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FASB proposes guidance on certain cash flow classification issues

Jan 29, 2016

The FASB has issued a proposed Accounting Standards Update (ASU), “Classification of Certain Cash Receipts and Cash Payments,” in response to the EITF consensus-for-exposure on Issue 15-F.

Specifically, the proposal addresses eight cash flow classification issues that have been creating diversity in practice:

  1. Debt prepayment or debt extinguishment costs.
  2. Settlement of zero-coupon bonds.
  3. Contingent consideration payments made after a business combination.
  4. Proceeds from the settlement of insurance claims.
  5. Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies.
  6. Distributions received from equity method investees.
  7. Beneficial interests in securitization transactions.
  8. Separately identifiable cash flows and application of the predominance principle.

Com­ments on the pro­posal are due by March 29, 2016. For more in­for­ma­tion, see De­loitte’s Heads Up and November 2015 EITF Snapshot as well as the pro­posed ASU on the FASB’s Web site.

IASB publishes amendments to IAS 7

Jan 29, 2016

The IASB has published amendments to IAS 7, “Statement of Cash Flows,” as part of its disclosure initiative (i.e., projects to improve the effectiveness of financial reporting disclosures). The objective of the amendments is to clarify IAS 7 to improve information provided to financial statement users about an entity’s financing activities.

The amendments require that an entity disclose, as necessary, the following changes in
li­a­bil­i­ties arising from financing ac­tiv­i­ties:

(a)   changes from financing cash flows;
(b)   changes arising from obtaining or losing control of sub­sidiaries or other busi­nesses;
(c)   the effect of changes in foreign exchange rates;
(d)   changes in fair values; and
(e)   other changes.

The IASB defines li­a­bil­i­ties arising from financing ac­tiv­i­ties as li­a­bil­i­ties “for which cash flows were, or future cash flows will be, clas­si­fied in the statement of cash flows as cash flows from financing ac­tiv­i­ties.” The amendments indicate that the new dis­clo­sure re­quire­ments also apply to changes in financial assets that meet this de­f­i­n­i­tion. The amend­ments state that one way to meet the new dis­clo­sure re­quire­ments is to provide “a rec­on­cil­i­a­tion between the opening and closing balances in the statement of financial position for li­a­bil­i­ties arising from financing ac­tiv­i­ties.”

The amend­ments are effective for annual periods beginning on or after January 1, 2017. Earlier ap­pli­ca­tion is permitted. Because the amend­ments are being issued less than one year before the effective date, entities need not provide com­par­a­tive in­for­ma­tion when they first apply the amend­ments.

FASB issues proposed ASUs on pensions and other postretirement benefit plans

Jan 26, 2016

The FASB has issued two proposed ASUs: (1) “Changes to the Disclosure Requirements for Defined Benefit Plans” and (2) “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.”

Changes to the disclosure requirements for defined benefit plans

This proposal would “modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans” and disaggregate these disclosures between domestic and foreign plans.

Improving the presentation of net periodic pension cost and net periodic postretirement benefit cost

Under this proposal, an employer would be required to report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The proposal also allows only the service cost component to be eligible for capitalization when applicable.

Next steps

Comments on both proposals are due by April 25, 2016. For more information about the proposed ASUs, see Deloitte's related Heads Up newsletter as well as the press release, FASB in Focus newsletter, and informational document on the FASB’s Web site.


SEC staff updates interactive data (XBRL) interpretations and FAQs

Jan 26, 2016

The SEC staff has updated its "Staff Interpretations and FAQs Related to Interactive Data Disclosure" to add Question E.27, which describes the conditions for determining when a calculation relationship is required.

In XBRL, calculation relationships "provide key information that shows the relationships among elements and their corresponding numeric facts, and how they add and subtract to each other." The guidance indicates that the SEC's EDGAR Filer Manual (Volume 2) sets out the specific calculation relationship requirements and provides examples and exceptions.

For more information, see the Staff Interpretations and FAQs Related to Interactive Data Disclosure page on the SEC’s Web site.

Highlights from the FASB’s January 20 meeting

Jan 22, 2016

At its January 20, 2016, meeting, the FASB discussed (1) technical corrections and improvements and (2) financial performance reporting.

Technical corrections and improvements

The FASB discussed a staff analysis of potential technical corrections, clarifications, and improvements to the FASB Accounting Standards Codification and tentatively decided to propose such changes related to insurance, troubled debt restructurings, fair value measurement, profit recognition, sales of financial assets, cloud-computing arrangements, and transition guidance. The Board directed its staff to begin drafting a proposed ASU for a vote by written ballot.

In addition, the Board tentatively decided to propose technical corrections and improvements related to revenue (see Deloitte's related journal entry) and consolidations (see Deloitte's related journal entry) and directed its staff to begin drafting two separate proposed ASUs for written ballot.

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

Financial performance reporting

The FASB discussed staff research on possible ways of reporting income statement information by function, by nature, or both, and directed its staff to “evaluate and clarify” the project’s objective. No decisions were made.

