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Accounting Roundup — May 2015

Published on: Jun 02, 2015

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Welcome to Accounting Roundup. Standard-setting and regulatory activities that took place in May included the FASB’s issuance of two ASUs — one on disclosures about short-duration insurance contracts and one on pushdown accounting. The Board also issued two proposed ASUs. One is part of the Board’s simplification initiative and would amend the accounting for measurement-period adjustments. The other would amend the guidance on identifying performance obligations and the implementation guidance on licensing in the Board’s 2014 revenue standard. In addition, the IASB issued a proposal to defer the effective date of IFRS 15 by one year, and the SEC issued two proposed rules on reporting and disclosure requirements for investment companies and investment advisers.

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

Business Combinations

FASB Proposes ASU to Simplify the Accounting for Measurement-Period Adjustments

Affects: All entities.

Summary: On May 21, 2015, the FASB issued a proposed ASU on simplifying measurement-period adjustments as part of its simplification initiative (i.e., the Board’s effort to reduce the cost and complexity of certain aspects of U.S. GAAP). Under the proposal, during the measurement period, the acquirer in a business combination is no longer required to retrospectively adjust the provisional amounts recognized as of the acquisition date. Instead, the acquirer would need to “record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.“

Next Steps: Comments on the proposed ASU are due by July 6, 2015.

Insurance Contracts

FASB Issues ASU on Disclosures About Short-Duration Insurance Contracts

Affects: All entities.

Summary: On May 21, 2015, the FASB issued ASU 2015-09, which amends ASC 944 to expand the disclosures that an insurance entity must provide about its short-duration insurance contracts. Under the ASU, insurance entities with short-duration insurance contracts must annually provide the following disclosures:

  • “Incurred and paid claims [and allocated claim adjustment expenses (CAEs)] development information by accident year, on a net basis after risk mitigation through reinsurance, for the number of years for which claims incurred typically remain outstanding (that need not exceed 10 years, including the most recent reporting period presented in the statement of financial position). Each period presented in the disclosure about claims development that precedes the current reporting period is considered to be supplementary information.“ For the most recent reporting period presented, an insurer also must disclose the total net outstanding claims for all accident years before those presented in the claims development tables (i.e., collectively, for those accident years not separately presented in the development tables).
  • A reconciliation of the claims development disclosures “to the aggregate carrying amount of the liability for unpaid claims and [CAEs] for the most recent reporting period presented, with separate disclosure of reinsurance recoverable on unpaid claims.“
  • For each accident year presented in the claims development table, information about (1) claim frequency (unless impracticable) and (2) the amounts of incurred-but-not-reported (IBNR) liabilities plus the expected development on reported claims.
  • A description of, and any significant changes to, the methods for determining (1) both IBNR and expected development on reported claims and (2) cumulative claim frequency.
  • For all claims except health insurance claims, the historical average annual percentage payout of incurred claims by age, net of reinsurance, for accident years presented in the claims development tables.
  • Information about any significant changes in methods and assumptions used in the computation of the liability for unpaid claims and CAEs, including reasons for the changes and the impact of the changes on the most recent reporting period in the financial statements.
  • The carrying amounts of liabilities for unpaid claims and CAEs that are presented at present value and the effects of the discounting, including (1) the aggregate discount deducted from the liabilities, (2) the amount of interest accretion recognized during each period, and (3) the line item(s) in the statement of comprehensive income in which the interest accretion is classified.

In addition, insurance entities must disclose the following in both interim and annual periods:

  • The rollforward of the liability for unpaid claims and CAEs.
  • Total IBNR liabilities, plus expected development on reported claims, included in the liability for unpaid claims and CAEs for health insurance claims, either as a separate disclosure or as a component of the disclosure of the rollforward of the liability, at an appropriate level of disaggregation.

Next Steps: The ASU is effective for public business entities for annual periods beginning after December 15, 2015, and interim periods within annual reporting periods beginning after December 15, 2016. The effective date is deferred by one year for all other entities. Early application is permitted.

