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Accounting Roundup — April 2015

Published on: May 04, 2015

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Welcome to Accounting Roundup. April was a busy month for the FASB. In addition to issuing a proposed ASU on not-for-profit entities financial statements and three ASUs as part of its simplification initiative (on cloud computing, retirement benefit plans, and debt issuance costs), the FASB issued two ASUs and three proposed ASUs in response to consensuses and consensuses-for-exposure, respectively, reached at the EITFs March 19, 2015, meeting. Further, the Board issued a proposed ASU that would defer the effective date of its new revenue standard (ASU 2014-09), released jointly with the IASB, by one year. To align its guidance with the FASBs, the IASB has tentatively decided that the effective date of its counterpart standard, IFRS 15, will also be deferred by a year.

Be sure to monitor upcoming issues of Accounting Roundup for new developments. We value your feedback and would appreciate any comments you may have on this publication. Take a moment to tell us what you think by sending us an e-mail at accountingstandards@deloitte.com.

Accounting — New Standards and Exposure Drafts

EITF-Related Activity

FASB Issues ASUs and Proposed ASUs in Response to EITF Consensuses and Consensuses-for-Exposure

Affects: All entities.

Summary: In April 2015, the FASB issued two ASUs and three proposed ASUs in response to EITF consensuses and consensuses-for-exposure, respectively, reached at the Task Force’s March 19, 2015, meeting:

      • ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (Issue 14-B) — This ASU removes, from the fair value hierarchy, investments for which the practical expedient (as discussed in ASC 820-10-35-59 through 35-62) is used to measure fair value at NAV. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. Further, entities must provide the disclosures in ASC 820-10-50-6A only for investments for which they elect to use the NAV practical expedient to determine fair value. For public companies, this ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The effective date will be deferred by one year for private companies. Early adoption is permitted. The ASU should be applied retrospectively to all periods presented.
      • ASU 2015-06, Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions (Issue 14-A) — Under this ASU, “the earnings (losses) of the transferred net assets before the date of the dropdown transaction should be allocated entirely to the general partner.” Further, an MLP must disclose “how the rights to the earnings (losses) of the transferred net assets differ before and after the dropdown transaction occurs for purposes of computing earnings per unit.” This ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early adoption is permitted. The ASU should be applied retrospectively to all financial statements presented.
      • Proposed ASU, Recognition of Breakage for Certain Prepaid Stored-Value Cards (Issue 15-B) — Under this proposal, a prepaid stored-value card is a financial liability since the card issuer is required to settle its obligation to the cardholder by a cash payment to either the cardholder or a third party. The proposal’s scope includes cards (1) that are redeemable for goods and services provided by a third party or that contain a cash redemption option and (2) that are not subject to escheatment laws. Further, the proposal amends ASC 405-20 such that if an entity has a prepaid stored-value card within its scope, the entity applies the breakage guidance in ASC 606. The breakage disclosure requirements are consistent with the requirements in ASC 606. Comments on this proposal are due by June 29, 2015.
      • Proposed ASU, Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts Within Nodal Energy Markets (Issue 15-A) — This proposal specifies that a forward purchase or sale of electricity in which electricity must be physically delivered through a nodal energy market operated by an independent system operator, and in which an entity incurs transmission costs on the basis of locational marginal pricing charges, would meet the physical-delivery requirement under the NPNS scope exception. Comments on this proposal are due by May 18, 2015.
      • Proposed ASUs, (I) Fully Benefit-Responsive Investment Contracts, (II) Plan Investment Disclosures, and (III) Measurement Date Practical Expedient (Issue 15-C) — The provisions of these proposals include the following:
        • Fully benefit-responsive investment contracts would be measured at contract value and the requirement to reconcile contract value to fair value (if different) would be removed.
        • Plan assets would be disclosed by general type in a manner consistent with current plan accounting and would not need to be disaggregated in accordance with ASC 820. Participant self-directed brokerage accounts would be disclosed as one general type. Further, plan assets would be disclosed by general type on either the face of the financial statements or in the footnotes.
        • Entities would be required to provide ASC 820 disclosures on the basis of the general type of plan assets. However, entities that file Form 5500 as direct filing entities would not be required to disclose the investment strategies for investments measured at NAV. Plan assets that account for 5 percent or more of net assets would not be listed individually.
        • The requirement to provide plan asset disclosures about net appreciation or depreciation would be removed. However, entities would be required to provide the ASC 820 rollforward disclosure about realized and unrealized gains and losses as well as sales, purchases, and transfers of Level 3 investments during the reporting period.
        • An employee benefit plan could use an alternative measurement date consisting of the closest month-end date to its fiscal year-end. However, contributions, distributions, and other significant events between the alternative measurement date and the fiscal year-end would be disclosed rather than adjusted for within the financial statements.

