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FASB issues guidance affecting cloud computing customers and employers with defined benefit plans

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FASB
     Board issues final ASU to simplify the measurement date of defined benefit plans
     Guidance released to simplify customer accounting for cloud computing fees
International Federation of Accountants
     IAASB revises standard on auditor’s responsibility for ‘other information’



FASB

Board issues final ASU to simplify the measurement date of defined benefit plans

As part of its initiative to reduce complexity in accounting standards, the FASB issued ASU 2015-04, Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets. The new guidance provides a practical expedient that allows an employer with a fiscal year-end that does not fall on a month-end to elect to measure its defined benefit plan assets and obligations as of the month-end that is closest to its fiscal year-end.

The new guidance also offers a similar practical expedient to all employers when a significant event in an interim period calls for remeasurement. That practical expedient would permit remeasurement of defined benefit plan assets and obligations using the month-end that is closest to the date of the significant event.

An entity that elects the practical expedient is required to adjust the measurement of plan assets and obligations recognized in the balance sheet to reflect contributions made or significant events caused by the entity (for example, plan amendments, settlements, or curtailments) that occur in the period between the measurement date and the fiscal year-end. An entity should not adjust its measurement of plan assets and obligations to reflect changes in market prices or interest rates occurring between the measurement date and the reporting date.

Under the new guidance, an entity is not required to adjust the disclosure of the fair value of plan assets by class of asset and level within the fair value hierarchy for contributions made between the measurement date and the reporting date. Instead, the entity must separately disclose the contribution in the notes to the financial statements, enabling financial statement users to reconcile the total fair value by class of plan assets at the measurement date to the ending balance of the fair value of plan assets. In addition, the entity is required to disclose this policy election and the alternative measurement date. Entities that elect this practical expedient must apply it consistently to all of their plans from year to year.

For public business entities, the guidance in the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015 and for interim periods within those fiscal years. For all other entities, it is effective for financial statements issued for fiscal years beginning after December 15, 2016 and for interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted.

All entities must apply the guidance prospectively.

Guidance released to simplify customer accounting for cloud computing fees

Continuing with its simplification initiative, the Board recently issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, to simplify and improve the financial reporting by entities (customers) that pay fees under cloud computing arrangements. Existing U.S. GAAP contains guidance on accounting for such arrangements by cloud service providers, but the lack of guidance for customers has caused stakeholders to raise concerns about the existing diversity in practice, as well as the cost and complexity of evaluating how to account for the fees.

The guidance in ASU 2015-05 assists customers in determining whether a cloud computing arrangement contains a software license by adding the guidance for vendors in ASC 985-605-55-121 through 55-123, Software: Revenue Recognition, to ASC 350-40, Intangibles – Goodwill and Other: Internal-Use Software. A customer that determines a cloud computing arrangement contains a software license must account for the license consistent with the acquisition of other software licenses. If an arrangement does not contain a software license, the customer is required to account for it as a service contract.

As a result of this ASU, all software licenses within the scope of ASC 350-40 will be accounted for consistently with other licenses of intangible assets.

For public business entities, the guidance in the ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, it is effective for fiscal years beginning after December 15, 2015 and for interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted.

Entities can elect to apply the guidance either retrospectively or prospectively to all cloud computing arrangements entered into or materially modified after the effective date. For either method, entities must disclose upon transition the nature of and reason for the change in accounting principle, the transition method adopted, and a qualitative description of the financial statement line items affected by the change. Entities electing to apply the guidance retrospectively must also disclose quantitative information about the effects of the accounting change.



International Federation of Accountants

IAASB revises standard on auditor’s responsibility for ‘other information’

IFAC’s International Auditing and Assurance Standards Board (IAASB) issued International Standard on Auditing (ISA) 720 (Revised), The Auditor’s Responsibilities Relating to Other Information and Related Conforming Amendments.

ISA 720(R) requires an auditor to read and consider “other information” to determine whether there is a material misstatement of the financial statements or a material misstatement of other information based on knowledge obtained by the auditor in the audit. ISA 720(R) defines “other information” as financial and nonfinancial information, other than the audited financial statements, that is included in entities’ annual reports.

The standard also includes new requirements related to auditor reporting on other information that complement the IAASB’s new and revised auditor reporting standards issued in January 2015.

ISA 720(R) will be effective for audits of financial statements for periods ending on or after December 15, 2016.



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