Other Resources: For more information, see the press release, FASB in Focus newsletter, and “Understanding Costs and Benefits“ document on the FASB’s Web site. See also Deloitte’s May 2015 Insurance Spotlight.

Pushdown Accounting

FASB Issues ASU to Conform Guidance on Pushdown Accounting to SAB 115

Affects: All entities.

Summary: On May 11, 2015, the FASB issued ASU 2015-08, which removes references to the SEC’s SAB Topic 5.J on pushdown accounting from ASC 805-50. The Commission’s SAB 115 had superseded the guidance in SAB Topic 5.J in connection with the FASB’s November 2014 release of ASU 2014-17. The amendments in ASU 2015-08 therefore conform the FASB’s guidance on pushdown accounting with the SEC’s.

Revenue Recognition

FASB Issues Proposed Revenue ASU on Licensing and Identifying Performance Obligations

Affects: All entities.

Summary: On May 12, 2015, the FASB issued a proposed ASU that would amend certain aspects of the Board’s May 2014 revenue standard (ASU 2014-09), specifically the guidance on identifying performance obligations and the implementation guidance on licensing. The amendments are being made in response to feedback received by the FASB–IASB joint revenue recognition transition resource group, which was formed to address potential issues associated with the implementation of ASU 2014-09.

The proposed amendments include the following:

  • Identifying performance obligations:
    • Immaterial promised goods or services — Entities may disregard goods or services promised to a customer that are immaterial in the context of the contract.
    • Shipping and handling activities — A practical expedient would be added to allow shipping or handling activities occurring after control has passed to the customer to be treated as a fulfillment cost rather than as a revenue element (i.e., a promised service in the contract).
    • Identifying when promises represent performance obligations — The proposal would refine the separation criteria for assessing whether promised goods and services are distinct, specifically the “separately identifiable“ principle (the “distinct in the context of the contract“ criterion).
  • Licensing implementation guidance:
    • Determining the nature of an entity’s promise in granting a license — Intellectual property (IP) would be classified as either functional or symbolic, and such classification would generally dictate whether, for a license granted to that IP, revenue must be recognized at a point in time or over time, respectively.
    • Sales-based and usage-based royalties — The sales-based and usage-based royalty exception would apply whenever the royalty is predominantly related to a license of IP. The proposed ASU therefore indicates that “[a]n entity would not split a sales-based or usage-based royalty into a portion subject to the guidance on sales-based and usage-based royalties and a portion that is not subject to that guidance.“

Next Steps: Comments on the proposed ASU are due by June 30, 2015.

Other Resources: Deloitte’s May 13, 2015, Heads Up.

International

IASB Amends IFRS for SMEs

Affects: Entities reporting under IFRSs.

Summary: On May 21, 2015, the IASB published amendments to its IFRS for SMEs. The amendments are the result of the first comprehensive review of that standard, which was originally issued in 2009. Most of the changes are minor clarifications and do not affect the accounting for transactions and events. The following are three of the more significant amendments:

  • An entity would be permitted to use the revaluation model for property, plant, and equipment.
  • The main recognition and measurement requirements for deferred income taxes would be aligned with the current requirements in IAS 12.
  • The main recognition and measurement requirements for exploration and evaluation assets would be aligned with those in IFRS 6; thus, the IFRS for SMEs would provide the same relief as full IFRSs do for these activities.

Next Steps: The amendments are effective for annual periods beginning on or after January 1, 2017; early adoption is permitted.

Other Resources: For more information, see the press release and project summary and feedback statement on the IASB’s Web site.

IASB Proposes to Defer the Effective Date of IFRS 15

Affects: Entities reporting under IFRSs.

Summary: On May 19, 2015, the IASB published an ED that would defer the effective date of its revenue standard, IFRS 15, by one year. The IASB is proposing the deferral primarily because it is currently preparing another ED that would amend certain portions of IFRS 15. The ED’s new effective date would be annual periods beginning on or after January 1, 2018. Early adoption of IFRS 15 would continue to be permitted, and entities would still have the option of applying the standard retrospectively either to each prior reporting period presented or with the cumulative effect of initial application recognized as of the adoption date.

