Welcome to Accounting Roundup. In July 2015, there were a number of developments related to the FASB’s and IASB’s joint revenue standard (issued as ASU 2014-09 by the FASB and IFRS 15 by the IASB). The IASB issued a proposal that would clarify certain aspects of IFRS 15, including identifying performance obligations, principal-versus-agent considerations, licensing, and transition. In addition, the FASB and IASB affirmed their proposals to defer the effective date of the revenue standard by one year. Further, the boards’ revenue transition resource group (TRG) held a meeting to discuss nine topics, two of which (portfolio practical expedient and application of variable consideration constraint, completed contracts at transition) are expected to be further considered at a future meeting.

Other significant developments that occurred in July 2015 include the following:

• The FASB issued an ASU requiring entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures, one of which is net realizable value).
• The SEC and four other agencies released a joint staff report that analyzes U.S. Treasury market volatility.

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

Employee Benefit Plans

FASB Issues ASU on Employee Benefit Plans

Affects: Employee benefit plans.

Summary: On July 31, 2015, the FASB issued ASU 2015-12, a three-part standard that provides guidance on certain aspects of the accounting by employee benefit plans. The ASU, which is being released in response to consensuses reached at the EITF’s June 18, 2015, meeting, (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.

Next Steps: The amendments in all three parts of this ASU are effective for fiscal years beginning after December 15, 2015; early adoption is permitted. An entity should apply the amendments in parts I and II retrospectively to all financial statements presented, while the amendments in part III should be applied prospectively.

Other Resources: Deloitte’s June 2015 EITF Snapshot.

Inventory

FASB Issues ASU on Simplifying the Measurement of Inventory

Affects: All entities.

Summary: On July 22, 2015, the FASB issued ASU 2015-11, which requires entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures, one of which is net realizable value). The ASU does not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method.

In addition to reducing complexity, the proposal would make U.S. GAAP more comparable to IFRSs, under which inventory must be measured at the lower of cost or net realizable value.

Next Steps: For public business entities, the ASU is effective prospectively for annual periods beginning after December 15, 2016, and interim periods therein. For all other entities, the ASU is effective prospectively for annual periods beginning after December 15, 2016, and interim periods thereafter. Early application of the ASU is permitted.

Other Resources: Deloitte’s July 24, 2014, Heads Up.

International

IASB Proposes Clarifications to IFRS 15

Affects: Entities reporting under IFRSs.

Summary: On July 30, 2015, the IASB issued an ED that would make targeted amendments to its May 2014 revenue standard, IFRS 15, on the basis of issues identified by the FASB and IASB joint TRG. Specific amendments include the following:

• 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.

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.

Other Resources: For more information, see the press release on the IASB’s Web site as well as the project page on Deloitte’s IAS Plus Web site.

Accounting — Other Key Developments

Exposures to Struggling Economies

Financial Reporting Implications Related to Greece, Puerto Rico, and Other Regions Experiencing Economic Struggles

Affects: All entities.

Summary: 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. On July 15, the Public Finance Corporation of Puerto Rico advised investors that the commonwealth has failed to transfer cash to the trustee of certain of its bond obligations within the period required to cover an August 1 debt payment because its legislature did not appropriate funds with which to do so. In addition, the Puerto Rican government has requested that the U.S. Congress pass a law allowing Puerto Rico to seek bankruptcy protection from creditors. This measure is meant to avoid a disruptive default process.

Other Resources: Deloitte’s July 20, 2015, Financial Reporting Alert, which discusses financial reporting implications related to Puerto Rico and Greece.

Not-for-Profit Entities

FASB Staff Issues FAQ on Proposal Related to Financial Statements of Not-for-Profit Entities

Affects: Not-for-profit entities.

Summary: In July 2015, the FASB staff issued an FAQ on its proposed ASU on not-for-profit entities’ financial statement presentation. 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?”

Next Steps: The comment deadline for the proposed ASU is August 20, 2015.

Private Companies

PCC Holds July 2015 Meeting

Affects: Private companies.

Summary: At its July 21, 2015, meeting, the 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. Specific 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.

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

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

Revenue Recognition

FASB and IASB Joint Revenue Transition Resource Group Holds July Meeting

Affects: All entities.