Comments on these proposals are due by May 18, 2015.

Other Resources: Deloitte’s March 2015 EITF Snapshot.

Not-for-Profit Entities

FASB Issues Proposed ASU to Improve Not-for-Profit Financial Statements

Affects: All entities.

Summary: On April 29, 2015, the FASB issued a proposed ASU that would change “the current net asset classification requirements and the information presented in financial statements and notes about a not-for-profit entity’s liquidity, financial performance, and cash flows.” The proposed ASU addresses (1) the complexity and understandability of net asset classifications, (2) inconsistent reporting of intermediate measures of operations in the statement of activities, (3) lack of consistency in the type of information provided about expenses for a period, and (4) inconsistencies in the reporting of operating information in the statement of activities and operating cash flows statement.

Next Steps: Comments on the proposed ASU are due by August 20, 2015.

Other Resources: For more information, see the press release and FASB in Focus newsletter on the FASB’s Web site.

Revenue Recognition

FASB Issues Proposed ASU to Defer the Effective Date of the New Revenue Standard

Affects: All entities.

Summary: On April 29, 2015, the FASB issued a proposed ASU that would defer for one year the effective date of the new revenue standard (ASU 2014-09) for public and nonpublic entities reporting under U.S. GAAP. For public business entities, as well as certain nonprofit entities and employee benefit plans, the effective date under the proposal would be annual reporting periods, and interim periods therein, beginning after December 15, 2017. The effective date for all other entities would be one year later than this (i.e., December 15, 2018). Early adoption would be permitted as of the original effective date in ASU 2014-09 (i.e., annual reporting periods beginning after December 15, 2016, including interim reporting periods within the annual periods).

Next Steps: Comments on the proposed ASU are due by May 29, 2015.

Other Resources: Deloitte’s April 29, 2015, Heads Up. Also see the press release on the FASB’s Web site.

Simplification Initiative

FASB Issues ASU on Customers’ Accounting for Cloud Computing Costs

Affects: All entities.

Summary: On April 15, 2015, the FASB issued ASU 2015-05, which provides guidance on a customer’s accounting for cloud computing costs. The ASU, which is part of the Board’s simplification initiative (i.e., an attempt to reduce the costs and complexity of certain aspects of U.S. GAAP), is being issued in response to feedback indicating that the lack of specific guidance on accounting for cloud computing fees had “resulted in some diversity in practice as well as unnecessary costs and complexity for some stakeholders.”

Under the ASU, a customer must determine whether a cloud computing arrangement contains a software license. If so, the customer would account for the fees related to the software license element in a manner consistent with how the acquisition of other software licenses is accounted for under ASC 350-40. If the arrangement does not contain a software license, the customer would account for the arrangement as a service contract. The ASU does not prescribe how to account for cloud computing arrangements deemed to be service contracts.

An arrangement would contain a software license element if both of the following criteria are met:

      • “The customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty” (emphasis added).
      • “It is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software.”

Next Steps: For public business entities, the ASU is effective for annual periods (and interim periods therein) beginning after December 15, 2015; for all other entities, the ASU is effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning after December 15, 2016. Early adoption is permitted. Entities may adopt the guidance (1) retrospectively or (2) prospectively to arrangements entered into, or materially modified, after the effective date.

Other Resources: Deloitte’s April 17, 2015, Heads Up.

FASB Permits Use of Practical Expedient for Retirement Benefit Plan Measurement

Affects: All entities.

Summary: On April 15, 2015, the FASB issued ASU 2015-04, which gives an employer whose fiscal year-end does not coincide with a calendar month-end (e.g., an entity that has a 52- or 53-week fiscal year) the ability, as a practical expedient, to measure defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end. If elected, the practical expedient would be an accounting policy that the employer would need to apply consistently to all plans. The employer would also be required to disclose the policy election as well as the resulting alternative measurement date used for its year-end measurement of retirement benefit obligations and plan assets.