The FASB has also issued a proposal that would defer the effective date of IFRS 15’s U.S. GAAP counterpart, ASU 2014-09, by a year.

Next Steps: Comments on the ED are due by July 3, 2015.

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

Accounting — Other Key Developments

Convergence

Former IASB and FASB Chairmen Discuss Convergence

Affects: All entities.

Summary: On April 1, 2015, former IASB Chairman Sir David Tweedie and former FASB Chairman Robert Herz shared their vision of convergence in a discussion at Baruch College in New York City.

At the event, Mr. Herz noted that “right now, for good or for bad, in the U.S. we have become very comfortable with the idea that we’ll have U.S. GAAP. If there are things in IFRS that we kind of like or the markets like, maybe we’ll consider adopting those, but there’s no systematic program to further converge at this point.“ Mr. Tweedie replied, “You can have international standards without the U.S., but you can’t have global standards without the U.S.“

Other Resources: A recording of the discussion is available on Baruch College’s Web site.

FAF

FAF Concludes Post-Implementation Review of Statement 160

Affects: All entities.

Summary: On May 20, 2015, the FAF issued a PIR report on Statement 160 (codified in ASC 810), which was issued in 2007 and provided guidance on noncontrolling interests in consolidated financial statements. The report concludes that Statement 160 is generally useful to investors and fulfills its purpose. For example, the Statement:

  • Eliminates “the diversity associated with reporting noncontrolling interests in the financial statements.“
  • Increases “the relevance of reported financial information on noncontrolling interests.“
  • Converges the guidance on noncontrolling interests with that in the IASB’s IAS 27.

The FAF did not make any major standard-setting recommendations to the FASB after performing the PIR of Statement 160.

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

FAF Issues 2014 Annual Report

Affects: All entities.

Summary: On May 18, 2015, the FAF released its 2014 annual report, which focuses on the FAF/FASB/GASB strategic plan (published in April 2014) and how the organizations can “build a better GAAP.“

The report also summarizes the accomplishments of the three organizations over the past year and reiterates their four strategic goals:

  • “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.

Private Companies

PCC Holds May 2015 Meeting

Affects: Private companies.

Summary: At its May 5, 2015, meeting, the PCC discussed the effective dates of PCC alternatives; share-based payments; and the FASB’s projects on (1) business entities’ disclosures about government assistance, (2) the disclosure framework, and (3) simplifying the balance sheet classification of debt.

In addition, the PCC requested that the FASB conduct research on clarifying the application of certain aspects of the guidance on variable interest entities to private companies under common control.

Next Steps: The next PCC meeting is scheduled for July 21, 2015.

Other Resources: For more information, see the media meeting recap on the FASB’s Web site.

Financial Reporting Complexity: Investors

CFA Publishes Report on Investor Perspectives Regarding Financial Reporting Complexity

Affects: Investors.

Summary: The CFA Institute, a global association of investment professionals, has published a report indicating that investors overwhelmingly believe that efforts to reduce the complexity and compliance costs of financial reporting will make it more difficult to conduct financial analyses. The report notes that “some 82% of investors surveyed say moves for reduced requirements, or differential standards for private companies, will decrease comparability, 73% foresee greater complexity, and 65% say efforts will lead to a loss of decision-useful information about private companies.”

Other resources: For more information, see a summary of the report in the CFA Institute Magazine and an article about the report on the CFA’s Web site.

International

IASB Proposes Revisions to Conceptual Framework for Financial Reporting

Affects: Entities reporting under IFRSs.

Summary: On May 28, 2015, the IASB published an ED that proposes enhancements to its Conceptual Framework for Financial Reporting, including:

  • “A new chapter on measurement that describes appropriate measurement bases (historical cost and current value, including fair value), and the factors to consider when selecting a measurement basis.“
  • “Confirming that the statement of profit or loss is the primary source of information about a company’s performance, and adding guidance on when income and expenses could be reported outside the statement of profit or loss, in ’Other Comprehensive Income (OCI)’.“
  • “Refining the definitions of the basic building blocks of financial statements — assets, liabilities, equity, income and expenses.“

The IASB also published a separate ED that would update references to the revised conceptual framework in nine existing standards.