Summary: At its July 13, 2015, meeting, the FASB and IASB joint revenue TRG discussed the following nine topics:

• Consideration payable to a customer (Topic 1).
• Scope: credit cards (Topic 2).
• Portfolio practical expedient and application of variable consideration constraint (Topic 3).
• Completed contracts at transition (Topic 4).
• Application of the series provision and allocation of variable consideration (Topic 5).
• Practical expedient for measuring progress toward complete satisfaction of a performance obligation (Topic 6).
• Measuring progress when multiple goods or services are included in a single performance obligation (Topic 7).
• Determining when control of a commodity is transferred (Topic 8).
• Accounting for restocking fees and related costs (Topic 9).

The TRG generally agreed with the FASB and IASB staffs’ analyses and views regarding Topics 1, 2, 5, 6, 7, 8, and 9 and therefore did not recommend changes to the new revenue standard. Topics 3 and 4 are likely to be addressed at a future TRG meeting.

Next Steps: The next TRG meeting is scheduled for November 9, 2015.

Other Resources: Deloitte’s July 2015 TRG Snapshot.

FASB and IASB Vote to Defer Effective Dates of New Revenue Standards

Affects: All entities.

Summary: At its July 9, 2015, meeting, the FASB affirmed its proposal to defer for one year the effective date of its new revenue standard, ASU 2014-09, for public and nonpublic entities reporting under U.S. GAAP. For public entities, the standard will be effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. For nonpublic entities, the standard will be effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. In addition, the FASB affirmed that all entities will be permitted to early adopt the standard as of the original effective date in ASU 2014-09 (i.e., annual reporting periods beginning after December 15, 2016).

The IASB also affirmed, at its July 22, 2015, meeting, its proposal to defer the effective date of its counterpart revenue standard, IFRS 15, to January 1, 2018. Earlier application of IFRS 15 will continue to be permitted.

Other Resources: Deloitte’s July 10, 2015, Heads Up and July 22, 2015, news article.

XBRL

XBRL US Announces Public Exposure Period for Guidance and Validation Rules

Affects: All entities.

Summary: On July 15, 2015, XBRL US announced that the first public exposure period has begun for guidance and validation rules created by its Data Quality Committee. The purpose of such guidance is to “prevent or detect inconsistencies or errors in XBRL data filed with the SEC and [focus] on data quality issues that adversely affect data analysis.” Seven proposed validation rules will be made available for comment during the public exposure period.

Next Steps: Comments are due by September 14, 2015. To submit comments, interested parties should visit http://publicreview.xbrl.us and follow the instructions.

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

International

IASB Tentatively Decides to Amend IFRS 4

Affects: Entities reporting under IFRSs.

Summary: At its July 20, 2015, meeting, the IASB tentatively decided to amend IFRS 4 (on insurance contracts) by addressing the consequences of different effective dates for IFRS 9 (on financial instruments) and the IASB’s anticipated insurance standard. The amendments would permit an entity that meets certain conditions to exclude from profit or loss, and recognize in other comprehensive income, the difference between the amounts that would be recognized in profit or loss in accordance with IFRS 9 and the amounts recognized in profit or loss in accordance with IAS 39.

Next Steps: The IASB intends to discuss the scope of the amendments to IFRS 4, as well as whether the effective date of IFRS 9 should be deferred for the insurance industry, during its September meeting.

IFRS Advisory Council Releases Report on June 2015 Meeting

Affects: Entities reporting under IFRSs.

Summary: On July 20, 2015, the IFRS Advisory Council released a report on its June 9–10 meeting. Topics discussed at the meeting included the following:

• 2015 agenda consultation.
• Review of the structure and effectiveness of the IFRS Foundation.
• 2015–2017 IFRS Foundation strategy.
• IFRS adoption in Japan.
• Profiles of IFRS filing requirements by jurisdiction.
• Research program.
• Leases.

Next Steps: The next meeting of the IFRS Advisory Council is scheduled for November 2–3, 2015.

Other Resources: For more information, see the IFRS Advisory Council meetings page on the IASB’s Web site.

IFRS Foundation Trustees Request Comments on Organization’s Structure and Effectiveness

Affects: Entities reporting under IFRSs.

Summary: On July 7, 2015, the IFRS Foundation trustees published a request-for-views document that seeks feedback on ways to further enhance the organization’s structure and effectiveness. The document is being issued in response to a requirement in the IFRS Foundation Constitution, under which the trustees must review the foundation’s structure and effectiveness every five years. Comments are requested on three main topics:

• Relevance of IFRSs.
• Consistent application of IFRSs.
• The foundation’s governance and financing.

