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August

Highlights from the FASB’s August 27 meeting

Aug 28, 2014

At its August 27, 2014, meeting, the FASB discussed its projects on (1) targeted improvements to the accounting for long-duration insurance contracts, (2) leases, and (3) financial statements of not-for-profit entities (NFPs).

 

Insurance — Targeted improvements to the accounting for long-duration contracts

The FASB began discussing targeted improvements to its guidance on accounting for long-duration insurance contracts and tentatively decided that insurance entities should:

  • Update all assumptions they used to calculate (1) the liability for future policy benefits for traditional long-duration contracts, limited-payment contracts, and participating life insurance contracts and (2) the additional liability for universal life-type contracts. Such assumptions would be updated annually in the fourth quarter.
  • Recognize the impact of changes in assumptions in net income.
  • Not include a provision for adverse deviation in calculating the liability for future policy benefits for traditional long-duration contracts, limited-payment contracts, and participating life insurance contracts.
  • Not be required to perform a premium-deficiency test.

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

 

Leases

The FASB discussed (1) considerations related to the discount rate for nonpublic business entities (NBEs), (2) related-party leasing transactions, (3) accounting for sale-leaseback transactions, and (4) leveraged leases. The Board tentatively decided that:

  • A seller-lessee’s option of repurchasing an asset would not preclude the seller-lessee from concluding that the underlying asset was sold unless the asset is a nonspecialized asset and the exercise price is at fair value. In addition, the Board tentatively decided that the final standard would include application guidance on how repurchase options should be evaluated.
  • The current leveraged-lease guidance would continue to apply to leveraged-lease arrangements that exist as of the final standard’s effective date.

Further, the Board reaffirmed the guidance in its May 2013 ED concerning the NBE lessee discount rate, related-party leases, “failed” sale-leaseback transactions, and the elimination of leveraged-lease accounting for all new arrangements.

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

 

Financial statements of not-for-profit entities

The FASB discussed not-for-profit disclosures including cost allocations, and tentatively decided to:

  • Require entities to disclose any internal salaries and benefits that have been netted against investment return.
  • Require entities to disclose, in the notes to the financial statements, a description of the method used to allocate costs to program and support function costs.
  • Amend the definitions of the terms “management” and “general activities.”
  • Add implementation guidance to clarify “which support costs should be allocated among program and/or support functions.”

The Board also affirmed its previous decision not to require a not-for-profit entity to disclose its tax-exempt status.

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

FASB issues guidance on going concern

Aug 27, 2014

The FASB has issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements.

The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements. Further, an entity must provide certain disclosures if “conditions or events raise substantial doubt about [the] entity’s ability to continue as a going concern.”

The ASU applies to all entities and is effective for annual periods beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted.

For more information, see our related Heads Up as well as the press release, ASU, and FASB in Focus newsletter on the FASB’s Web site.

SEC appoints new chief accountant

Aug 26, 2014

The SEC has appointed James Schnurr as the new chief accountant in the SEC’s Office of the Chief Accountant to succeed Paul Beswick. In his new role, which begins in October, Mr. Schnurr will oversee accounting interpretations, professional practice issues, and international accounting matters

Mr. Schnurr, a retired senior partner at Deloitte, has almost 40 years of experience in the accounting and auditing profession. He spent the latter part of his career at the firm’s national office where he was consulted extensively on various SEC technical accounting issues.

For additional information, see the press release on the SEC’s Web site.

Highlights from the FASB’s August 20 meeting

Aug 21, 2014

At its August 20, 2014, meeting, the FASB discussed its projects on (1) the classification and measurement of financial instruments and (2) defined benefit plans.

 

Financial instruments — classification and measurement

The FASB continued redeliberating certain aspects of its proposed ASU Recognition and Measurement of Financial Assets and Financial Liabilities, including (1) impairment of investments in equity securities and (2) disclosures about hybrid instruments containing bifurcated embedded derivatives.

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

 

Disclosure framework: disclosure review — defined benefit plans

The Board discussed “different ways of promoting the appropriate use of discretion by reporting entities in applying annual disclosure requirements for defined benefit plans.”

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

PCAOB issues staff consultation paper

Aug 21, 2014

The PCAOB has released for public comment a staff consultation paper on “standard-setting activities related to auditing accounting estimates and fair value measurements.”

This paper is being issued partly in response to the numerous deficiencies in auditing accounting estimates the PCAOB has noted during its inspections of audit firms. The Board hopes that the feedback it receives will help it decide how to proceed with future standard setting related to this topic.

