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On the Horizon: ASU aligns SEC guidance with new revenue standard

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Contents    FASB    ASU aligns SEC guidance with new revenue standard
   Highlights from November 29 meeting posted

SEC    SAB 117 issued to conform existing SEC guidance to ASC 321
   CorpFin updates Financial Reporting Manual

AICPA    Three new auditing standards proposed
   Audit Risk Alert on preparation, compilation, and review engagements issued
   New technical auditing Q&A on long-term investments released
   FinREC releases revenue recognition implementation working drafts
   Expert panel issues nonauthoritative analyses for health care entities

PCAOB issues staff guidance on changes to the auditor’s report GASB proposes implementation guidance update IASB    November 2017 IFRIC update issued

   IFRS Foundation proposes annual improvements to the IFRS Taxonomy 2017



FASB ASU aligns SEC guidance with new revenue standard The Board recently issued ASU 2017-14, Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, which amends the Codification to align SEC guidance with the new guidance in ASC 606, Revenue from Contracts with Customers.

The amendments in the ASU have the same effective date and transition requirements as those for ASC 606; however, a registrant should continue referring to the applicable existing SEC guidance until it adopts ASC 606.

See the August 24 On the Horizon for a discussion of SAB 116 and Release 33-10403.

Highlights from November 29 meeting posted All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on November 29 to discuss issues related to implementing or transitioning to the new leases and revenue recognition guidance, and took the actions summarized below.

Land easement practical expedient for transition to ASC 842
The Board discussed stakeholder feedback on the proposed ASU, Land Easement Practical Expedient for Transition to Topic 842, and tentatively decided to amend the language to clarify that the practical expedient applies upon transition to all expired or existing land easements that were not accounted for (instead of assessed) under ASC 840, Leases.

The Board directed the staff to draft a final ASU for vote by written ballot.

Leases implementation
The Board also discussed issues raised by stakeholders implementing ASC 842, Leases, and tentatively decided on the following amendments to the leasing guidance:

  • To provide an additional transition method that would permit entities to apply the transition requirements in ASC 842 on its effective date instead of at the beginning of the earliest period presented.
  • To provide lessors with a practical expedient, by class of underlying asset, to account for nonlease components as a single lease component if certain conditions are met instead of separating the nonlease components from the related lease components. An entity would be required to disclose that it has elected this practical expedient, the class or classes of underlying assets to which the expedient applies, and the nature of the nonlease components included within the single lease component.

The Board directed the staff to draft a proposed ASU for vote by written ballot, with a comment period of 30 days.

Revenue recognition implementation
The Board discussed the status of implementation activities related to ASC 606, Revenue from Contracts with Customers, but it made no decisions.



SEC SAB 117 issued to conform existing SEC guidance to ASC 321 Staff Accounting Bulletins (SABs) are neither rules nor interpretations of the Commission. They represent interpretations and practices followed by the staff of the Division of Corporation Finance and the Office of the Chief Accountant in administering the financial, accounting, and disclosure requirements of the federal securities laws. The SEC staff intends SABs to be applied to analogous situations.

The SEC announced that it has issued Staff Accounting Bulletin (SAB) 117 to conform the existing SEC guidance to the guidance in ASC 321, Investments – Equity Securities. ASC 321 was included in the Codification with the issuance of the FASB’s ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities.

SAB 117 states that the SEC guidance in SAB Topic 5.M, “Other Than Temporary Impairment of Certain Investments in Equity Securities,” is superseded once an entity adopts the guidance in ASC 321; however, a registrant should continue to refer to the guidance in Topic 5.M until it adopts ASC 321.

CorpFin updates Financial Reporting Manual The Financial Reporting Manual does not contain rules, regulations, or statements of the SEC and has not been approved by the Commission. It is not intended to be published views of the Division of Corporation Finance or of the Office of the Chief Accountant, such as a Staff Accounting Bulletin. The Manual was designed as an internal reference document for Division of Corporation Finance staff and should not be relied on as authoritative.

