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FASB drafting final ASU on financial instruments

RFP
Contents
Current reporting issue
Venezuela: hyperinflation and consolidation
FASB
Board posts highlights of meeting on financial instruments
Meeting of Joint Transition Resource Group scheduled for January 26
SEC
CorpFin updates Financial Reporting Manual
International Federation of Accountants
IAASB issues new and revised standards on auditor reporting
    Current reporting issue
    Venezuela: hyperinflation and consolidation
    Venezuela has been considered a hyperinflationary economy since 2010. The recent decline in the price of oil, a major source of government funding and foreign exchange, may further increase the level of economic uncertainty in the Venezuelan economy. In applying the guidance in ASC 810-10-15-10, Consolidation, entities with consolidated Venezuelan subsidiaries should monitor events to determine whether resulting foreign exchange restrictions, controls, or other uncertainties are so severe as to cast significant doubt about an entity’s ability to control a subsidiary. If the entity no longer controls the subsidiary, it would not be appropriate to continue to consolidate the Venezuelan entity.

    Similarly, in applying the guidance in ASC 830-20-30-2, Foreign Currency Matters: Foreign Currency Transactions, entities should carefully consider whether it is appropriate to consolidate, combine, or account for Venezuelan operations using the equity method of accounting if the lack of exchangeability of the Venezuelan currency is considered other than temporary.

    We suggest that entities with Venezuelan operations reassess the appropriateness of consolidating, combining, or accounting for those operations using the equity method and document their conclusions. These conclusions should be periodically reassessed while the conditions that create uncertainty about control or exchangeability continue.

    FASB
    Board posts highlights of meeting on financial instruments
    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 14 to continue its redeliberations of the 2013 proposed ASU, Recognition and Measurement of Financial Assets and Financial Liabilities.

    The Board tentatively decided not to retain the disclosure requirements for core deposit liabilities under the 2013 proposal, which would have required public business entities to disclose the following information in each annual report:
    • The balance of core deposit liabilities, disaggregated by significant types of deposit accounts
    • A description of what management considers to be core deposit liabilities
    • The weighted-average life of the core deposit liabilities based on the entity’s historical experience

    The staff provided the Board with an analysis on the expected benefits, costs, and complexity of the proposed amendments under this project. Since a majority of Board members feel the benefits outweigh the costs, the Board has requested the staff to draft a final ASU for this project.

    The Board tentatively decided to retain the transition method under the previously proposed ASU requiring entities to adopt the amendments using a modified retrospective approach, with a cumulative catch-up adjustment to beginning retained earnings for the first reporting period upon the effective date. However, the Board also tentatively decided to require prospective application of the practical expedient for nonmarketable equity securities and related disclosures, if elected. The proposed practical expedient would permit a public business entity to elect not to disclose certain fair value information regarding investments of equity securities that do not have readily determinable fair values.

    Once the final ASU has been drafted, the Board will determine the effective date.

    In addition, the Board decided to exclude its evaluation of the disclosures related to hybrid financial instruments with bifurcated embedded derivatives from the final ASU draft above, and to include it as a separate project on its agenda instead. In discussing this, the Board tentatively decided that entities possessing hybrid financial instruments with bifurcated embedded derivatives would be required to disclose the carrying amount, measurement attribute, and financial statement line item containing the bifurcated embedded derivative and related host contract. The Board asked the staff to draft a proposed ASU for these disclosure requirements, with public comment due by April 30. The Board also tentatively decided to require prospective application of this proposed disclosure guidance.

    Meeting of Joint Transition Resource Group scheduled for January 26
    The FASB/IASB Joint Transition Resource Group (TRG) for Revenue Recognition will hold its third meeting on January 26.

    The meeting is open to the public through video webcast. The meeting materials are available on the FASB’s website.

    The TRG, through its public meetings, provides a forum for stakeholders to learn about the new standard from others involved in implementation. The group also assists the Boards in addressing any potential implementation issues that could arise, although the group itself cannot issue any guidance.

    SEC
    CorpFin updates Financial Reporting Manual
    The Financial Reporting Manual does not contain rules, regulations, or statements of the SEC and has not been approved by the Commission. It is not intended to be published views of the Division of Corporation Finance or of the Office of the Chief Accountant, such as a Staff Accounting Bulletin. The Manual was designed as an internal reference document for Division of Corporation Finance staff and should not be relied on as authoritative.

    The staff of the SEC’s Division of Corporation Finance (CorpFin) has updated the Financial Reporting Manual as of January 12, 2015. Specifically, Sections 2070.4, 2070.6, and 7410 were revised to conform to recent changes in U.S. GAAP resulting from the issuance of ASU 2014-17, Business Combinations: Pushdown Accounting – a consensus of the Emerging Issues Task Force. These changes have been described in the On the Horizon dated November 25, 2014.

    International Federation of Accountants
    IAASB issues new and revised standards on auditor reporting
    The International Auditing and Assurance Standards Board of the International Federation of Accountants issued new and revised auditor reporting standards to enhance the quality of auditors’ reports. The most significant enhancements for financial statement audits of listed entities include
    • New section to communicate “key audit matters”—matters that the auditor views as most significant in the audit of the current period—and how those matters were addressed
    • Disclosure of the name of the engagement partner, with a “harm’s way” exemption

    Other enhancements applicable to all audits include
    • Opinion section required to be presented first, followed by the Basis for Opinion section, unless law or regulation prescribes otherwise
    • Expanded reporting on going concern matters, including a description of the responsibilities of management and the auditor, new requirements for a separate section in the report when a material uncertainty exists and is adequately disclosed, and a new requirement to challenge the adequacy of the disclosures related to “close calls”
    • Affirmative statement of the auditor’s independence and fulfillment of relevant ethical responsibilities, including disclosure of the jurisdiction of origin or reference to the International Ethics Standards for Accountants’ Code of Ethics for Professional Accountants
    • Expanded description of the auditor’s responsibilities and the key features of an audit, with a provision that certain matters may be presented in an appendix or, where law, regulation, or national auditing standards expressly permit, by reference to a website of an appropriate authority

    The new and revised auditor reporting standards comprise
    • International Standard on Auditing (ISA) 260 (Revised), Communication with Those Charged with Governance
    • ISA 570 (Revised), Going Concern
    • ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements
    • ISA 701 (New), Communicating Key Audit Matters in the Independent Auditor’s Report
    • ISA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report
    • ISA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report
    • Conforming amendments to other ISAs

    The new and revised standards will be effective for audits of financial statements for periods ending on or after December 15, 2016. Early adoption is permitted.

    © 2015 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved. This Grant Thornton LLP On the Horizon provides information and comments on current accounting and SEC reporting issues and developments. It is not a comprehensive analysis of the subject matter covered and is not intended to provide accounting or other advice or guidance with respect to the matters addressed in this publication. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this publication. For additional information on topics covered in this publication, contact a Grant Thornton client-service partner.