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Highlights from the FASB’s July 23 meeting

  • FASB meeting Image

Jul 25, 2014

At its July 23, 2014, meeting, the FASB discussed its project on financial statements of not-for-profit entities (NFPs). In addition, the FASB jointly discussed leases with the IASB.

 

Financial statements of not-for-profit entities

The FASB discussed (1) the relationship between this project and its research project on financial performance reporting and (2) presentation alternatives for capital-like transactions and events. The FASB tentatively decided:

  • To affirm its prior decisions to include certain types of cash in financing activities even though it is uncertain whether the cash flow statement will be addressed in the Board’s project on financial performance reporting. In addition, the FASB decided that “cash proceeds from the sale of long-lived assets should be classified as inflows from operating activities rather than as inflows from investing activities.”
  • To require an NFP to report a “transfer out of current operations for the amount of the gifted long-lived asset expected to be utilized in future periods. In subsequent periods, the NFP would report a transfer back into current operations to the extent long-lived assets are utilized during the current reporting period.”
  • To require the use of a placed-in-service approach to treat expirations of long-lived asset restrictions, which would remove the “option to release the donor-imposed restriction over an asset’s useful life.”

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

 

Leases

The FASB and IASB continued redeliberating revisions to lease accounting and discussed (1) sale-leaseback transactions and (2) lessor disclosure requirements.

The following table summarizes the boards’ tentative decisions related to sale-leaseback transactions:

Tentative decisions reached FASB IASB

The seller-lessee should apply the definition of a sale in the new revenue guidance (i.e., ASC 606 or IFRS 15) when determining whether the transfer of an underlying asset in the sale-leaseback qualifies as a sale.

X

X

The final leases standard should affirm that the existence of a leaseback would not prevent the seller-lessee from concluding that the underlying asset was sold.

X

X

A leaseback transaction that would result in a Type A lease would preclude sale accounting of the underlying asset by the seller-lessee.

X

 

The final standard would not include additional guidance on applying the revenue recognition standard’s control principle to sale-leaseback transactions.

 

X

If a transaction is based on “at-market” terms, any gain resulting from the sale in the transaction should be recognized immediately, which is consistent with the treatment for sales of nonfinancial assets that do not involve a leaseback.

X

 

The immediate recognition of gains from the sale would be limited to the portion associated with the residual asset.

 

X

A seller-lessee should recognize any loss resulting from the sale in a sale-leaseback transaction in a manner similar to losses resulting from the sale of other nonfinancial assets, and the buyer-lessor in the arrangement should account for the purchase of the asset in accordance with other existing accounting.

X

X

The leaseback in a sale-leaseback transaction should be accounted for in a manner consistent with other leases.

X

X

Both parties to the sale-leaseback transaction would determine whether an adjustment is required as a result of the off-market terms by assessing whether there is a difference between (1) the sales price and fair value of the asset sold or (2) the present value (PV) of the contractual lease payments and the PV of the lease payments at fair market value. The seller-lessee would account for any difference either as an adjustment to the ROU asset or additional financing from the buyer-lessor (i.e., separate from the lease liability). The buyer-lessor would recognize any difference as a prepayment of rent or additional financing to the seller-lessee (i.e., separate from the lease receivable).

X

X

A transaction that results in a failed sale should be accounted for as a financing arrangement.

 

X

The following table summarizes the boards’ tentative decisions related to lessor disclosure requirements:

Tentative decisions reached FASB IASB

Lessors should disclose certain quantitative and qualitative information about their practices for managing risks related to the residual value of its leased assets.

X

X

Lessors should apply the disclosure requirements in ASC 360 or IAS 16 for all assets that are subject to a Type B lease. In addition and should disclose by major class assets that are subject to a lease separately from those that are held and used by the lessor.

X

 

Lessors should apply the disclosure requirements in ASC 360 or IAS 16 for all assets that are subject to a Type B lease and should disclose as a class of property, plant, and equipment, assets that are subject to a lease separately from those that are held and used by the lessor.

 

X

Lessors must provide a maturity analysis of the future undiscounted cash flows that make up the Type A lease receivable balance. The amounts included in the maturity analysis should be reconciled to the balance sheet.

X

X

In addition, the boards tentatively decided to eliminate the lease receivables and residual asset reconciliation requirements from their May 2013 exposure draft; however, the FASB tentatively decided only to require additional disclosures about significant changes in the value of the residual assets during the period, while the IASB tentatively decided to require additional disclosures about significant changes in lessors’ net investment in leases.

For more information, see the related Deloitte Accounting Journal entry and the tentative Board decisions on the FASB’s Web site.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.