Next Steps: Comments on both EDs are due by October 26, 2015.

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

IFRS Foundation Issues 2014 Annual Report

Affects: Entities reporting under IFRSs.

Summary: On May 5, 2015, the IFRS Foundation released its 2014 annual report. The report includes the foundation’s newly developed mission statement and describes the foundation’s strategic priorities for 2015 through 2017, which are grouped into four strategic goals:

  • “Develop a single set of high quality, globally enforceable accounting standards.“
  • “Pursue goal of global adoption of IFRS.“
  • “Support consistent application and implementation of IFRS.“
  • “Ensure continued independence, stability and accountability of the IFRS Foundation.“

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

IIRC and Seven Other Organizations Publish “Landscape Map“

Affects: All entities.

Summary: On May 5, 2015, the IIRC and seven other “of the world’s most prominent organizations“1 published a “landscape map“ containing “a snapshot of a comparison of their frameworks, standards and related requirements through the lens of Integrated Reporting.“ The landscape map comes on the heels of the organizations’ 2014 “corporate reporting dialogue,“ an initiative in which they pledged their cooperation to “respond to market calls for greater coherence, consistency and comparability between frameworks, standards and related requirements.“

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

AICPA

AICPA and NASBA Propose Statement on Standards for CPE Programs

Affects: All U.S. CPAs.

Summary: On May 19, 2015, NASBA announced that it and the AICPA have jointly issued an ED that would “establish a framework for the development, presentation, measurement, and reporting of CPE programs and thereby help to ensure that CPAs receive the quality CPE necessary to satisfy their obligations to serve the public interest.“ The ED further indicates that the standards would “also apply to other professionals by virtue of employment or membership. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit.“

Next Steps: Comments on the ED are due by October 1, 2015.

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

AICPA Releases Publication on Enhancing Audit Quality

Affects: Auditors of private companies, employee benefit plans, and governmental entities.

Summary: On May 14, 2015, the AICPA released a publication that suggests the following six-point plan for improving audit quality:

  • Improving pre-licensure (i.e., pre-CPA) accounting education programs.
  • Revising the AICPA’s standards and Code of Professional Conduct.
  • Launching competency and training programs for CPAs.
  • Enhancing the AICPA’s peer review program.
  • Piloting “a new technology-based quality monitoring tool.“
  • Collaborating on an ethics enforcement program with the NASBA.

PCAOB

PCAOB Issues Staff Consultation Paper on Improving Standards for the Auditor’s Use of the Work of Specialists

Affects: Registered public accounting firms.

Summary: On May 28, 2015, the PCAOB issued a staff consultation paper seeking comments “on potential changes to standards for the auditor’s use of the work of specialists, specifically the objectivity and oversight of specialists and the use of their work in audits.“ The paper “discusses the increase in the use and importance of specialists in recent years due, in part, to the increasing complexity of business transactions reported in a company’s financial statements.“

Next Steps: Comments on the staff consultation paper are due by July 31, 2015.

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

PCAOB Releases “Audit Committee Dialogue“ Publication

Affects: Audit committee members.

Summary: On May 7, 2015, the PCAOB released a publication that provides insights into how audit committees can improve their oversight of, and communication with, public-company auditors. In addition to outlining key topics that are “of recurring concern“ to audit committees, the publication highlights “emerging risks“ that may affect the PCAOB’s inspections in the coming year.

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

Employee Benefit Plans

Employee Benefits Security Administration Publishes Report on the Quality of Benefit Plan Audits

Affects: Auditors of employee benefit plans.

