On the Horizon: FASB proposes improvements to NFP grant and contribution accounting


   Proposal to address grant and contribution accounting by NFPs    
   Tentative decisions from Aug. 2 meeting posted
   Q3 2017 FASB Outlook e-newsletter published    
SEC staff issues FAQs on investment company reporting modernization    
   FinREC releases revenue recognition implementation working drafts
FAC now accepting 2017 DCF submissions
   Update proposed to the IFRS Taxonomy 2017


Proposal to address grant and contribution accounting by NFPs

The FASB has issued a proposed ASU, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, to assist entities in evaluating whether transactions should be accounted for as contributions (nonreciprocal transactions) within the scope of ASC 958, Not-for-Profit Entities, or as exchange (reciprocal) transactions subject to other guidance, such as ASC 606, Revenue from Contracts with Customers. The proposal would also address how an entity would distinguish between conditional contributions and unconditional contributions when a transaction is accounted for as a contribution.

The proposed amendments would apply to both contributions received by a recipient and to contributions made by a resource provider, such as a government agency, a private foundation, or a corporation. While the accounting for contributions is an issue primarily affecting not-for-profit (NFP) entities, the proposed amendments would apply to all entities that receive or make contributions of cash or other assets.

In the past, stakeholders have reported difficulties in characterizing grants and similar contracts with government agencies and others as either exchanges or contributions, and in determining whether grants and similar contracts that are characterized as contributions are either conditional or unconditional, which has resulted in diversity in practice among NFPs. 

As a result, the amendments in the proposal would provide a more robust framework for entities to apply in determining whether a particular transaction is an exchange transaction or a contribution transaction, by clarifying how to evaluate whether a resource provider is receiving commensurate value in an exchange transaction.

The amendments in the proposal would also assist entities in determining whether a transaction that should be accounted for as a contribution is either a conditional contribution or an unconditional contribution, by providing a basis under which an entity would determine whether an agreement includes a barrier. If an agreement includes both a barrier and a right of return (or a right of release), the contribution would be deemed conditional, and contribution revenue would not be recognized by the recipient until the condition is met. The proposal also includes indicators that an entity would consider when it determines whether an agreement includes a barrier. When an entity concludes that a contribution is unconditional, it would then consider whether the contribution is restricted by applying the existing related guidance.

The effective dates would be the same as those for the new revenue guidance in ASC 606, as follows:

  • For public entities (public business entities and certain NFPs): Annual periods, including interim periods therein, beginning after December 15, 2017
  • For all other entities: Annual periods beginning after December 15, 2018 and interim periods in annual periods beginning after December 15, 2019

Early adoption would be permitted irrespective of whether ASC 606 is early adopted.

An entity would be permitted to apply the forthcoming guidance using a retrospective approach or a modified prospective approach. Under the modified prospective approach, revenue or expense not yet recognized prior to the year of adoption (because the agreement either was not completed as of the effective date or was entered into after the effective date) would be recognized in the year of adoption in accordance with the forthcoming guidance. Under this approach, no prior-period results would be restated, and an entity would not make a cumulative-effect adjustment to opening net assets or retained earnings. If an entity chooses this approach, it would also be required to make certain disclosures related to the reasons for, and the quantitative impact of, this change in accounting principle.

The Board has also released a FASB In Focus, which discusses the proposal in greater detail.

The comment period on the proposed ASU ends on November 1.

Tentative decisions from August 2 meeting posted

All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on August 2 to discuss an implementation issue related to the new leasing guidance, amendments to a proposal that would impact insurance entities, and the scope of the next phase of its project on the definition of a business. The Board took the actions summarized below.

Leases implementation

The Board discussed the results of staff research and analysis performed on the effect of the guidance on accounting for land easements in ASC 842, Leases, and tentatively decided to propose amendments to the transition provisions in ASC 842 that would apply to certain land easements that existed before the new standard’s effective date.

The proposed amendments would provide optional transition guidance for land easements not previously accounted for under the existing guidance in ASC 840, Leases, and would allow entities to elect to continue accounting for these land easements under the guidance that the entity has been applying. When ASC 842 becomes effective, an entity would apply that guidance to all new or modified land easement arrangements to determine whether these arrangements should be accounted for as leases under ASC 842.

The Board also tentatively decided to propose a technical correction to amend Example 10 in ASC 350-30, Intangibles – Goodwill and Other: General Intangibles Other Than Goodwill, to address perceived inconsistencies between that example and the new guidance in ASC 842.

