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On the Horizon -- FASB clarifies gross versus net revenue reporting

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FASB
     ASU simplifying the equity method released
     Board issues ASU clarifying gross versus net reporting of revenue
PCAOB announces forums for broker-dealer auditors



FASB

ASU simplifying the equity method released

On March 15, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting. The new guidance eliminates the requirement to retroactively adopt the equity method of accounting if an investment previously accounted for using another method subsequently qualifies for accounting under the equity method as a result of an increased level of ownership interest or degree of influence. Instead, an entity should add the cost of acquiring the additional interest in the investee, if any, to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment qualifies for the equity method.

The new guidance also requires entities to recognize in earnings unrealized holding gains or losses previously recognized in accumulated other comprehensive income related to available-for-sale equity securities that become eligible for the equity method at the date the investment qualifies for the equity method.

The new guidance is effective for all entities in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Entities should prospectively apply the new guidance after its effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted for all entities.

Board issues ASU clarifying gross versus net reporting of revenue

The Board recently issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies and enhances the implementation guidance on principal versus agent considerations within ASC 606, Revenue from Contracts with Customers.

For the principal versus agent evaluation, the new guidance clarifies how an entity should determine whether the nature of its promise to a customer is to provide specified goods or services or to arrange for another party to provide them. It also clarifies that if a contract with a customer includes more than one specified good or service, an entity could be a principal for some specified goods or services and an agent for others.

The new guidance in ASC 606-10-55-39 amends the indicators of control over specified goods or services before they are transferred to the customer, focusing on whether an entity has control and is therefore a principal, instead of focusing on whether an entity does not have control and is an agent. It also adds the guidance in ASC 606-10-55-39A, which clarifies the relevance of these indicators to the assessment of control.

In addition, the new guidance amends the existing illustrative examples to clarify how to apply the implementation guidance on principal versus agent considerations, and also adds new examples.

ASU 2016-08 does not change the steps an entity must follow to achieve the core principle of the new revenue guidance—that is, an entity must recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods and services.

The effective date and transition requirements for the new guidance are the same as the requirements for ASU 2014-09, Revenue from Contracts with Customers. However, ASU 2015-14, Deferral of the Effective Date, has deferred the effective date of ASU 2014-09 by one year.

The FASB’s new guidance is the same as the amendments in the IASB’s forthcoming standard, Clarifications to IFRS 15. As a result, the FASB’s and the IASB’s guidance on principal versus agent considerations remains converged.

Read more about the new guidance in our upcoming New Developments Summary.  



PCAOB announces forums for broker-dealer auditors

The PCAOB announced dates for five Forums for Auditors for Broker-Dealers scheduled for 2016. The purpose of the forums is to share information about Board activities with PCAOB-registered firms that audit smaller broker-dealers registered with the SEC. The forums also provide auditors with an opportunity to present their comments, concerns, and questions to Board members and PCAOB staff.

Topics discussed at the forums will include inspection observations and trends, case studies, enforcement matters, and auditing standards updates.

The 2016 dates and locations are as follows:

  • April 20 – Orange County, California
  • June 1 – Chicago, Illinois
  • September 22 – Jersey City, New Jersey
  • October 18 – Tampa, Florida
  • December 7 – Las Vegas, Nevada

There is no fee to participate in these events, but preregistration is required and space may be limited.




© 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.