On the Horizon: PCC amendments take effect

Contents FASB       Amendments to private company guidance take effect
      Tentative decisions from March 2 meeting posted
      FASB appoints Mark Scoles to the EITF
      SEC adopts GAAP taxonomy
EITF       Consensus-for-exposure on Issue 16-A, “Restricted Cash”
      SEC Observer comments
International Federation of Accountants       IAASB addresses special audit considerations of ECL models
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.

Amendments to private company guidance take effect The FASB issued ASU 2016-03, Effective Date and Transition Guidance – a consensus of the Private Company Council, which makes the guidance 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 new guidance, which is effective upon issuance, also includes transition provisions that allow private companies to forego a preferability assessment the first time they elect the accounting alternatives within the scope of this new guidance. Any subsequent change to an accounting policy election requires justification that the change is preferable under ASC 250, Accounting Changes and Error Corrections.

Additionally, the new guidance indefinitely extends the transition guidance in all of the ASUs listed above. Although the new guidance does not change how the transition provisions are applied for ASU 2014-07 and ASU 2014-18, it now permits private companies that voluntarily elect the accounting alternative provided in ASU 2014-02 to apply that alternative prospectively, and also allows private companies to apply the simplified hedge accounting approach in ASU 2014-03 to existing swaps upon initial election of that approach.

Tentative decisions from March 2 meeting posted The FASB met on March 2 to continue Phase 1 redeliberations on the proposed ASU, Presentation of Financial Statements of Not-for-Profit Entities. The Board took the actions summarized below.

The Board also reviewed comments received on the following proposals related to its disclosure framework project: the proposed ASU, Assessing Whether Disclosures are Material, and the proposed amendments to FASB Concepts Statement, Conceptual Framework for Financial Reporting: Chapter 3 – Qualitative Characteristics of Useful Financial Information. The Board discussed next steps for this project, but did not make any decisions.

The Board tentatively decided to require not-for-profit entities (NFPs) that present a self-defined operating measure, along with internal board designations, appropriations, and similar actions affecting that measure, to report these types of internal transfers either on the face of the financial statements or in the notes, on a disaggregated basis and by type.

The Board also tentatively decided to require NFPs to provide qualitative information in the notes on how an NFP manages its liquid resources that are available to meet cash demands for general expenditures within one year of the period-ending balance sheet date. In addition, NFPs would be required to provide quantitative information, either on the face of the period-ending balance sheet or in the notes, as well as additional qualitative information in the notes, as necessary, to communicate the availability of an NFP’s financial assets to meet cash needs for one year from that date. The Board clarified that the availability of a financial asset may be affected by its nature and by imposed external and internal limits.

For both of the topics discussed above, the Board directed the FASB staff to include examples in the final ASU of different ways that NFPs can report this liquidity information.

FASB appoints Mark Scoles to the EITF The FASB announced the appointment of Mark Scoles to the Emerging Issues Task Force (EITF) to fulfill the remaining five-year, renewable term that was left vacant by the passing of Grant Thornton partner Chuck Evans. Mark is the partner-in-charge of the Accounting Principles Consulting Group of Grant Thornton.

SEC adopts GAAP taxonomy The Board announced that the SEC has adopted the 2016 GAAP Financial Reporting Taxonomy, which has been updated to address accounting guidance released since the previous version in addition to other improvements.

In connection with the 2016 release, the taxonomy staff has issued several final 2016 XBRL Taxonomy Implementation Guides.

For more information on the 2016 taxonomy, the FASB is hosting a webcast, IN FOCUS: 2016 GAAP Financial Reporting Taxonomy, Changes and Beyond, and SEC Update, on April 5 from 1 p.m. to 2:15 p.m. Eastern.

EITF Because consensuses and consensuses-for-exposure are subject to ratification by the FASB and some of the details of conclusions reached at an EITF meeting are determined during the process of developing the minutes of the meeting, the following descriptions are preliminary.

