Narrow-scope improvements proposed to new revenue model

Contents FASB
     Proposed narrow-scope improvements to new revenue recognition standard
     Amendments proposed to private company guidance
PCAOB publishes brief on 2015 inspection cycle
GASB proposes Implementation Guide
Comment letter issued

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.

Proposed narrow-scope improvements to new revenue recognition standard The FASB issued a proposed ASU, Narrow-Scope Improvements and Practical Expedients, which is intended to improve the guidance on collectibility, noncash consideration, and completed contracts at transition within ASC 606, Revenue from Contracts with Customers. Additionally, the proposed amendments would provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers.

The following represents a summary of the proposed amendments:

  • Assessing the collectibility criterion and accounting for contracts that do not meet the criteria for Step 1 (paragraph 606-10-25-7): Would clarify the objective of the collectibility criterion and add a new criterion to clarify when revenue would be recognized for a contract that fails to meet the criteria in Step 1.
  • Presentation of sales taxes and other similar taxes collected from customers: Would permit an entity, as an accounting policy election, to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price.
  • Noncash consideration: Would specify that the measurement date for noncash consideration is contract inception and clarify that the variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration.
  • Contract modifications at transition: Would provide a practical expedient that permits an entity to determine and allocate the transaction price on the basis of all satisfied and unsatisfied performance obligations in a modified contract as of the beginning of the earliest period presented. Therefore, an entity would not be required to separately evaluate the effects of each contract modification. An entity that elects the practical expedient would apply it consistently to similar types of contracts.
  • Completed contracts at transition: Would clarify that a completed contract, for purposes of transition, is a contract for which all (or substantially all) of the revenue was recognized under legacy U.S. GAAP before the date the new guidance is initially applied. Elements of a contract that do not affect revenue under legacy GAAP would not impact the assessment of whether a contract is complete. The proposed amendments would also permit an entity to apply the modified retrospective transition approach either to all contracts or to completed contracts only.
  • Technical correction: Would clarify that an entity that retrospectively applies the guidance in ASC 606 to each prior reporting period would not be required to disclose the effect of the accounting change for the period of adoption. However, an entity still would be required to disclose the effect of the changes on any prior periods retrospectively adjusted.

Comments are due by November 16, 2015.

Amendments proposed to private company guidance The FASB issued a proposed ASU, Effective Date and Transition Guidance – a proposal of the Private Company Council, which is intended to make the guidance for private companies in the following ASUs effective immediately by removing their effective dates:

  • ASU 2014-02, Accounting for Goodwill
  • ASU 2014-03, Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps – Simplified Hedge Accounting Approach
  • ASU 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements
  • ASU 2014-18, Accounting for Identifiable Intangible Assets in a Business Combination

The proposed amendments also include transition provisions that would allow private companies to forgo a preferability assessment the first time they elect the accounting alternatives within the scope of this proposed ASU. Any subsequent change to an accounting policy election would require justification that the change is preferable under ASC 250, Accounting Changes and Error Corrections.

Additionally, the amendments would indefinitely extend the transition guidance in the ASUs listed above. While the proposed ASU extends the transition guidance for two of those ASUs, 2014-07 and 2014-18, there is no intention to change how the transition provisions are applied, regardless of when the amendments in those ASUs are elected.

Comments are due November 16, 2015.

PCAOB publishes brief on 2015 inspection cycle The PCAOB published a Staff Inspection Brief detailing the objectives, focus, and scope of its 2015 inspection cycle. The PCAOB will inspect approximately 220 registered audit firms during the 2015 inspection cycle. Approximately 60 of those are non-U.S. firms in about 25 different jurisdictions.

The inspections staff is focusing attention on the following general areas where inspectors found significant deficiencies in the past several years:

  • Auditing internal control over financial reporting
  • Assessing and responding to risks of material misstatements
  • Auditing accounting estimates, including fair value measurements

The inspections staff also considers the current economic environment and related developments. Economic developments that factor into the 2015 selections include

  • High pace of M&A activity
  • Search for higher-yielding investment returns in a low interest rate environment
  • Recent fluctuation in oil prices and its varying effects on the financial reporting risks of different industries

The appendix contains additional information on the inspection program, industry-sector and market-capitalization demographics, and inspection focus data for issuer audits inspected covering the 2011– 2014 inspection cycles.

GASB proposes Implementation Guide The GASB recently issued a proposed Implementation Guide, which contains questions and answers intended to clarify, explain, or elaborate on GASB statements and interpretations. The proposed guide focuses on questions that have been raised related to the GASB’s new standards on pensions, retiree healthcare benefits, and fair value reporting, and also addresses practice issues on other topics that have been brought to the GASB’s attention.

Comments are due November 30, 2015.

Comment letter issued On September 29, the firm issued a comment letter in response to the PCAOB’s Rulemaking Docket Matter 041, Concept Release on Audit Quality Indicators.

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