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July

FASB issues ASU on employee benefit plans

Jul 31, 2015

Today, the FASB issued Accounting Standards Update (ASU) No. 2015-12, “(Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient” — consensuses of the Emerging Issues Task Force.

The ASU (1) requires a pension plan to use contract value as the only measure for fully benefit-responsive investment contracts, (2) simplifies and increases the effectiveness of the investment disclosure requirements for employee benefit plans, and (3) provides benefit plans with a measurement-date practical expedient similar to the practical expedient provided to employers in ASU 2015-04, Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.

For more information, see the ASU on the FASB’s Web site as well as Deloitte’s June 2015 EITF Snapshot.

Highlights from the FASB’s July 29 meeting

Jul 31, 2015

At its July 29, 2015, meeting, the FASB discussed its projects on (1) the conceptual framework, (2) the disclosure framework, (3) disclosures about hybrid financial instruments that contain bifurcated embedded derivatives, (4) revenue recognition, and (5) balance sheet classification of debt.

  • Conceptual framework: presentation and measurement— The FASB discussed how to describe certain measurement concepts and made tentative decisions regarding presentation, which included:
    • The definitions of revenues, expenses, gains, and losses would be retained.
    • The proposed chapter related to presentation in FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting, would acknowledge that (1) “existing standards require or permit classifying some items of comprehensive income in other comprehensive income and later reclassifying them into net income” and (2) “there is no conceptual basis for determining which items qualify for that treatment.”
    • The Board would "[c]larify that FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, does not preclude allocating cash receipts between categories in the cash flow statement based on estimates.”
    See the meeting minutes on the FASB's Web site for more information.
  • Disclosure framework: entity’s decision process — The FASB tentatively decided to add materiality guidance to chapter 3 of Concepts Statement 8 and FASB Accounting Standards Codification Topic 235, Notes to Financial Statements. In addition, the Board directed the staff to prepare a proposed Accounting Standards Update (ASU) and a proposed amendment to chapter 3 of Concepts Statement 8 for a vote by written ballot. See Deloitte's related journal entry and the meeting minutes on the FASB's Web site for more information.
  • Disclosures about hybrid financial instruments that contain bifurcated embedded derivatives — The FASB decided to remove this project from its technical agenda in response to comment-letter feedback indicating that the proposed amendments in the exposure draft would not significantly improve the transparency and decision-usefulness of information about hybrid financial instruments with bifurcated embedded derivatives. See the meeting minutes on the FASB's Web site for more information.
  • Revenue recognition: principal versus agent — The FASB tentatively agreed not to undertake any standard-setting activities related to whether an entity that is a principal in a revenue transaction should estimate gross revenue when it does not know the price the intermediary charged to the end customer. The Board directed the staff to prepare a proposed ASU for a vote by written ballot. See Deloitte’s related journal entry and the meeting minutes on the FASB's Web site for more information.
  • Simplifying the balance sheet classification of debt — The FASB made tentative decisions related to scope, subjective acceleration clauses, waivers of debt covenant violations, recurring disclosures, and transition. In addition, the Board directed the staff to prepare a proposed ASU for a vote by written ballot. See Deloitte’s related journal entry and the meeting minutes on the FASB's Web site for further details.

For more in­for­ma­tion, see the ten­ta­tive Board de­ci­sions on the FASB’s Web site.

IASB proposes clarifications to IFRS 15

Jul 30, 2015

The IASB has published an exposure draft (ED), “Clarifications to IFRS 15.” Comments on the ED are due by October 28, 2015.

Background

On May 28, 2014, the IASB issued IFRS 15, Revenue From Contracts With Customers, which is sub­stan­tially the same as the FASB’s counterpart standard, Accounting Standards Update (ASU) No. 2014-09. After issuing the new revenue standard, the IASB and FASB formed the joint revenue transition resource group (TRG) to support the im­ple­men­ta­tion of the new standard. The boards have resolved most of the issues discussed by the TRG without needing to perform additional stan­dard set­ting. However, the boards concluded that they needed to further consider five topics (iden­ti­fy­ing per­for­mance oblig­a­tions, principal-versus-agent con­sid­er­a­tions, licensing, col­lec­tibil­ity, and measuring noncash con­sid­er­a­tion). In addition, some stake­hold­ers asked for practical ex­pe­di­ents.

Suggested changes

The ED would make targeted amendments to three of the topics (iden­ti­fy­ing per­for­mance oblig­a­tions, principal-versus-agent con­sid­er­a­tions, and licensing) and would provide tran­si­tion relief for modified contracts and completed contracts. The IASB decided that it was not necessary to propose amendments related to col­lec­tibil­ity or measuring noncash con­sid­er­a­tion.

Iden­ti­fy­ing per­for­mance oblig­a­tions

IFRS 15 requires an entity to identify per­for­mance oblig­a­tions on the basis of distinct promised goods or services. To clarify the concept of “distinct,” the IASB is proposing amendments to the il­lus­tra­tive examples in IFRS 15.