The ASU also provides guidance on accounting for (1) contributions to the plan and (2) significant events for which remeasurement is required (e.g., a plan amendment, settlement, or curtailment) and that occur during the period between a month-end measurement date and the employer’s fiscal year-end. An entity should reflect the effects of those contributions or significant events in the measurement of the retirement benefit obligations and related plan assets.

Next Steps: For public business entities, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, and the ASU should be applied prospectively.

Other Resources: Deloitte’s April 17, 2015, Heads Up.

FASB Simplifies Guidance on Debt Issuance Costs

Affects: All entities.

Summary: On April 7, 2015, the FASB issued ASU 2015-03 as part of its simplification initiative. The ASU changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense.

The requirement to present debt issuance costs as a direct reduction of the related debt liability (rather than as an asset) is consistent with the presentation of debt discounts under U.S. GAAP. In addition, it converges the guidance in U.S. GAAP with that in IFRSs, under which transaction costs that are directly attributable to the issuance of a financial liability are treated as an adjustment to the initial carrying amount of the liability.

Next Steps: For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. For entities other than public business entities, the guidance is effective for fiscal years beginning after December 15, 2015, and interim periods beginning after December 15, 2016. Early adoption is allowed for all entities for financial statements that have not been previously issued. Entities should apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period should be adjusted).

Other Resources: Deloitte’s April 7, 2015, Heads Up.

Accounting — Other Key Developments

FAF

FAF, FASB, and GASB Release Strategic Plan

Affects: All entities.

Summary: In April 2015, the FAF announced that the FAF, FASB, and GASB have published their strategic plan, which outlines the three organizations’ long-term vision and goals.

The plan describes the agencies’ roles and details the top four priorities related to carrying out their collective mission:

      • “Practicing and promoting continued excellence in standard setting
      • Demonstrating a commitment to leadership in standard setting
      • Building and maintaining trust with stakeholders
      • Promoting public discourse on current and future financial reporting issues.”

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

International

IASB Tentatively Decides to Defer Effective Date of New Revenue Standard

Affects: Entities reporting under IFRSs.

Summary: On April 28, 2015, the IASB tentatively decided to defer the effective date of its new revenue standard, IFRS 15, to January 1, 2018. This decision aligns IFRS 15’s anticipated effective date with that of the FASB’s counterpart standard, ASU 2014-09, which the FASB tentatively decided to defer by one year at its April 1, 2015, meeting.

The IASB staff will prepare a stand-alone ED on the deferral. The ED will have a comment period of 30 days and is expected to be issued in May 2015.

Other Resources: For more information, see Deloitte’s IFRS in Focus newsletter as well as the press release on the IASB’s Web site.

ITG Discusses Implementation of Impairment Requirements in IFRS 9

Affects: Entities reporting under IFRSs.

Summary: On April 22, 2015, the IFRS Transition Resource Group for Impairment of Financial Instruments (ITG) held its first meeting. The IASB established the ITG to address implementation issues related to the new impairment requirements in IFRS 9.

Topics discussed at the meeting included:

      • Forecasts of future economic conditions.
      • Loan commitments — scope.
      • Expected credit losses — measurement date.
      • Assessment of significant increases in credit risk for guaranteed debt instruments.
      • The maximum period for an entity to consider when measuring expected credit losses.
      • Revolving credit facilities.
      • Measurement of expected credit losses for an issued financial guarantee contract.
      • Measurement of expected credit losses related to a modified financial asset.

Other Resources: For more information about the topics discussed at the meeting, see Deloitte’s April 24, 2015, IFRS in Focus newsletter.

IASB Chairman Outlines New Mission Statement for the IASB and IFRS Foundation

Affects: Entities reporting under IFRSs.

Summary: On April 15, 2015, IASB Chairman Hans Hoogervorst gave a speech at an IFRS Foundation trustees stakeholder event in Toronto, Canada. Among other things, Mr. Hoogervorst discussed the IASB’s and IFRS Foundation’s new mission statement. He pointed out that this statement stresses the importance of the transparency of financial information, accountability in capital markets, and economic efficiency. Furthermore, he noted that the work of the two organizations “serves the public interest by fostering trust, growth and long-term financial stability in the global economy.”

Other Resources: For more information, see the press release on the IASB’s Web site.

IFRS Foundation Releases Guide on Global Use of IFRSs

Affects: Entities reporting under IFRSs.

Summary: On April 15, 2015, the IFRS Foundation released the 2015 version of its publication IFRSs as Global Standards: A Pocket Guide. The guide’s primary purpose is to summarize the extent of IFRS adoption in 138 countries.

