from their communiqué

Feb 24, 2014

In past years, in the final communiqués published after its summits, the Group of 20 (G20) would call for convergence of accounting standards. However, the communiqué published after the February 22−23, 2014, meeting of G20 finance ministers and central bank governors in Sydney does not contain such an appeal.

The communiqués usually included a paragraph similar to that issued after the 2013 G20 summit in St. Petersburg: “We underline the importance of continuing work on accounting standards convergence in order to enhance resilience of financial system. We urge the International Accounting Standards Board and the US Financial Accounting Standards Board to complete by the end of 2013 their work on key outstanding projects for achieving a single set of high-quality accounting standards.” However, the communiqué published after the G20 finance ministers and central bank governors meeting in Sydney is silent on the topic.

Recent FASB/IASB decisions in January and February 2014 leave only two of the four major convergence projects remaining on the boards' convergence agenda — revenue recognition (currently expected to be finalized toward the end of the first quarter of 2014) and leases (no timing is available yet; redeliberations will resume in March).

Please click for the communiqué on the G20's Web site.

SEC chair addresses “SEC Speaks in 2014” conference

Feb 21, 2014

SEC Chair Mary Jo White delivered the keynote address at this week’s “SEC Speaks in 2014” conference. She discussed the current state of the SEC and its expectations in 2014, highlighting rulemaking, enforcement, and other activities on the horizon for the Commission.

More information is available in Deloitte's Heads Up newsletter. A transcript of her speech (and of those of the commissioners) is available on the SEC’s Web site.

Highlights from the FASB’s February 19 meeting

Feb 21, 2014

At its February 19, 2014, meeting, the FASB made decisions related to the following four topics: (1) insurance contracts; (2) impairment; (3) endorsement of Private Company Council (PCC) Issue No. 13-02, "Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements"; and (4) the proposed requirements regarding the consolidation of variable interest entities (VIEs).


Insurance contracts

In redeliberations of its proposed Accounting Standards Update, Insurance Contracts (Topic 834), the FASB focused on the staff’s proposed approaches to the overall direction of the project and whether the scope should include all entities that issue insurance contracts or only insurance entities.

The Board tentatively decided to (1) generally limit the scope of insurance accounting to insurance entities, (2) retain the existing recognition and measurement model for short-duration contracts under U.S. GAAP and make targeted improvements to the disclosure requirements for such contracts, and (3) make targeted improvements to the recognition, measurement, and disclosure model for long-duration contracts.

For more information, see the related Deloitte Accounting Journal entry, Heads Up newsletter, and the meeting minutes on the FASB's Web site.

 

Financial instruments — Impairment

The FASB continued deliberating its proposed Accounting Standards Update, Financial Instruments — Credit Losses (Subtopic 825-15). Specifically, the Board discussed its proposed nonaccrual guidance, purchased credit-impaired (PCI) financial assets, and troubled debt restructurings (TDRs). 

The Board tentatively decided (1) to exclude the nonaccrual guidance from the current expected credit losses (CECL) model, (2) not to make any changes to the proposed PCI guidance but include a requirement in the CECL model that “the non-credit-related discount or premium resulting from acquiring a pool of PCI financial assets should be allocated to each individual financial asset,” and (3) to add a requirement to the CECL model for certain TDRs when an entity may need to “increase the cost basis of the restructured financial asset through a corresponding increase in the entity’s allowance for expected credit losses.”

In addition, the Board decided to allow an entity to consider expectations about prepayments in determining the basis adjustment upon execution of a TDR.

For more information, see the meeting minutes on the FASB's Web site.

 

Endorsement of PCC 13-02

The FASB has endorsed PCC Issue No. 13-02, Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements. In addition, it reaffirmed its decision to remove an example derived from FSP FIN 46(R)-5 (codified in ASC 810-10-55-87 through 55-89).

For more information, see the related Deloitte Accounting Journal entry and the meeting notes on the FASB’s Web site.

 

Consolidations

The FASB continued deliberating its proposed Accounting Standards Update, Consolidations (Topic 810): Principal Versus Agent Analysis. The Board tentatively decided to exclude from the primary benefit determination fees that are at-market and commensurate with the services provided. In addition, the Board tentatively decided that the evaluation of a decision maker’s other interests should focus on whether the decision maker has the “obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.” The Board also tentatively decided that in the evaluation of a decision maker’s other interests, the existing threshold for evaluating a reporting entity’s economic exposure under ASC 810-10-25-38A(b) should be retained.

For more information, see the related Deloitte Accounting Journal entry and the meeting minutes on the FASB's Web site.

AICPA issues SAS 128

Feb 17, 2014

The AICPA has published Statement on Auditing Standards (SAS) No. 128, “Using the Work of Internal Auditors.”

The standard clarifies the responsibilities of external auditors when using the work of internal auditors. In addition, SAS 128 supersedes SAS 65 (AU-C sec. 610) and amends Statement on Quality Control Standards No. 8 and various sections within SAS 122.

The guidance in SAS 128 is aligned with International Standard on Auditing 610 (Revised 2013). However, some “differences in objectives, definitions, or requirements” exist between the standards, and changes have been made “to tailor examples and guidance to be more appropriate to the U.S. environment.”

SAS 128 will be effective for audits of financial statements for periods ending on or after December 15, 2014.

For more information, see the SAS 128 summary on the AICPA’s Web site.

SEC approves PCAOB proposals

Feb 14, 2014

On February 12, 2014, the SEC approved PCAOB standards that affect (1) the audits of broker-dealers and (2) audit procedures on supplemental information.

On October 10, 2013, the PCAOB adopted two attestation standards on auditors’ examinations and reviews of certain statements in broker-dealer compliance and exemption reports. On the same day, the PCAOB also adopted Auditing Standard No. 17, Auditing Supplemental Information Accompanying Audited Financial Statements, which provides guidance related to audit procedures on, and reporting of, supplemental information that accompanies the audited financial statements of broker-dealers.

For more information, see (links to the SEC's Web site):

FASB discusses subsequent measurement of goodwill

Feb 14, 2014

At its February 12, 2014, meeting, the FASB discussed four potential alternative views related to accounting for the subsequent measurement of goodwill by public business entities (PBEs) and not-for-profit entities (NFPs).

The four alternative views are:

  1. The Private Company Council (PCC) model (described in ASU 2014-02).
  2. Amortize goodwill over its expected useful life, not to exceed a specified number of years, and retain impairment testing.
  3. Direct write-off.
  4. Simplified impairment test without amortization.

Although the Board did not make any decisions, it asked its staff to conduct additional research on views (c) and (d) for PBEs. The Board will decide whether NFPs should have the option to use the PCC model or be required to apply the guidance for PBEs after it makes a decision about an alternative for PBEs.

For more information, see the related Deloitte Accounting Journal entry and the meeting notes on the FASB’s Web site.

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