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Accounting Roundup — February 2017

Published on: Mar 03, 2017

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by Magnus Orrell and Joseph Renouf, Deloitte & Touche LLP

Welcome to the February 2017 edition of Accounting Roundup. Highlights of this issue include the following:

  • The FASB’s issuance of ASUs on (1) employee benefit plan master trust reporting and (2) derecognition and partial sales of nonfinancial assets.
  • The AICPA’s release of a SAS that amends the guidance on the auditor’s consideration of an entity’s ability to continue as a going concern.
  • President Trump’s signing of a resolution eliminating the requirements under the SEC’s final rule on disclosures of payments by resource extraction issuers.

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.

Leadership Changes

GASB: On February 28, 2017, the FAF board of trustees announced that it has appointed a new member to the GASB, Kristopher E. Knight, and has reappointed board member James E. Brown to a second term. Mr. Brown’s and Mr. Knight’s five-year terms will begin on July 1, 2017, and end on June 30, 2022. Mr. Knight will succeed Jan I. Sylvis, whose term concludes on June 30, 2017.

IASB: On February 21, 2017, the IFRS Foundation announced that Martin Edelmann, Gary Kabureck, Chungwoo Suh, and Mary Tokar have been reappointed to the IASB for a second term beginning on July 1, 2017. In addition, Darrel Scott’s term has been extended by two more years and will end on September 30, 2020.

IFRS Foundation: On February 13, 2017, the IFRS Foundation Monitoring Board announced that Else Bos, Su-Keun Kwak, and Guangyao Zhu have been appointed as IFRS Foundation trustees.

IFRS Foundation Monitoring Board: On February 3, 2017, the IFRS Foundation Monitoring Board announced that Jean-Paul Servais has been appointed as the board’s chairman for a two-year term beginning in March 2017.

IFRS Interpretations Committee: On February 10, 2017, The IFRS Foundation trustees announced that IASB Vice-Chairman Sue Lloyd has been appointed chairman of the IFRS Interpretations Committee. Ms. Lloyd’s appointment became effective immediately.

Accounting — New Standards and Exposure Drafts

Employee Benefit Plans

FASB Issues Guidance on Employee Benefit Plans

Affects: Employee benefit plans.

Summary: On February 27, 2017, the FASB issued ASU 2017-06 on employee benefit plan master trust reporting in response to an EITF consensus. The ASU’s provisions include the following:

  • Presentation within the plan’s financial statements of its interest in a master trust as a single line item.
  • Disclosure of the master trust’s investments by general type as well as by the dollar amount of the plan’s interest in each type.
  • Disclosure of the master trust’s other assets and liabilities and the balances related to the plan.
  • Elimination of required disclosures for Section 401(h) accounts that are already provided by the associated defined benefit plan.

Next Steps: The ASU’s amendments are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted.

Other Resources: Deloitte’s November 2016 EITF Snapshot.

Nonfinancial Assets

FASB Amends Guidance on Derecognition and Partial Sales of Nonfinancial Assets

Affects: All entities.

Summary: On February 22, 2017, the FASB issued ASU 2017-05, which clarifies the scope of the Board’s guidance on nonfinancial asset derecognition (ASC 610-20) as well as the accounting for partial sales of nonfinancial assets. The ASU conforms the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard (ASC 606, as amended).

The ASU clarifies that ASC 610-20 applies to the derecognition of all nonfinancial assets and in-substance nonfinancial assets. While the guidance in ASC 360-20 contained references to in-substance assets (e.g., in-substance real estate), it would not have applied to transactions outside of real estate. The FASB therefore added the definition of an in-substance nonfinancial asset to the ASC master glossary.

Further, the ASU amends the industry-specific guidance in ASC 970-323 to align it with the requirements in ASC 606 and ASC 610-20. It also eliminates ASC 360-20 as well as the initial-measurement guidance on nonmonetary transactions in ASC 845-10-30 to simplify the accounting for partial sales (i.e., entities would use the same guidance to account for similar transactions) and to remove inconsistencies between ASC 610-20 and the noncash consideration guidance in the new revenue standard. As a result of these changes, any transfer of a nonfinancial asset in exchange for the noncontrolling ownership interest in another entity (including a noncontrolling ownership interest in a joint venture or other equity method investment) should be accounted for in accordance with ASC 610-20.

