TRG Snapshot — Joint meeting on revenue: January 2015

This edition of TRG Snapshot summarizes the January 26, 2015, meeting of the joint FASB and IASB transition resource group on revenue recognition.

Heads Up: FASB issues exposure draft on simplified accounting for income taxes

This Heads Up discusses the FASB’s recently issued exposure draft of its proposed Accounting Standards Updates (ASUs) Intra-Entity Asset Transfers and Balance Sheet Classification of Deferred Taxes. Under the proposed guidance, (1) entities would recognize the income tax consequences of intra-entity asset transfers when the transfer occurs (rather than when the assets are ultimately sold to an outside party) and (2) all deferred taxes would be classified as noncurrent assets or noncurrent liabilities.

A Roadmap to Accounting for Income Taxes

This second edition of A Roadmap to Accounting for Income Taxes includes all of Deloitte’s interpretive guidance on the accounting for income taxes, combining the income tax accounting requirements and implementation guidance from ASC 740 with Deloitte’s interpretations and examples in a comprehensive, reader-friendly format.

Simplifying the measurement date for plan assets

The FASB discussed comments it received on its proposed ASU, Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets, and tentatively decided to:

• Affirm the proposed practical expedient.
• Affirm that “an employer using the practical expedient should be required to adjust the funded status for contributions and other significant events . . . occurring between the alternative measurement date and its fiscal year-end.”
• Extend the practical expedient to remeasurements of significant events.
• Exclude employee benefit plans from the scope of the project and request the EITF to consider the measurement date practical expedient as part of its targeted improvements to employee benefit plan accounting.
• Propose effective date and transition requirements.

The Board directed the staff to draft a final ASU for vote by written ballot. For more information, see the meeting mintues on the FASB’s Web site.

Simplifying the balance sheet classification of debt issuance cost

The FASB discussed alternative principles for determining the classification of debt within a classified balance sheet and tentatively decided to propose a new, principles-oriented approach for classifying debt as either current or noncurrent in an entity’s balance sheet. The approach would replace existing requirements, which have been criticized for their complexity.

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

Consolidation

The FASB received an update from its staff on the status of the consolidation project, including the results of the staff’s outreach with various constituents in connection with the Board’s decisions at its December 2014 meeting.

The Board directed the staff to draft a final ASU for vote by written ballot. The final ASU is expected to be issued in February 2015. For more information, see the related Deloitte journal entry and the meeting minutes on the FASB’s Web site.

Specifically, the boards discussed:

• Overall disclosure objective.
• Quantitative disclosure requirements.
• Qualitative disclosure requirements.
• Considerations for nonpublic business entities.

For details on the tentative decisions made during the meeting, see the related Deloitte Accounting Journal entry as well as the meeting minutes on the FASB's Web site.

Regarding Issue 15-A, the FASB staff provided background on the development of nodal industry markets as well as both general and industry-specific criteria that a contract for the physical delivery of electricity would need to meet to qualify for the NPNS scope exception and thus be excluded from the scope of derivative accounting under ASC 815. In discussing Issue 15-C, the staff gave an overview of the various plan types and detailed the feedback it has received to date regarding the simplification of certain aspects of disclosing and measuring such plans.

The next EITF meeting is scheduled for March 19, 2015. For additional information, see the EITF section of the FASB’s Web site.

Intra-entity asset transfers

This proposal removes the requirement under which the income tax consequences of intra-entity asset transfers are deferred until the assets are ultimately sold to an outside party. The tax consequences of such transfers would be recognized in tax expense when the transfers occur. This treatment is consistent with IAS 12, Income Taxes. The Board acknowledged that the elimination of this exception in ASC 740 might not reduce the cost entities incur because they would need to track book-tax differences related to those assets. However, the Board believes that the change would better depict the economic effect (e.g., a cash tax payment) of those transfers and would lead to easier application of the general guidance in ASC 740.

The proposed ASU would require a modified retrospective transition, with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. Since the period of adoption would not be comparable to the prior periods presented, entities would need to disclose the nature of and reason for the accounting change and the quantitative effects of the accounting change on the financial statements for the period of adoption.

Balance sheet classification of deferred taxes

Under this proposal, all deferred taxes would be classified as noncurrent. Jurisdictional netting would still be required. The proposed ASU asks constituents who disagree with the proposed change to identify alternatives for presenting deferred taxes in a classified balance sheet and the conceptual basis for those alternatives. Entities would be required to apply the proposed amendments prospectively.

Effective date

For public business entities, the proposed ASUs would be effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption would not be permitted.  Entities other than public business entities would have a one-year deferral and would be permitted to early adopt the standard as long as such adoption is no sooner than the effective date for public business entities.

Next Steps

Comments on the two proposals are due by May 29, 2015. For more information about the proposed ASUs, see the FASB’s Web site.

Par­tic­i­pants discussed recent de­vel­op­ments regarding the use of IFRSs and U.S. GAAP and reiterated that they were committed to “con­ver­gence on high quality accounting standards and . . . to continue their efforts regarding con­sis­tency in the ap­pli­ca­tion of accounting standards in practice.”

The FRMD, which began in 2002, brings together rep­re­sen­ta­tives from the European Com­mis­sion (DG MARKT); the European Su­per­vi­sory Au­thor­i­ties (ESAs — European Banking Authority, European Insurance and Oc­cu­pa­tional Pensions Authority, European Se­cu­ri­ties and Markets Authority); and the U.S. Treasury and in­de­pen­dent reg­u­la­tory agencies, including the Board of Governors of the Federal Reserve System, the Commodity Futures Trading Com­mis­sion (CFTC), the Federal Deposit Insurance Cor­po­ra­tion (FDIC), and the Se­cu­ri­ties and Exchange Com­mis­sion (SEC).

The full joint statement is available on the EC’s Web site. The next FMRD meeting will take place in Brussels, Belgium, in July 2015.

After redeliberating its prior decisions on the cost and complexity of its proposed ASU on recognizing and measuring financial assets and financial liabilities, the Board directed the staff to draft a final ASU for vote by written ballot. Decisions that the FASB made at the meeting included the following:

• Disclosures about core deposit liabilities — In a reversal of its previous decision, the FASB voted to remove these proposed disclosure requirements.
• Transition — The FASB voted to reaffirm its tentative decision to require entities to apply a modified retrospective transition approach under which a cumulative-effect adjustment would be made to the statement of financial position as of the beginning of the first reporting period in which the guidance becomes effective.
• Disclosures about hybrid financial instruments — The FASB voted to issue a new exposure draft (ED) on the proposed disclosure requirements for a 45-day comment period. Under the ED, an entity would be required to disclose the carrying amount and measurement attribute, as well as the financial statement line item in which bifurcated embedded derivatives and related host contracts are presented.

The FASB will discuss the effective date of the final standard at a future meeting. For more information, see the meeting minutes on the FASB’s Web site. 

The FAF also announced that Ann Marie Petach has been reappointed to the board of trustees for a second three-year term and that Teri L. List-Stoll has resigned from the board as of December 31, 2014 (the vacancy is expected to be filled during 2015).

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

The proposed standards apply to the following industries:

• Agricultural products.
• Meat, poultry, and dairy.
• Processed foods.
• Nonalcoholic beverages.
• Alcoholic beverages.
• Tobacco.
• Household and personal products.

Comments on the proposed standards are due by April 14, 2015.

For more information, see the proposed standards on the SASB’s Web site.