At its meeting on March 3, the FASB's EITF reached a consensus-for-exposure on Issue 16-A on restricted cash. In addition, the SEC Observer made an announcement rescinding certain SEC staff guidance upon the adoption by an entity of the guidance in ASC 606, Revenue from Contracts with Customers, and in ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or Equity.

The FASB will consider ratification of the consensus-for-exposure at an upcoming meeting. A Board-ratified consensus-for-exposure will be posted as a proposed ASU to the FASB website for comment. The FASB will also issue an ASU to remove the rescinded SEC staff guidance from the Codification.

Consensus-for-exposure on Issue 16-A, "Restricted Cash" The Task Force reached a consensus-for exposure specifying that restricted cash and restricted cash equivalents should be included with cash and cash equivalents in the statement of cash flows. The statement of cash flows would therefore explain the change during the period in both cash and cash equivalents and in restricted cash and restricted cash equivalents. The total amount of cash and cash equivalents and restricted cash and restricted cash equivalents at the beginning and end of the period shown in the statement of cash flows would be the same amount as similarly titled line items or subtotals shown in the balance sheet for those dates. If the total amount of restricted cash and restricted cash equivalents is not presented as a separate line item or subtotal in the balance sheet, the entity would disclose those amounts in the notes to the financial statements, including a description of the location of those amounts in the balance sheet.

The Task Force tentatively decided that an entity would provide a description about the provisions of the restrictions on cash and cash equivalents in the notes to the financial statements.

In addition, it tentatively decided that entities would adopt the consensus-for-exposure on a retrospective basis and would disclose the following transition information in the first interim and annual period of adoption:
  • The nature of, and reason for, the change in accounting principle
  • A description of the prior-period information that has been retrospectively adjusted

The Task Force also tentatively decided that an entity could apply the new guidance prospectively if it would be impracticable to apply it retrospectively.

It also tentatively decided not to define "restricted cash" and "restricted cash equivalents." As a result, public entities should continue to consider the guidance in SEC Regulation S-X.

SEC Observer comments The SEC staff rescinded the following SEC Observer comments upon an entity’s adoption of the guidance in ASC 606:
  • ASC 605-20-S99-2, Revenue and Expense Recognition for Freight Services in Process
  • ASC 605-45-S99-1, Accounting for Shipping and Handling Fees and Costs
  • ASC 605-50-S99-1, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)
  • ASC 932-10-S99-5, Accounting for Gas-Balancing Arrangements

In addition, the SEC staff rescinded the following SEC staff announcement upon an entity’s adoption of the guidance in ASU 2014-16:
  • ASC 815-10-S99-3, Determining the Nature of a Host Contract Related to a Hybrid Instrument Issued in the Form of a Share Under Topic 815

International Federation of Accountants IAASB addresses special audit considerations of ECL models The International Auditing and Assurance Standards Board (IAASB) of IFAC released a publication, "An Update on the Project and Initial Thinking on the Auditing Challenges Arising from the Adoption of Expected Credit Loss Models," highlighting the audit issues resulting from the move to the expected credit loss (ECL) models when accounting for loan losses. The publication summarizes the audit challenges identified with respect to ECL and establishes preliminary views on how these challenges may be addressed under the current International Standards on Auditing (ISA), including challenges related to estimation uncertainty.

The publication advises auditors of financial institutions and other entities how to prepare for
  • Challenges they may face in auditing due to the new impairment standards
  • The need to communicate with management, those charged with governance, and regulators on both the impact of these challenges and what is needed to develop or change the systems and models to comply with the new standards
  • Risks of material misstatement resulting from the complexity, estimation uncertainty, materiality of the ECL provision, and the need for difficult judgments relating to key data and assumptions
  • The need for substantial auditor attention to disclosures relating to ECL given the high estimation uncertainty

Comment letter issued On February 29, 2016, the firm issued a comment letter in response to the FASB's proposed ASU, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.

© 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.