Editor's Note

Editor’s Note

The ASU requires an entity to derecognize the nonfinancial asset or in-substance nonfinancial asset in a partial sale transaction when (1) the entity ceases to have a controlling financial interest in a subsidiary under ASC 810 and (2) control of the asset is transferred in accordance with ASC 606. The entity therefore has to consider repurchase agreements (e.g., a call option to repurchase the ownership interest in a subsidiary) in its assessment and may not be able to derecognize the nonfinancial assets, even though it no longer has a controlling financial interest in a subsidiary in accordance with ASC 810. The ASU illustrates the application of this guidance in ASC 610-20-55-15 and 55-16.

Next Steps: The effective date of the new guidance is aligned with the requirements in the new revenue standard, which is effective for public entities for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017, and for nonpublic entities for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. If the entity decides to early adopt the ASU’s guidance, it must also early adopt ASC 606 (and vice versa).

Other Resources: Deloitte’s February 28, 2017, Heads Up.

Accounting — Other Key Developments

Revenue Recognition

AICPA Issues Revenue Working Drafts

Affects: All entities.

Summary: In February and March 2017, the AICPA’s revenue recognition task forces released for public comment working drafts for software, insurance, time-share, power and utilities, aerospace and defense, and broker-dealer entities. The working drafts address the following issues:

  • Significant financing components in software arrangements (software).
  • Considerations related to applying the exception in ASC 606-10-15-2 and ASC 606-10-15-4 to contracts within the scope of ASC 944 (insurance).
  • Revenue recognition related to management fees (time shares).
  • Accounting for tariff sales to regulated customers (power and utilities).
  • Unit of account in design, development, and production contracts (aerospace and defense).
  • Costs associated with underwriting (broker-dealers).
  • Costs associated with investment banking advisory services (broker-dealers).

Next Steps: Comments on the insurance and software working drafts are due by April 3, 2017; comments on the time-share, power and utilities, aerospace and defense, and broker-dealer working drafts are due by May 1, 2017.

Other Resources: For more information, see the software, time-share, power and utilities, insurance, aerospace and defense, and broker-dealer revenue recognition task force pages on the AICPA’s Web site.

Auditing Developments

AICPA

AICPA Issues SAS on the Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern

Affects: Auditors.

Summary: In February 2017, the ASB of the AICPA published SAS 132, which supersedes the guidance in SAS 126 on “the auditor’s responsibilities in the audit of financial statements relating to the entity’s ability to continue as a going concern and the implications for the auditor’s report.” Aspects of the guidance that the new SAS revises include:

  • The auditor’s objectives and related conclusions.
  • Financial support by third parties or the entity’s owner-manager.
  • Interim financial information.
  • Financial statements prepared in accordance with a special-purpose framework.

Next Steps: The new guidance will be effective for audits of financial statements for periods ending on or after December 15, 2017.

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

PCAOB

PCAOB Issues Updated Staff Guidance Related to Form AP

Affects: Registered public accounting firms.

Summary: On February 16, 2017, the PCAOB issued updated staff guidance to help auditors provide disclosures on the new Form AP, as required by the Board’s December 2015 final rule. (The SEC approved the rule on May 9, 2016.) On Form AP, auditors must disclose (1) “the name of the engagement partner”; (2) “the name, location, and extent of participation of each other accounting firm participating in the audit [if their] work constituted at least 5% of total audit hours”; and (3) the “number and aggregate extent of participation of all other accounting firms participating in the audit whose individual participation was less than 5% of total audit hours.” The updated guidance clarifies the treatment of professional staff in secondment arrangements.

Next Steps: The requirement to disclose the engagement partner is effective for audit reports issued on or after January 31, 2017. The disclosure requirements related to other accounting firms are effective for audit reports issued on or after June 30, 2017.

Governmental Accounting and Auditing Developments

International

IPSASB Issues Guidance on Public-Sector Combinations

Affects: Public-sector entities.