Summary: The U.S. Labor Department’s Employee Benefits Security Administration (EBSA) has published a report on the quality of audits performed by independent qualified public accountants regarding the financial statement audits of employee benefit plans for the 2011 filing year. The report states that EBSA “found that 61% of the audits fully complied with professional auditing standards or had only minor deficiencies under professional standards. However, 39% of the audits (nearly 4 out of 10) contained major deficiencies with respect to one or more relevant GAAS requirements which would lead to rejection of a Form 5500 filing, putting $653 billion and 22.5 million plan participants and beneficiaries at risk.”

Other resources: For more information, see the news release on the U.S. Department of Labor’s Web site.

International

IFIAR Publishes Report on 2014 Survey of Enforcement Regimes

Affects: Audit firms.

Summary: On April 28, 2015, the IFIAR published a report summarizing the results of a 2014 survey on enforcement regimes of IFIAR members. The report notes that the survey sought information about “(i) the powers of members’ enforcement programs; (ii) the structure of their enforcement programs; (iii) the handling of enforcement matters; (iv) the reporting of enforcement matters; (v) history and trends relating to enforcement; (vi) other relevant authorities; and (vii) ideas for enforcement-related reform.“

Other Resources: For more information, see the fact sheet and key takeaways on the IFIAR’s Web site.

IFIAR Publishes Paper on Current Trends in the Audit Industry

Affects: Audit firms.

Summary: The IFIAR has published a paper on current trends in the audit industry in connection with an April 2015 panel session that was jointly organized by IFIAR’s Investor and Other Stakeholders Working Group and its Global Public Policy Committee Working Group. The session, which took place in Taipei, was intended to “further the dialog among audit regulators and audit firms on issues impacting audit quality and investor protection.“

Deloitte Publications

Publication Title Affects

May 29, 2015, Heads Up

SEC Proposes Rule on Pay Versus Performance

All public entities.

May 26, 2015, Heads Up

FASB Amends Its Consolidation Model

All entities.

May 26, 2015, Heads Up

FASB Proposes to Simplify the Accounting for Measurement-Period Adjustments

All entities.

May 2015 Insurance Spotlight

FASB Issues New Disclosure Requirements for Short-Duration Insurance Contracts

Insurance entities.

May 2015 Financial Services Spotlight

Consolidating Collateralized Financing Entities

Financial services entities.

May 13, 2015, Heads Up

FASB Issues Proposed Revenue ASU on Licensing and Identifying Performance Obligations

All entities.

May 8, 2015, Heads Up

FASB Issues Proposed ASU on Presentation of Not-for-Profit Entities’ Financial Statements

Not-for-profit entities.

May 2015 Power & Utilities Spotlight

Transitioning ERM Capabilities to a New Level

Power and utilities entities.

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Leadership Changes

FASB: On May 20, 2015, the FAF board of trustees announced the reappointments of FASB members Daryl E. Buck and R. Harold Schroeder for a second term that begins on July 1, 2015, and ends on June 30, 2021.

GASAC and FASAC: On May 22, 2015, the FAF board of trustees announced that it has appointed Robert W. Scott as chairman of the GASAC for a term beginning on June 1, 2015, and ending on December 31, 2016. The trustees also announced that new members have been appointed to both the GASAC and the FASAC.

IFRS Interpretations Committee: On May 12, 2015, the IFRS Foundation announced that it has appointed Jongsoo Han and Robert Uhl to the IFRS Interpretations Committee for a three-year term that begins on July 1, 2015. In addition, John O’Grady and Sandra Peters have been reappointed to the committee for a second three-year term that also begins in July 2015.

IFRS Foundation: On May 29, 2015, the IFRS Foundation trustees announced that the IFRS Monitoring Board has approved the appointment of Sheila Fraser as vice-chair of the foundation for a term that begins immediately as well as for a second term that begins on December 31, 2015. In addition, current trustees Abdulrahman Al-Humaid, Wiseman Nkuhlu, and Joji Okada have been reappointed for second terms that begin on December 31, 2015.

SEC: On May 14, 2015, the SEC announced that it has named Wesley R. Bricker as deputy chief accountant to replace Dan Murdock, who left the Commission at the end of May 2015.

____________________

1 The FASB, IFRS Foundation, SASB, CDSB, CDP, GRI, and ISO.

 

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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