The effective date and transition requirements for any final amendments would be the same as the requirements for ASC 842.

The Board directed the staff to draft a proposed ASU for written ballot that would include these and other amendments to ASC 842.

Targeted improvements to the accounting for long-duration insurance contracts

The Board began redeliberating the amendments to the proposed ASU, Targeted Improvements to the Accounting for Long-Duration Contracts, and made several tentative decisions related to how an insurance entity would determine the assumptions and the discount rate used in measuring the liability for nonparticipating traditional insurance contracts and limited payment insurance contracts.

The Board also tentatively decided that insurance entities would apply the proposed amendments to all contracts in force based on their existing carrying amount at the transition date, adjusted for the removal of any related amounts in accumulated other comprehensive income. An insurance entity would have an option to apply the proposed amendments retrospectively, with an adjustment to the beginning balance of retained earnings.

The FASB staff plans to discuss the following areas of the proposed ASU at future Board meetings:

  • Assumptions used to measure the liability for participating insurance contracts
  • Measurement of market risk benefits
  • Amortization of deferred policy acquisition costs
  • Presentation and disclosures

Improving the accounting for asset acquisitions and business combinations

The Board also discussed the scope of phase 3 of its definition of a business project on improving the accounting for asset acquisitions and business combinations, and tentatively decided that the project should

  • Address the differences in accounting for acquisitions of assets and businesses instead of the differences in accounting for sales or the derecognition of assets and businesses.
  • Focus on the accounting for certain areas within the existing guidance on asset acquisitions and business acquisitions, such as acquisition costs, in-process research and development, and contingent consideration.

The Board directed the staff to consider whether the existing business combination guidance related to contract reassessment and to measurement exceptions for reacquired rights, indemnification assets, and leases should also be applied to the accounting for asset acquisitions.

Q3 2017 FASB Outlook e-newsletter published

The FASB issued the Q3 2017 edition of the FASB Outlook e-newsletter, which includes articles that discuss

  • How to manage the pace of future broad accounting changes
  • How investors can prepare for several new accounting rules
  • The upcoming new standard on hedge accounting
  • Certain upcoming proposals
  • A reminder on the upcoming effective dates of certain ASUs

The newsletter also includes a link to a video introducing Marsha Hunt, whose term as a Board member began on July 1, 2017.

SEC staff issues FAQs on investment company reporting modernization

Responses to FAQs were prepared by and represent the views of the SEC staff. They are not rules, regulations, or statements of the Commission. The Commission has neither approved nor disapproved these interpretive FAQs.

The staff of the SEC’s Division of Investment Management recently issued FAQs on Investment Company Reporting Modernization related to the reforms adopted in October 2016. The FAQs address questions on the amendments to Articles 6 and 12 of Regulation S-X and Forms N-PORT and N-CEN. The FAQs also address compliance dates and general filing obligations, including a clarification that the compliance date for amendments related to Regulation S-X and for certain securities lending disclosures is August 1, 2017, while the compliance dates for other amendments are throughout 2018 and 2019.

The Final Rule was discussed in On the Horizon dated October 20, 2016.


FinREC releases revenue recognition implementation working drafts

The AICPA Financial Reporting Executive Committee (FinREC) released working drafts of three revenue recognition implementation issues for comment. This latest set of working drafts discusses considerations about, and provides illustrative examples for, depository and lending institutions, engineering and construction contractors, and power and utilities entities implementing the new revenue standard.

These implementation issues will be added to the AICPA audit and accounting guide on revenue recognition after the review of public comments and finalization of the issues.

The comment period for these working drafts ends October 2.

FAC now accepting 2017 DCF submissions

The Federal Audit Clearinghouse (FAC) system is now able to accept Data Collection Form (DCF) submissions for fiscal years ending in 2017. The FAC indicated that it will not be posting a blanket extension as a result of the previous delay, and encourages auditees to submit completed audits as soon as possible and to reach out to the FAC directly with any concerns related to the timing of submissions.


Update proposed to the IFRS Taxonomy 2017

The International Accounting Standards Board (IASB) has issued for public comment proposed Taxonomy Update 1 to the IFRS Taxonomy 2017, which incorporates IFRS Taxonomy elements related to IFRS 17, Insurance Contracts.

Proposed updates to the IFRS Taxonomy include concepts that reflect new guidance or amendments to the existing IFRS guidance, and may also include technical updates, new common practice elements, or general taxonomy improvements.

The public comment period for the proposed update ends September 18.

© 2017 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.