Summary: On January 31, 2017, the IPSASB released IPSAS 40, which provides guidance on accounting for public-sector combinations. The new guidance contains requirements related to the following two types of combinations:

  • Amalgamations — The “modified pooling of interests” accounting approach is used to recognize the amalgamation “on the date it takes place.”
  • Acquisitions — Entities apply the acquisition method of accounting and, in doing so, use “the same approach as in IFRS 3 . . . supplemented with additional guidance for public sector specific situations.”

Next Steps: IPSAS 40 will become effective on January 1, 2019. Early adoption is encouraged.

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

Regulatory and Compliance Developments

SEC

SEC Proposes Use of Inline XBRL Format

Affects: SEC registrants.

Summary: On March 1, 2017, the SEC issued a proposed rule that would “require the use of Inline XBRL format for the submission of operating company financial statement information and mutual fund risk/return summaries.” In addition, “the requirement for filers to post XBRL data on their websites” would be eliminated.

Next Steps: Comments on the proposed rule are due 60 days after the date of its publication in the Federal Register.

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

SEC Requests Comments on Statistical and Other Disclosures by Bank Holding Companies

Affects: SEC registrants that are bank holding companies.

Summary: On March 1, 2017, the SEC issued a request for comment on potential changes to Industry Guide 3, which applies to statistical disclosures by bank holding companies. The request for comments asks for feedback on the following topics:

  • “Existing disclosure guidance for bank holding companies called for by Guide 3, as well as other sources of disclosure for bank holding companies and other registrants in the financial services industry.”
  • “Potential improvements to the disclosure regime, which could include new disclosures, the elimination of duplicative or overlapping disclosures, or revisions to current disclosures.”
  • “The scope and applicability of Guide 3.”
  • “The effects of regulation on bank holding companies, including with regard to their operations, capital structures, dividend policies and treatment in bankruptcy.”

Next Steps: Comments are due 60 days after the date of publication in the Federal Register.

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

CAQ Releases Highlights of November 2016 Meeting Between IPTF and SEC Staff

Affects: SEC registrants.

Summary: On February 24, 2017, the CAQ released the highlights of the November 17, 2016, joint meeting between the IPTF and the SEC staff. Topics discussed at the meeting included:

  • Monitoring inflation in certain countries.
  • Transition questions related to the new leasing standard, IFRS 16.
  • Use of pre-acquisition and post-acquisition periods to satisfy Regulation S-X, Rule 3-05, requirements for other than initial registration statements.
  • Significant equity investee financial statements under Regulation S-X, Rule 3-09.
  • Use of IFRS XBRL taxonomy by foreign private issuers.

President Trump Signs Resolution Eliminating SEC Disclosure Rule

Affects: SEC registrants.

Summary: On February 14, 2017, President Trump signed H.J. Resolution 41, which eliminates the SEC’s rule under which issuers engaged in the commercial development of oil, natural gas, or minerals must disclose certain payments made to U.S. federal and foreign governments. H.J. Resolution 41 repeals the Commission’s June 2016 final rule on disclosures of payments by resource extraction issuers, which was implemented as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

SEC Acting Chairman Requests Feedback on Implementation of Pay Ratio Disclosure Rule

Affects: SEC registrants.

Summary: On February 6, 2017, Michael Piwowar, the SEC’s acting chairman, released a public statement in which he requested public input on implementation issues associated with the SEC’s final rule on pay ratio disclosure. The final rule requires registrants — except foreign private issuers, registered investment companies, and emerging growth companies — to clearly disclose the relationship between executive compensation actually paid and the financial performance of the registrant in proxy or information statements in which executive compensation disclosures are required. Mr. Piwowar noted that since compliance with the rule became effective for fiscal years beginning on or after January 1, 2017, some issuers have “begun to encounter unanticipated compliance difficulties that may hinder them in meeting the reporting deadline.”

Next Steps: Interested parties are encouraged to submit comments on the SEC’s Web site.

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Other Deloitte Publications

Publication

Title

Affects

February 28, 2017, Heads Up

FASB Amends Guidance on Derecognition and Partial Sales of Nonfinancial Assets

All entities.

February 22, 2017, Heads Up

Forecasting Revenue Disclosures — Storm Brewing?

All entities.

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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