On the Horizon -- FASB proposes to clarify consolidation guidance for NFPs

Contents FASB      Proposed ASU to clarify consolidation guidance for NFP general partners
     Invitation to comment issued
     Q3 2016 FASB Outlook e-newsletter published
AICPA      FinREC issues additional revenue recognition implementation working drafts
PCAOB      Teleconference calls scheduled on technology implementation of Form AP
     New resource page on auditor’s report reproposal published
CAQ releases highlights from May 2016 IPTF meeting OMB releases 2016 Compliance Supplement Comment letter issued

FASB Proposed ASU to clarify consolidation guidance for NFP general partners The Board issued the proposed ASU, Clarifying When a Not-for-Profit Entity That is a General Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity, to clarify when not-for-profit (NFP) general partners should consolidate for-profit limited partnerships or similar legal entities, such as a limited liability company that has governing provisions similar to a limited partnership.
ASU 2015-02, Amendments to the Consolidation Analysis, eliminated certain consolidation guidance applicable to NFPs in ASC 810-20, Consolidation: Control of Partnerships and Similar Entities, and instead referred NFPs that are general partners of for-profit limited partnerships to other consolidation guidance in the Codification that does not address when a general partner should consolidate a for-profit limited partnership.

The proposed guidance would maintain how NFP general partners apply the consolidation guidance currently located in ASC 810-20 by including that guidance in ASC 958-810, Not-for-Profit Entities – Consolidation.
Under the proposed ASU, NFPs that are general partners would still be presumed to control a for-profit limited partnership, regardless of the extent of the NFP’s ownership, unless that presumption is overcome by either substantive kick-out rights or substantive participating rights.

The Board will determine the effective date of the proposed ASU for entities that elected to early adopt ASU 2015-02 after it considers feedback on the proposed guidance. NFPs that have early adopted the guidance in ASU 2015-02 would apply the proposed guidance using either a modified retrospective approach or a retrospective approach. NFPs that have not yet adopted the guidance in ASU 2015-02 would apply the proposed guidance using the same effective date and transition provisions indicated in ASU 2015-02.

Comments on the proposed guidance are due October 3.

Invitation to comment issued An Invitation to Comment, Agenda Consultation, was issued by the Board to solicit feedback about potential financial accounting and reporting topics that the Board should consider adding to its agenda. The document covers financial reporting areas of concern identified by stakeholders in a survey of the FASB’s advisory groups.

The document includes potential issues and possible solutions about the following areas:

  • Intangible assets, including research and development
  • Pensions and other postretirement plans
  • Distinguishing liabilities from equity
  • Reporting performance and cash flows, including income statement, segment reporting, other comprehensive income, and statement of cash flows

The Board is requesting feedback on these areas addressing (1) the potential for significant improvement, (2) the priority of addressing each issue, and (3) the approach to addressing each issue, along with feedback on other issues that the Board should consider adding to its agenda.

The comment period ends October 17, and the Board plans to hold roundtable meetings on the document during the fourth quarter of 2016.

Q3 2016 FASB Outlook e-newsletter published The FASB issued the Q3 2016 edition of its FASB Outlook e-newsletter, which includes articles that discuss how the Board addresses accounting issues, the disclosures included in new or recently proposed standards, the proposed not-for-profit financial reporting standard, other upcoming FASB proposals, and how the Board decides when new standards should take effect.

AICPA FinREC issues additional revenue recognition implementation working drafts The AICPA Financial Reporting Executive Committee (FinREC) issued working drafts of two revenue recognition implementation issues for informal comment. This latest set of working drafts discusses considerations and provides illustrative examples of industry-specific transactions for entities implementing the new revenue standard in the telecommunications industry.

The AICPA is developing an Accounting Guide on revenue recognition that will include the final versions of all implementation issues identified.

The comment period for these working drafts ends October 1.

PCAOB Teleconference calls scheduled on technology implementation of Form AP The PCAOB has scheduled three teleconference calls to address questions from registered firms on the technology implementation of Form AP, “Auditor Reporting of Certain Audit Participants.” PCAOB information technology (IT) staff will discuss the filing of the form using a web form or submitting multiple forms at once using XML. Information about the rule itself will not be discussed.

Calls are open only to PCAOB-registered firms. Firms are required to sign up in advance and encouraged to submit questions through the sign-up form or, once signed up, by replying to the email invitation to the call sent by the PCAOB.
New resource page on auditor’s report reproposal published The PCAOB published a resource page on the auditor’s report reproposal containing Board member statements, videos of public meetings, and links to comment letters and other resources.

