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FASB finalizing ASU for principal versus agent analysis

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Contents
FASB posts highlights of January 28 meeting
Principal versus agent
Measurement date of plan assets
Classification of debt
PCAOB issues report on deficiencies identified in broker-dealer audits
International Federation of Accountants
Board issues standard on first-time adoption of accrual-basis IPSASs
    FASB posts highlights of January 28 meeting
    All decisions reached at Board meetings are tentative and may be changed at future meetings. Decisions are included in an Exposure Draft only after a formal written ballot. Decisions reflected in Exposure Drafts are often changed in redeliberations by the Board based on information received in comment letters, at public roundtable discussions, and from other sources. Board decisions become final after a formal written ballot to issue a final Accounting Standards Update.

    The FASB met on January 28 to discuss its project on principal versus agent analysis as well as two of its simplification initiatives—the classification of debt and the measurement date for plan assets. Highlights of these discussions are featured below.

    Principal versus agent
    The staff updated the Board on the status of the principal versus agent analysis project, specifically addressing feedback received from practitioners and financial statement preparers on tentative decisions concerning series mutual funds reached at the December 10, 2014 meeting. Those tentative decisions include the following:
    • Mutual funds and similar legal entities that either comply with or operate under requirements similar to those for registered mutual funds under the Investment Company Act of 1940 would be required to perform the variable interest entity/voting interest entity determination under ASC 810-10-15-14(b)(1), Consolidation.
    • The Board would provide implementation guidance to assist those entities in interpreting the voting right criterion in the variable interest entity/voting interest entity scope determination.
    The staff intends to further clarify these tentative decisions in the Basis for Conclusions of the final ASU, which is expected to be published soon.

    Measurement date of plan assets
    The Board redeliberated its proposed ASU, Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets, which would allow an employer with a fiscal year-end that is other than a month-end to measure its defined benefit plan assets and obligations as of the month-end closest to its fiscal year-end.

    The Board affirmed the proposed practical expedient and tentatively decided that an employer who makes an accounting policy election to use it should apply the election consistently to all of its defined benefit plans.

    The Board also affirmed that an employer using the practical expedient should adjust the plan’s funded status for contributions and other significant events, such as plan amendments, curtailments, or settlements that occur between the alternative measurement date and the employer’s fiscal year-end. In addition, the Board tentatively decided that the practical expedient could be used for interim remeasurements of significant events that do not fall on a month-end.

    The Board affirmed the proposed disclosure requirements when an employer elects to use the practical expedient, which would include the date when the defined benefit plan assets and obligations are measured.

    The Board tentatively decided to exclude plan financial statements of employee benefit plans from the scope of this project. The FASB decided instead to ask the Emerging Issues Task Force to consider this practical expedient as part of its project to identify targeted improvements to employee benefit plan accounting and reporting.

    Lastly, the Board affirmed that the guidance, if adopted, should be applied prospectively. The guidance would be effective for public business entities with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The effective date for all other entities and employee benefit plans would be for fiscal years beginning after December 15, 2016 and for interim periods within fiscal years beginning after December 15, 2017. Early application would be permitted.

    Classification of debt
    The Board began its deliberations on its project to simplify the classification of debt in the balance sheet. The objective of this project is to develop a single principle for determining whether debt should be classified as current or noncurrent.

    The Board tentatively decided that an entity would classify debt as noncurrent if either one or both of the following criteria are met as of the balance sheet date:
    • The obligation is contractually due to be settled more than 12 months (or the entity’s operating cycle if longer) after the balance sheet date.
    • The entity has a contractual right to defer settlement of the obligation for more than 12 months (or the entity’s operating cycle if longer) after the balance sheet date.

    The classification criteria above was leveraged from existing IFRS principles.

    The Board also tentatively decided that an entity’s decisions on classifying debt should be based on facts and circumstances that exist as of the balance sheet date.

    Lastly, the Board tentatively decided that the scope of the guidance would include all debt arrangements.

    PCAOB issues report on deficiencies identified in broker-dealer audits
    The PCAOB issued a report, “Observations from PCAOB Inspections Covering Five Audits of Brokers and Dealers Required to be Conducted In Accordance With PCAOB Standards,” summarizing the results of its first five inspections of broker-dealer audit and new attestation engagements. The inspections focused on areas relevant to the amended SEC rules and aspects unique to engagements subject to PCAOB standards, such as the examination of compliance statements and reviews of exemption statements.

    Of the five audit and attest engagements reviewed, three broker-dealers were required to file a compliance report and an auditor’s exemption report with the SEC as part of their annual report, while two broker-dealers were required to file an exemption report and auditor’s review report as part of their annual report. The PCAOB identified deficiencies in all five audits and in four of the five attestation engagements inspected.

    During 2015, the PCAOB intends to inspect approximately 75 firms and portions of approximately 115 audit and attestation engagements required to be conducted pursuant to PCAOB standards.

    International Federation of Accountants
    Board issues standard on first-time adoption of accrual-basis IPSASs
    IFAC’s International Public Sector Accounting Standards Board recently released International Public Sector Accounting Standard (IPSAS) 33, First-time Adoption of Accrual Basis IPSASs, which provides transitional exemptions and guidance to entities adopting accrual-basis standards.

    Upon adopting this standard, entities will have three years to recognize certain assets and liabilities, during which time they can develop models for measuring and recognizing those assets and liabilities.

    IPSAS 33 is effective for annual periods beginning on or after January 1, 2017, with early application permitted.

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