Comments on the staff consultation paper are due by November 3, 2014. For more information, see the paper and the press release on the PCAOB’s Web site.

FASB proposes ASU to simplify accounting for cloud computing fees paid by customers

Aug 20, 2014

The FASB has issued a proposed ASU, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which would amend ASC 350-40 to provide guidance on a customer’s accounting for fees paid in a cloud computing arrangement. This is the third proposal released under the FASB’s new simplification initiative, which is intended to reduce the costs and complexity of financial statement preparation.

Under current U.S. GAAP, there is guidance on a vendor’s accounting for fees in a cloud computing arrangement but not on a customer’s accounting. As a result, some diversity in practice has occurred. For example, entities’ views may differ about whether and, if so, when such arrangements are accounted for under ASC 340-10 (other assets and deferred costs), ASC 350-30 (general intangibles), or ASC 350-40 (internal-use software).

The proposed ASU would be effective for public business entities in interim and annual periods beginning after December 15, 2015; for other entities, the effective date would be deferred. Early adoption would be permitted for all entities. An entity adopting the proposed ASU could apply it either prospectively to new cloud computing arrangements or retrospectively. The comments on the proposed ASU are due by November 18, 2014.

For more information, see the related Deloitte Accounting Journal as well as the press release and proposed ASU on the FASB’s Web site.

FAF issues post-implementation review report on Statement 123(R)

Aug 20, 2014

The Financial Accounting Foundation (FAF) has issued its post-implementation review (PIR) report on FASB Statement No. 123(R), “Share-Based Payment” (codified in ASC 718).

On the basis of feedback from “investors and other financial statement users,” the PIR team concluded that although Statement 123(R) has essentially proved useful for public companies, certain private companies have found the standard’s provisions costly and difficult to implement. The FASB staff will continue to request shareholder feedback on potential improvements including “identifying potential cost-effective solutions for areas that could be considered in potential narrow-scope projects” and plans to discuss the results of its outreach with the Board and the Private Company Council later this year.

For more information, see the press release and PIR report on the FAF’s Web site. The FASB’s response letter is available on its Web site.

PCAOB issues third progress report on interim inspection program for broker-dealers

Aug 20, 2014

The PCAOB has issued its third progress 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 2013.

The deficiencies noted by the PCAOB primarily concerned “financial statement audit areas, including auditing revenue recognition, the auditor's response to the risk of material misstatement due to fraud, and audit procedures to rely on records and reports from service organizations, as well as areas specific to the audits of broker-dealers, including auditing the net capital computation and the audit work performed for the auditor's report on material inadequacies.”

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

FAF issues post-implementation review report on GASB Statement No. 42

Aug 20, 2014

The Financial Accounting Foundation (FAF) has issued its post-implementation review (PIR) report on GASB Statement No. 42, “Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries.”

On the basis of feedback from stakeholders, the PIR team concluded that Statement 42 “resolved some of the issues underlying its stated need but may not have completely resolved all of them.” Specifically, the report questions whether two objectives for capital asset impairments have been met. The FAF recommended that the GASB perform limited field-testing when developing new recognition or measurement requirements and suggested that the results of such tests should be provided to users.

For more information, see the press release and PIR report on the FAF’s Web site. In addition, the GASB’s response letter to the FAF is available on the GASB’s Web site.

IASB proposes amendments regarding the recognition of deferred tax assets for unrealized losses

Aug 20, 2014

The IASB has published an exposure draft (ED) of proposed amendments to IAS 12 "Income Taxes." As the IASB concluded that diversity in practice around the recognition of a deferred tax asset that is related to a debt instrument measured at fair value is mainly attributable to uncertainty about the application of some of the principles in IAS 12, the proposed amendments consist of some clarifying paragraphs and an illustrating example. Comments are requested by December 18, 2014.

 

Background

 

Suggested changes

Based on the IFRS Interpretation Committee's identification of diversity in practice and the different views taken, the IASB proposes in ED/2014/3, Recognition of Deferred Tax Assets for Unrealised Losses (Proposed amendments to IAS 12) amendments aimed at clarifying the following aspects:

  • Unrealized losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use.
  • The carrying amount of an asset does not limit the estimation of probable future taxable profits.
  • Estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences.
  • An entity assesses a deferred tax asset in combination with other deferred tax assets. Where tax law restricts the utilization of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the same type.

 

Transition requirements and effective date

The ED proposes limited retrospective application of the amendments for entities already applying IFRS. However, full retrospective application is proposed for first-time adopters of IFRS.

The ED does not contain a proposed effective date. The IASB will consider this point based on the comments that it receives.

 

Additional information

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