CAQ releases highlights from May 2016 IPTF meeting The highlights of joint meetings between the Center for Audit Quality’s SEC Regulations Committee’s International Practices Task Force and the SEC staff summarize issues discussed. The highlights do not represent official positions of the AICPA, the FASB, or the IASB and are neither authoritative positions nor interpretations issued by the SEC or its staff.

The CAQ recently issued the highlights of the joint meeting between its International Practice Task Force (IPTF) and the SEC staff held on May 17. Discussions at the meeting included the following topics:

  • Monitoring of inflation in certain countries, including South Sudan, Sudan, Venezuela, Belarus, Islamic Republic of Iran, Malawi, Ukraine, Yemen, Suriname, and Argentina
  • Recent NYSE rule requiring foreign private issuers to file Form 6-K with the SEC, including a balance sheet, as of the end of its second fiscal quarter and a semiannual income statement for its first two fiscal quarters
  • Updating of annual financial statement requirements in a registration statement when a foreign private issuer reflects the retroactive application of an accounting principle in interim financial statements
  • Updating of MD&A and pro forma information requirements in a registration statement when a foreign private issuer files interim financial statements reflected in local GAAP and reconciled to U.S. GAAP
  • Reconciliation of local GAAP to IFRS Standards as issued by the IASB in lieu of U.S. GAAP
  • Confirmation that a foreign private issuer (FPI) who has lost FPI status and will file its first Form 10-K should include changes in internal control for the entire year that is covered by Form 10-K in the Item 9A disclosure versus changes in internal control for only the fiscal quarter
  • Status of IFRS taxonomy for the purpose of FPI compliance with the XBRL rule

OMB releases 2016 Compliance Supplement The U.S. Office of Management and Budget (OMB) released the 2016 Compliance Supplement for single audit engagements. The supplement is effective for audits of fiscal years beginning after June 30, 2015 and supersedes the 2015 supplement dated June 2015.

Appendix V, “List of Changes for the 2016 Compliance Supplement,” details the changes contained in the 2016 supplement, including

  • References to OMB A-133 have been removed.
  • All parts and appendices were reviewed for the use of the words “should” and “must,” both for consistency in usage and clarity of intent, and changes were made as appropriate. Auditors must continue to judge whether the suggested audit procedures are sufficient to achieve the stated audit objectives or whether alternative procedures are needed.
  • Part 2, “Matrix of Compliance Requirements,” changed shaded cells to use “N” instead of shading to indicate that a program normally does not have activity subject to the compliance requirement or that the compliance requirement would generally not have a direct and material effect on the program.
  • Part 3, “Introduction,” has a discussion on the effect of Council on Financial Assistance Reform (COFAR) FAQs that are published after release of the supplement. FAQs issued or updated after September 2015 are available on the COFAR website and should be considered in the execution and review of single audits
  • Part 4, “Agency Program Requirements,” and Part 5, “Clusters of Program,” contain added and deleted programs as well as changes to programs and clusters due to regulatory and other changes.
  • Part 6, “Internal Control,” has been added back to the supplement.
  • The discussion of safe harbor coverage for large loans and loan guarantee programs was removed since the Uniform Guidance includes detailed requirements for determining large loan and loan guarantees and the effect on major program determination.

Appendix VI, “Program-Specific Audit Guides,” identifies OMB guides that have been deleted and also identifies several Department of Education guides that have been added.

Appendix VII, “Other Audit Advisories,” discusses the following substantive changes:

  • I. “Effect of Implementation of the Uniform Guidance on Major Program Determination”: This guidance addresses transition issues that could occur for some nonfederal entities in the third year after implementation of the Uniform Guidance. Due to the change in risk assessment criteria for Type A programs, there may be an increase in the number of low-risk Type A programs in the first and second year. Subsequently, there may be an increase in the number of programs that will need to be tested in the third year due to the two-year lookback rule. The guidance suggests that auditors may consider auditing some low-risk Type A programs as additional programs in the first and second year. However, an additional low-risk Type A program would not be permitted to be audited more than once in the first three years of implementing the Uniform Guidance.
  • VI. “OMB-Approved Exceptions to the Guidance in 2 CFR Part 200”: The listing of federal agency exceptions was not updated to encompass any additional exceptions arising from agencies’ final rulemaking. The exceptions listed are based on the agencies’ interim final rulemaking. Auditors should make a reasonable effort to identify differences by reviewing the exception information in the supplement and agency regulations if more information is needed.

Comment letter issued On August 5, the firm submitted a comment letter to the FASB in response to the proposed ASU, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.

© 2016 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.