FASB simplifies measurement-period adjustments

Contents FASB
     Board issues ASU to simplify measurement-period adjustments
     Proposed improvements to materiality released
     Joint FASB/IASB meeting highlights posted
PCC posts meeting highlights
SEC requests comments on certain Regulation S-X disclosures
AICPA updates guide for insurance entities
GASB publishes a survey for financial statement preparers
IFAC publishes compilation guide

FASB 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.

Board issues ASU to simplify measurement-period adjustments The FASB recently issued ASU 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments, which simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for these adjustments.

Under the new guidance, an acquirer is required to recognize adjustments to provisional amounts that are identified during the measurement period within the reporting period in which the adjustment amounts are determined. Those adjustments include changes in depreciation, amortization, or other income effects as a result of the change in provisional amounts calculated as if the accounting had been completed at the acquisition date. The acquirer must also present separately by line item, either on the face of the income statement or in the notes to the financial statements, the portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.

Public business entities must apply the amendments for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early application is permitted for financial statements that have not been issued.
All other entities must apply the guidance for fiscal years beginning after December 15, 2016 and for interim periods within fiscal years beginning after December 15, 2017. Early application is permitted for financial statements that have not yet been made available for issuance.
The amendments must be applied on a prospective basis to adjustments to provisional amounts that occur after the effective date.

Proposed improvements to materiality released The FASB recently issued two proposals as part of its disclosure framework project. The objective of this project is to improve the effectiveness of disclosures by more clearly communicating the information required by U.S. GAAP that is most important to the users of the financial statements.
Entities have until December 8 to comment on both proposals.
The proposed Concepts Statement, Conceptual Framework for Financial Reporting – Chapter 3: Qualitative Characteristics of Useful Financial Information, is intended to clarify the concept of materiality by

  • Making it clear that the FASB does not define “materiality”
  • Replacing existing discussion of materiality with a broad observation of the U.S. Supreme Court’s definition of materiality

The proposed ASU, Notes to Financial Statements: Assessing Whether Disclosures Are Material, is intended to promote the appropriate use of discretion by organizations when deciding which disclosures should be considered material in their particular circumstances.

The proposed guidance would call for the following changes:

  • Materiality would be applied to quantitative and qualitative disclosures individually and in aggregate within the context of the financial statements as a whole, meaning that some, all, or none of the disclosure requirements in a particular section might be material, depending upon the entity’s particular circumstances.
  • Materiality would be identified as a legal concept.
  • Omitting a disclosure of immaterial information would not be considered an accounting error.

For more information, read FASB in Focus, “FASB Disclosure Framework Exposure Drafts on Materiality.”

Joint FASB/IASB meeting highlights posted  
The FASB and IASB met on September 23 to discuss progress on their disclosure framework, insurance, conceptual framework, and business combinations projects. The Boards did not make any decisions.

PCC posts meeting highlights  
The Private Company Council (PCC) met on September 25 to discuss findings from the FASB’s Future Agenda Prioritization survey, as well as to receive an update and provide input on various FASB projects.

As part of the survey, the PCC identified the following topics as top priorities for the FASB to consider:

  • Other comprehensive income
  • Consolidations
  • Liabilities with characteristics of equity
  • Cash flow classification improvements
  • Financial statement presentation

In addition, the FASB staff provided updates on and received input from the PCC on its hedge accounting project, disclosure framework project, targeted improvements to the guidance on down rounds within the guidance to distinguish liabilities from equity, and the EITF’s project on the statement of cash flows.

SEC requests comments on certain Regulation S-X disclosures On September 25, pursuant to its Disclosure Effectiveness Initiative, the SEC issued a Request for Comment on the effectiveness of financial disclosures required by Regulation S-X for certain entities other than registrants. Specifically, the SEC is seeking public comments on the form and content of disclosure requirements for acquired businesses, subsidiaries not consolidated and 50 percent or less owned persons, guarantors, and issuers of guaranteed securities and affiliates whose securities collateralize registered securities.
The SEC staff is seeking information on how existing disclosures are being used by investors in making investment and voting decisions, what are the challenges that registrants face in preparing such disclosures, and what potential changes will make the disclosures more effective. The staff also is continuing to evaluate other Regulation S-X disclosure requirements applicable to registrants and will make its recommendations to the Commission for consideration.
The comment period ends 60 days after the Request for Comment is published in the Federal Register.

AICPA updates guide for insurance entities The AICPA has updated the Audit and Accounting Guide, Life and Health Insurance Entities, to provide industry-specific guidance on accounting and auditing issues in the life and health insurance industry.

GASB publishes a survey for financial statement preparers The Governmental Accounting Standards Board (GASB) published a survey for financial statement preparers to use in gathering information on activities that governments engage in when preparing and publishing their audited annual financial reports in conformity with U.S. GAAP, including when those activities take place and the number of technical staff hours involved.

Completed surveys are requested by December 15. To download the survey, click here.

IFAC publishes compilation guide The International Federation of Accountants (IFAC) released Guide to Compilation Engagements to assist accountants, particularly those in small and medium-sized practices, in conducting compilation engagements in compliance with International Standard on Related Services 4410 (Revised), Engagements to Compile Financial Statements.
The guide can be used as

  • An introduction to compilation engagements
  • A resource to help practitioners deepen their understanding and knowledge of these engagements
  • A day-to-day reference guide
  • A training tool

The guide includes practical guidance, illustrative examples, and appendices with checklists and forms that can be used or modified to meet jurisdictional requirements.

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