Principal-versus-agent con­sid­er­a­tions

Under IFRS 15, when another party is involved in providing goods or services to a customer, an entity must determine whether it is the principal in the trans­ac­tion or the agent on the basis of whether it controls the goods or services before they are trans­ferred to the customer. To clarify how to assess control, the IASB is proposing to amend and extend the ap­pli­ca­tion guidance on this issue, to amend some of the existing examples, and to add two examples.

Licensing

When an entity grants a license to a customer that is distinct from other promised goods or services, the entity must determine whether the license is trans­ferred at a point in time or over time on the basis of whether the contract requires the entity to undertake ac­tiv­i­ties that sig­nif­i­cantly affect the in­tel­lec­tual property to which the customer has rights. To clarify when an entity’s ac­tiv­i­ties sig­nif­i­cantly affect the in­tel­lec­tual property, the IASB is proposing to amend and extend the ap­pli­ca­tion guidance, as well as some examples, related to this issue. In addition, the IASB is proposing to extend the guidance on applying the royalty con­straint.

Tran­si­tion relief

The IASB is proposing the addition of two transition-related practical ex­pe­di­ents to IFRS 15.

  • An entity may use hindsight in (1) iden­ti­fy­ing the satisfied and un­sat­is­fied per­for­mance oblig­a­tions in a contract that has been modified before the beginning of the earliest period presented and (2) de­ter­min­ing the trans­ac­tion price.
  • An entity electing to use the full ret­ro­spec­tive method does not have to apply IFRS 15 ret­ro­spec­tively to completed contracts at the beginning of the earliest period presented.

Request for feedback

In the ED, the IASB asks whether con­stituents agree that it does not need to amend IFRS 15’s provisions related to col­lec­tibil­ity, measuring noncash con­sid­er­a­tion, and a practical expedient for presenting sales taxes.

Al­ter­na­tive view

One Board member voted against the pub­li­ca­tion of the ED. This Board member supported all proposed clar­i­fi­ca­tions and the ad­di­tional tran­si­tion relief but disagreed with the proposal to require an entity to apply the amend­ments ret­ro­spec­tively.

FASB

The FASB has decided to propose more extensive amend­ments to its revenue standard. In May 2015, the FASB issued a proposed ASU on (1) iden­ti­fy­ing per­for­mance oblig­a­tions and (2) licensing. A second proposed ASU that would clarify the guidance on principal-versus-agent con­sid­er­a­tions, col­lec­tibil­ity, measuring noncash con­sid­er­a­tion, and practical ex­pe­di­ents related to tran­si­tion and the pre­sen­ta­tion of sales taxes is expected to be released later in 2015. The Basis for Con­clu­sions of the IASB’s ED discusses aspects of the guidance for which outcomes may differ as a result of the boards’ different decisions.

Next steps

The IASB expects to complete its re­de­lib­er­a­tions by the end of 2015. The ED does not include a proposed effective date, but the IASB’s objective is to finalize the proposed amend­ments in suf­fi­cient time to set an effective date that aligns with the revised effective date of IFRS 15.

Additional information

For more information, see the ED and press release on the IASB’s Web site as well as the IAS Plus project page on clar­i­fi­ca­tions to IFRS 15.

Highlights from the FASB’s July 24 meeting

Jul 28, 2015

At its July 24, 2015, meeting, the FASB discussed its projects on (1) long-duration insurance contracts, (2) financial performance reporting, and (3) disclosures by entities about government assistance.

  • Insurance: targeted improvements to the accounting for long-duration contracts — The FASB tentatively decided that insurance entities should use a retrospective approach with an unlocked net premium ratio when calculating and recording the effect of updating assumptions for traditional long-duration contracts and limited-payment contracts. See De­loitte's related journal entry and the meeting minutes on the FASB's Web site for more in­for­ma­tion.
  • Financial performance reporting — The FASB staff updated the Board on its research related to different ways an entity could use remeasurement concepts when determining earnings components to provide additional disaggregation of the performance statement. No tentative decisions were made; however, the Board has asked the staff to research other methods for distinguishing between different earnings components. See the meeting minutes on the FASB's Web site for more information.
  • Disclosures by business entities about government assistance — The FASB made tentative decisions about scope, disclosure requirements, materiality and level of aggregation, confidentiality, interim disclosures, private-company considerations, and transition. The Board directed the staff to prepare a proposed Accounting Standards Update for a vote by written ballot. See De­loitte's related journal entry and the meeting minutes on the FASB's Web site for more in­for­ma­tion.

 

Global financial reporting implications related to regions experiencing economic struggles

Jul 24, 2015

Economic conditions, particularly in Europe and Puerto Rico, continue to be volatile. A vote by Greece’s parliament on July 15 to accept new austerity measures, as well as other recent actions by eurozone leaders, may have allayed some fears and reduced the risk that Greece will exit from the eurozone (i.e., discontinue using the euro as the country’s currency). However, the situation remains uncertain for the time being. Outside the eurozone, Puerto Rico, a commonwealth of the United States, is also suffering from a combination of a large debt burden, weak economic growth, and population declines.