Next Steps: Comments on the request-for-views document are due by November 30, 2015.

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

Auditing Developments

AICPA

AICPA Adds Statement on Audit Response Letters to AU-C Section on Audit Evidence

Affects: Auditors.

Summary: In July 2015, the AICPA announced that it has added Exhibit C, a statement by the American Bar Association regarding updates to lawyers’ audit response letters, to AU-C Section 501 (which provides guidance on audit evidence). The purpose of the statement is to “enhance the ability of lawyers to respond efficiently to update requests, thereby facilitating the audit process and contributing to audit quality.”

CAQ

Anti-Fraud Collaboration Publishes Case Study

Affects: All entities.

Summary: On July 28, 2015, the Anti-Fraud Collaboration (a joint effort of the CAQ, FEI, IIA, and NACD) published a case study that “explores potential material fraud at a fictitious regional bank.” The case study “is designed to foster a greater understanding of the importance of exercising skepticism as a participant in the financial reporting process at publicly traded companies.”

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

IIA

IIA Updates International Professional Practices Framework

Affects: Internal auditors.

Summary: On July 6, 2015, the IIA announced that it has updated its International Professional Practices Framework for internal auditors. The framework enhancements include the addition of an internal audit mission statement and the incorporation of 10 core principles that “articulate internal audit effectiveness.”

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

International

IAASB Proposes Amendments to Auditing Standards to Address Noncompliance With Laws and Regulations

Affects: Auditors.

Summary: On July 23, 2015, the IAASB issued an ED that would make certain limited amendments to its standards in light of the IESBA’s 2015 ED on responding to noncompliance with laws and regulations. The purpose of the IAASB’s ED is “to acknowledge the enhancements that will be made by the IESBA in the [Code of Ethics for Professional Accountants] and clarify and emphasize key aspects of the IESBA’s proposals in the IAASB’s International Standards.” The IAASB’s new ED would amend eight standards but would most significantly affect ISA 250.

Next Steps: Comments on the ED are due by October 21, 2015.

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

IAASB Issues Publication on Financial Statement Audits

Affects: Auditors.

Summary: On July 15, 2015, the IAASB released a final pronouncement that revises a number of its ISAs to address disclosures in financial statement audits. The purpose of the final pronouncement is to help auditors focus on disclosures throughout the audit process and apply the requirements of the ISAs more consistently. The IAASB staff has also developed a nonauthoritative companion document that describes financial reporting disclosure trends and their possible implications from an audit perspective and highlights how the revised ISAs help auditors address disclosures.

Next Steps: The amendments are effective for financial statement audits for periods ending on or after December 15, 2016.

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

IAESB Revises IES Framework

Affects: IFAC member bodies.

Summary: On July 14, 2015, the IAESB released a revised version of its Framework for International Education Standards for Professional Accountants and Aspiring Professional Accountants. In the words of IAESB Chairman Chris Austin, “Our objective with this Framework is to provide a foundation that improves the understanding and application of the principles and concepts which underlie the newly revised [IESs].”

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

IAESB Requests Comments on Learning Outcomes Approach

Affects: Those responsible for designing, developing, and assessing professional education programs for accountants.

Summary: On July 7, 2015, the IAESB issued a consultation paper that requests feedback on the principles for implementing a learning outcomes approach, which is fundamental to the IAESB’s development of professional accounting education programs. IAESB Chairman Chris Austin notes that “[t]he principles will assist those responsible for designing, developing, and assessing professional education programs for current and aspiring professional accountants.”

Next Steps: Comments on the consultation paper are due by September 7, 2015.

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

IFIAR Performs Thematic Review of Two Core Principles

Affects: IFIAR members.

Summary: On June 30, 2015, IFIAR released a report detailing the results of a thematic review in which it sought IFIAR member feedback concerning the following two core principles:

• “Principle 9: Audit regulators should ensure that a risk-based inspection program is in place.”
• “Principle 11: Audit regulators should have a mechanism for reporting inspection findings to the audit firm and ensuring remediation of issues with the audit firm.”

The purpose of the report is to “identify, compile and share practices” related to the application of these two principles.

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

Governmental Accounting and Auditing Developments

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