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Participating mortgage loans guidance clarified

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Contents
Financial reporting issue
     Participating mortgage loans guidance clarified
FASB posts highlights of November 2 meeting
     Disclosure framework for defined benefit plans
     Presentation of net periodic pension and postretirement benefit costs
Financial reporting Taxonomy Implementation Guides issued
CAQ and Audit Analytics report on disclosure trends in audit oversight



Financial reporting issue

Participating mortgage loans guidance clarified

Participating mortgage loans are financing instruments wherein the return to the lender is tied to the performance of the property. The lender participates either in the appreciation in the market value of the mortgaged real estate project, in the results of operations of the mortgaged real estate project, or in both. The accounting guidance for participating mortgages is codified in ASC 470-30, Debt: Participating Mortgage Loans, which was originally provided in AICPA Statement of Position (SOP) 97-1, Accounting by Participating Mortgage Loan Borrowers.

Grant Thornton previously identified and notified the FASB staff about an apparent discrepancy between the guidance in ASC 470-30 and the guidance in SOP 97-1. The guidance in ASC 470-30-25-1, as originally codified, appears to require the recognition of a liability at the inception of a participating mortgage loan for all participation features, whereas the guidance in SOP 97-1 clearly states that the recognition of a participation liability is required only for features that allow participation in a project’s market value appreciation.

In ASU 2015-10, Technical Corrections and Improvements, the FASB amended the guidance in ASC 470-30 to clearly align with the guidance in SOP 97-1. The amended guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted for any fiscal year or interim period for which the financial statements have not been issued for public business entities or made available for issuance for all other entities.
The amendments are intended to clarify the guidance in ASC 470-30 and are not expected to impact how reporting entities apply that guidance.



FASB posts highlights of November 2 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.

At its meeting on November 2, the FASB discussed the disclosure framework for defined benefit plans, the presentation of net periodic pension and postretirement benefit costs, and the Conceptual Framework relating to measurement.

The Board made no decisions on the Conceptual Framework, but highlights of the other discussions follow.

Disclosure framework for defined benefit plans

The Board discussed the disclosures for defined benefit plans in the financial statements of plan sponsors and tentatively decided that nonpublic entities would be required to disclose the effects of a one-percentage-point change in assumed health care cost trend rates in (a) the aggregate of the service and interest cost components of net periodic benefit costs, and (b) benefit obligations for postretirement health care benefits. This disclosure is currently required for public entities.

The Board asked the staff to draft a proposed ASU, with a 90-day comment period.

Presentation of net periodic pension and postretirement benefit costs

After discussing comments received from reviewers of the proposed ASU, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, the Board asked the staff to clarify the wording in certain instances and to draft a proposed ASU, with a comment period of 90 days.



Financial reporting Taxonomy Implementation Guides issued

The FASB staff issued the following final 2015 financial reporting Taxonomy Implementation Guides:


In addition, the staff issued a proposed Taxonomy Implementation Guide, Short-duration Insurance Contracts, which provides examples for users to understand how the modeling for short-duration insurance contracts is structured within the taxonomy. The staff also issued a proposed Taxonomy Style Guide, Balance Type Guide, which provides guidance for modeling the balance type, debit or credit, of monetary item type elements included in the taxonomy.

The comment period for the proposed guides ends December 26, 2015.



CAQ and Audit Analytics report on disclosure trends in audit oversight

The Center for Audit Quality (CAQ) and Audit Analytics issued their second annual report, “Audit Committee Transparency Barometer,” on the robustness of proxy disclosures related to audit committee oversight of companies in the Standard & Poor’s (S&P) Composite 1500.
 
The 2015 report identified the following positive trends compared to 2014 in key audit committee disclosure areas:

  • One-quarter of S&P 500 companies showed enhanced discussion of the audit committee’s considerations in recommending the appointment of the audit firm, up from 13 percent in 2014.
  • Sixteen percent of S&P 500 companies explicitly stated the role that audit committees played in determining the audit firm’s compensation, an 8 percent increase over 2014.
  • There was a significant increase in the disclosure of the criteria considered in the evaluation of the audit firm among S&P MidCap 400 and S&P SmallCap 600 companies.




© 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.