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

IFRS Foundation publishes proposed IFRS taxonomy update for IFRS 16, “Leases”

Jan 21, 2016

The IFRS Foundation has published a proposed IFRS taxonomy update, “IFRS Taxonomy 2015 — IFRS 16 ‘Leases.’”

This proposed update includes taxonomy concepts that reflect the new guidance in IFRS 16, Leases, as well as amended ref­er­ences related to the deferral of the effective date of IFRS 15, Revenue From Contracts With Customers.

Comments on the proposed taxonomy update are due by March 21, 2016.

For more in­for­ma­tion, see the press release and proposed taxonomy update on the IASB’s Web site.

IASB publishes amendments related to the recognition of deferred tax assets for unrealized losses

Jan 19, 2016

The IASB has published final amendments, “Recognition of Deferred Tax Assets for Unrealised Losses,” to the guidance in IAS 12, “Income Taxes.”

The amendments clarify the following:
  • 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 profit.”
  • Es­ti­mates of future taxable profit 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. When tax law re­stricts the uti­liza­tion of tax losses, an entity assesses a de­ferred tax asset in com­bi­na­tion with other de­ferred tax assets of the same type.

The amendments are effective for annual periods beginning on or after January 1, 2017; earlier application is permitted. As transition relief, an entity may recognize the change in the opening equity for the earliest comparative period in opening retained earnings on initial application without allocating the change between opening retained earnings and other components of equity. The Board has not added additional transition relief for first-time adopters.

For more information, see Deloitte's IFRS in Focus newsletter, as well as the press release and amendments on the IASB's Web site.

SEC adopts rules implementing FAST Act provisions

Jan 14, 2016

The SEC has issued interim final rules that implement provisions mandated by the Fixing America’s Surface Transportation (FAST) Act, passed by Congress in December 2015. The interim final rules revise financial reporting forms for emerging growth companies (EGCs) and smaller reporting companies.

The rules revise Forms S-1 and F-1 to permit an EGC to omit financial information from registration statements filed before an IPO (or confidentially submitted to the SEC for review) for historical periods required by Regulation S-X if the EGC reasonably believes that it will not be required to include these historical periods at the time of the contemplated offering. In addition, the rules revise Form S-1 to allow smaller reporting companies (entities that, as of the last business day of their second fiscal quarter, have a public float of less than $75 million) to automatically update information in a Form S-1 resale prospectus by incorporating by reference any documents filed with the SEC after the Form S-1 registration statement becomes effective.

The interim final rules will become effective on the date of their publication in the Federal Register.

For more information, see Deloitte’s journal entry on the FAST Act legislation as well as the press release and interim final rules on the SEC’s Web site.

CAQ publishes report on audit quality indicators

Jan 14, 2016

The Center for Audit Quality (CAQ) has issued “Audit Quality Indicators: The Journey and Path Ahead,” a report in which it shares insights on the potential use of a set of audit quality indicators to assess audit quality.

The information in the report is based on outreach to audit committees in a series of roundtables as well as pilot testing of the CAQ’s publication CAQ Approach to Audit Quality Indicators.

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

IASB issues new leasing standard

Jan 13, 2016

The IASB has issued IFRS 16, “Leases,” which brings most leases on the balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. For lessors, however, the accounting remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17, “Leases,” and related interpretations.

Under IFRS 16, a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is treated similarly to other nonfi­nan­cial assets and de­pre­ci­ated ac­cord­ingly, and the liability accrues interest. The lease liability is initially measured at the present value of the lease payments payable over the lease term, dis­counted at the rate implicit in the lease if this rate can be readily de­ter­mined. If the rate cannot be readily de­ter­mined, the lessee’s in­cre­men­tal borrowing rate should be used.

Like IAS 17, IFRS 16 requires lessors to classify leases as operating or finance leases. A lease is clas­si­fied as a finance lease if it transfers sub­stan­tially all the risks and rewards of ownership of an un­der­ly­ing asset. Otherwise, the lease is clas­si­fied as an operating lease.

For finance leases, a lessor recognizes finance income over the lease term on the basis of a pattern re­flect­ing a constant periodic rate of return on the net in­vest­ment. A lessor recognizes operating lease payments as income on a straight-line basis or, if more rep­re­sen­ta­tive of the pattern in which benefit from use of the un­der­ly­ing asset is di­min­ished, another sys­tem­atic basis.

IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019. Earlier ap­pli­ca­tion is permitted if IFRS 15, Revenue From Contracts With Customers, has also been applied.

Editor's Note: The FASB is currently finalizing its new leases standard and is expected to issue it in February 2016. We expect the FASB’s new standard on lease accounting will be effective for public business entities for annual periods beginning after December 15, 2018 (i.e., calendar periods beginning on January 1, 2019), and interim periods therein. For all other entities, the standard would be effective for annual periods beginning after December 15, 2019 (i.e., calendar periods beginning on January 1, 2020), and interim periods thereafter. Early adoption would be permitted for all entities.

IFRS 16, Leases, is available on the IASB's eIFRS Web site (subscription required). For more information, see the press release, project summary, effects analysis, and fact sheet on the IASB’s Web site. Also see the following Deloitte resources:

Correction list for hyphenation

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