To help entities deal with the implications under U.S. GAAP and IFRSs with respect to the economic struggles in these regions, Deloitte has issued two publications:

FASB staff issues FAQ on proposal related to financial statements of not-for-profit entities

Jul 24, 2015

The FASB staff has issued an FAQ on issues that the Board may consider during future deliberations of its proposed Accounting Standards Update “Presentation of Financial Statements of Not-for-Profit Entities.”

The FAQ answers the following questions:

  • “Is the FASB proposing that the revised terminology be used verbatim or is there sufficient latitude to use other meaningful labels?”
  • “How would an NFP classify gifts received under ‘donor-advised’ gift arrangements if the NFP has a standing policy to set aside all such gifts for investment until such time as it receives the donor’s advice as to their use?”
  • “Must all depreciation expense be classified as an operating expense?”
  • “Are there cost-effective techniques that an NFP can use in developing operating cash inflows and outflows for presentation, as proposed, under the direct method?”
  • “Is FASB still seeking participants for one of its public roundtables and how do I register?”

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

FASB issues ASU to simplify the measurement of inventory

Jul 23, 2015

The FASB has issued Accounting Standards Update (ASU) No. 2015-11, “Simplifying the Measurement of Inventory,” as part of its simplification initiative. Under the ASU, inventory is measured at the “lower of cost and net realizable value,” which would eliminate the other two options that currently exist for “market”: (1) replacement cost and (2) net realizable value less an approximately normal profit margin.

The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement.

For public busi­ness en­ti­ties, the ASU is ef­fec­tive for interim and annual periods be­gin­ning after De­cem­ber 15, 2016. For all other en­ti­ties, the ASU is ef­fec­tive for annual periods be­gin­ning after De­cem­ber 15, 2016, and interim periods within annual periods be­gin­ning after De­cem­ber 15, 2017. Early ap­pli­ca­tion is per­mit­ted for all en­ti­ties. The ASU should be applied prospectively.

For more in­for­ma­tion, see De­loitte's related Heads Up newslet­ter as well as the ASU on the FASB’s Web site.

IASB votes to defer the effective date of IFRS 15

Jul 22, 2015

At today’s meeting, the IASB affirmed its proposal to defer the effective date of IFRS 15, “Revenue From Contracts With Customers,” to January 1, 2018. Earlier application of IFRS 15 would continue to be permitted.

Since some entities may wish to apply the targeted amendments to IFRS 15 at the same time as they first apply IFRS 15, the IASB had proposed the deferralso that the effective date of IFRS 15 can be the same as the effective date of those amendments. The IASB also ac­knowl­edges that IFRS 15 was issued later than had been intended, so im­ple­men­ta­tion time was shorter than expected. In September, the IASB is expected to issue a formal amendment to IFRS 15 specifying the new effective date.

Earlier this month, the FASB affirmed its proposal to defer for one year the effective date of its counterpart revenue standard Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers.

For more information, see the press release on the IASB's Web site.

Summary of the July 2015 PCC meeting

Jul 22, 2015

At its meeting yesterday, the Private Company Council (PCC) discussed the effective dates of PCC alternatives; feedback from its July 14, 2015, town hall meeting on leases and simplifying the balance sheet classification of debt; the EITF’s project on cash flow statements; and the FASB’s project on business entities’ disclosures about government assistance.

Topics discussed at the meeting included the following:

  • A proposal that would give private companies “an unconditional one-time option to elect a PCC alternative without having to conduct an initial assessment to determine whether an alternative is preferable.”
  • An indefinite extension of the transition guidance for goodwill and interest rate swaps.
  • The PCC’s request that the FASB staff conduct research related to potentially (1) clarifying the application of the guidance on variable interest entities through illustrative examples and (2) reducing the guidance’s applicability to private companies by expanding the business scope exceptions.

The next PCC meeting is sched­uled for September 25, 2015.

For more in­for­ma­tion, see the media recap on the FASB’s Web site.

TRG discusses implementation of new revenue standard

Jul 16, 2015

At its July 13, 2015, meeting, the FASB’s and IASB’s joint revenue transition resource group (TRG) discussed potential issues related to implementing the boards’ new revenue standard.

Topics discussed at the meeting included:

  • Consideration payable to a customer.
  • Credit cards.
  • The portfolio practical expedient and application of the variable consideration constraint.
  • Completed contracts at transition.
  • Application of the series provision and allocation of variable consideration.
  • The practical expedient for measuring progress toward complete satisfaction of a performance obligation.
  • Measuring progress when multiple goods or services are included in a single performance obligation.
  • Determining when control of a commodity is transferred.
  • Accounting for restocking fees and related costs.

For more information, see Deloitte’s TRG Snapshot.

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