Next Steps: The tentative decisions will be exposed in an upcoming proposed ASU for a 30-day comment period.

Other Resources: For more information, see the press release on the IASB’s Web site.

AICPA

AICPA Proposes Revised Definition of the Term “Affiliate”

Affects: Auditors.

Summary: On April 16, 2015, the PEEC of the AICPA issued an ED that would revise the definition of the term “affiliate” in its Code of Professional Conduct. The ED is being released in response to feedback indicating that it may not be appropriate to include both multiemployer and multiple-employer benefit plans in the definition of “affiliates of participating employers that sponsor these plans.” The PEEC concludes that although “multiple employer plans should be considered affiliates of the participating employer that sponsors the plan, . . . the same should [not] apply for multiemployer plans.”

Next Steps: Comments on the ED are due by May 18, 2015.

International

IESBA Enhances Auditor Independence Provisions of Code of Ethics for Professional Accountants

Affects: Auditors.

Summary: On April 14, 2015, the IESBA issued a final pronouncement that amends its Code of Ethics for Professional Accountants to no longer permit auditors to “provide certain prohibited non-assurance services to public interest entity . . . audit clients in emergency situations [and ensure] that they do not assume management responsibility when providing non-assurance services to audit clients.” Speaking about how the amendments would improve the code, IESBA Chairman Dr. Stavros Thomadakis noted, “These enhancements will not only further reinforce independence but also promote greater consistency of application of the Code’s provisions in the 100-plus jurisdictions around the world where the Code is currently in use.”

Next Steps: The amendments will become effective on April 15, 2016. Early adoption is permitted.

Other Resources: For more information, see the press release on IFAC’s Web site.

IAASB Releases Publication on Key Audit Matters

Affects: Auditors.

Summary: On April 22, 2015, the IAASB released a publication that provides auditors with nonauthoritative guidance on how they should apply the concept of key audit matters (KAM) to comply with the requirements of ISA 701. Topics covered in this publication include:

      • Language that must be included in the auditor’s report when KAM are communicated.
      • Factors that may affect the number of KAM to communicate in the auditor’s report.
      • Elements that must be included in the description of KAM.
      • Order in which an auditor should present the items in the KAM section.

IAASB Revises Standard on Auditor’s Responsibilities Related to Other Information

Affects: Auditors.

Summary: On April 8, 2015, the IAASB issued a revised version of ISA 720, which provides guidance on an auditor’s responsibilities related to “other information.” The standard defines other information as “financial and non-financial information, other than the audited financial statements, that is included in entities’ annual reports.” The purpose of the revisions is to “clarify and increase the auditor’s involvement with” such information.

Next Steps: The revised standard is effective for financial statement audits for periods ending on or after December 15, 2016.

Other Resources: For more information, see the press release and at-a-glance document on IFAC’s Web site.

Leadership Changes

GASB: On April 2, 2015, the FAF board of trustees announced that it has appointed Brian W. Caputo to the GASB for a four-year term that begins on July 1, 2015; ends on June 30, 2019; and is renewable for an additional five years.

SEC: On April 9, 2015, the SEC announced that it has appointed Marc Wyatt as acting director of the OCIE to replace Andrew Bowden, who left the Commission at the end of April.

Deloitte Publications

Publication Title Affects
April 29, 2015, Heads Up FASB Proposes to Defer the New Revenue Standard for One Year All entities.
April 17, 2015, Heads Up FASB Permits Use of Practical Expedient for Retirement Benefit Plan Measurement All entities.
April 17, 2015, Heads Up FASB Issues ASU on Customers’ Accounting for Cloud Computing Costs All entities.
April 16, 2015, Financial Reporting Alert Foreign Currency Exchange Accounting Implications of Recent Government Actions in Venezuela All entities.
April 7, 2015, Heads Up FASB Simplifies Guidance on Presentation of Debt Issuance Costs All entities.
April 2015 Roadmap A Roadmap to Accounting for Share-Based Payment Awards All entities.

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Appendix A: Current Status of FASB Projects

Please see Appendix A in the attached PDF.

Appendix B: Significant Adoption Dates and Deadlines

Please see Appendix B in the attached PDF.

Appendix C: Glossary of Standards and Other Literature

Please see Appendix C in the attached PDF.

Appendix D: Abbreviations

Please see Appendix D in the attached PDF.

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