The staff of the SEC’s Division of Corporation Finance (CorpFin) updated the Financial Reporting Manual as of December 1. Notable changes include

  • Section 3250 was updated to address the impact of adopting new accounting standards on pro forma financial information related to a significant acquired business, as follows (this guidance was previously discussed within the context of the new revenue standard in Sections 11120.3 and 11120.4, which were removed):

    • Section 3250.1(m) clarifies that the staff will consider requests for relief from the requirement to conform the date and method of adoption of a significant acquired business to those of the registrant when a registrant adopts a new accounting standard as of a different date and/or under a different transition method than the significant acquired business.
    • Section 3250.1(n) clarifies that if a registrant retrospectively adopts a new accounting standard and subsequently makes a significant acquisition, the registrant does not need to apply the new accounting policy to the pro forma information for periods prior to adoption until it has reflected the new standard in the historical financial statements for those periods. However, a registrant in this fact pattern should make appropriate disclosure if it believes the effect will be material to periods prior to adoption.
  • Section 10230.1 was updated to address the adoption of new accounting standards after an emerging growth company (EGC) that has elected to take advantage of the extended transition-period provision loses its EGC status. Generally, if an EGC loses its status after it would have been required to adopt a standard absent the extended transition, the issuer should adopt the standard in its next filing after losing EGC status. However, depending on the facts and circumstances, the staff may not object to other alternatives.
  • Sections 11100 and 11200 were updated to explain that, if an entity meets the definition of a public business entity (PBE) solely because it includes, or is required to include, its financial statements or financial information in another entity’s SEC filing, the PBE may apply the effective dates for nonpublic business entities when adopting the new revenue and leasing standards, as previously announced at the July 20 EITF meeting and discussed in the July 27 On the Horizon.



AICPA Three new auditing standards proposed The Auditing Standards Board (ASB) of the AICPA issued three exposure drafts of Proposed Statements on Auditing Standards (SASs) and amendments to other SASs.

Proposed SAS, Auditor Reporting and Proposed Amendments – Addressing Disclosures in the Audit of Financial Statements,

proposes four new SASs and amendments to other SASs to revise and expand auditor reporting standards and align them with the guidance in the International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB):

  • Forming an Opinion and Reporting on Financial Statements
  • Communicating Key Audit Matters in the Independent Auditor’s Report
  • Modifications to the Opinion in the Independent Auditor’s Report
  • Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report

This proposed SAS would supersede certain sections of SAS 122, Statements on Auditing Standards: Clarification and Recodification, as amended, and proposes amendments relating to disclosures in the audit of financial statements with the proposed changes to auditor reporting.

Proposed SAS, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports, would supersede AU-C Section 720, Other Information in Documents Containing Audited Financial Statements, and converge the AICPA other information standard with that of ISA 720 (Revised), The Auditor’s Responsibilities Relating to Other Information. “Other information” includes financial and nonfinancial information, other than the financial statements and the report thereon, in the entity’s annual report. If adopted, the new standard would require the auditor to read the other information, consider whether there are material misstatements or material inconsistencies between the other information and the financial statements, and identify such inconsistencies and misstatements. The proposed SAS also prescribes the actions the auditor must take to deal with such inconsistencies and misstatements.

Proposed SAS, Omnibus Statement on Auditing Standards – 2018, would align generally accepted auditing standards (GAAS) with PCAOB standards on communication with audit committees and related parties.

The provisional effective date of the proposed SASs would not be earlier than for audits of financial statements for periods ending on or after June 15, 2019.

Comments are due by May 15.

Audit Risk Alert on preparation, compilation, and review engagements issued The AICPA issued Audit Risk Alert, Development in Preparation, Compilation, and Review Engagements – 2017/2018. This alert provides an overview of recent industry, technical, regulatory, and professional developments.

New technical auditing Q&A on long-term investments released The AICPA issued a new technical question and answer (Q&A) under Technical Inquiry Service (TIS) Section 2220, Long-Term Investments, to assist reporting entities in implementing ASC 820, Fair Value Measurements, to estimate the fair value of investments in certain entities that calculate net asset value. TIS Section 2220.28, “Definition of Readily Determinable Fair Value and Its Interaction With the NAV Practical Expedient,” includes the following changes:

  • Amendments to TIS Section 2220.18, “Applicability of Practical Expedient”
  • Deletion of TIS Section 2220.24, “Disclosures – Ability to Redeem Versus Actual Redemption Request,” and TIS Section 2220.25, “Impact of ‘Near Term’ on Categorization Within Fair Value Hierarchy”

FinREC releases revenue recognition implementation working drafts The AICPA Financial Reporting Executive Committee (FinREC) released working drafts of revenue recognition implementation issues for comment. This latest set of working drafts discusses considerations about, and provides illustrative examples for, entities implementing the new revenue standard in the health care, not-for profit, telecommunications, and timeshare industries.

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 February 1, 2018.

Expert panel issues nonauthoritative analyses for health care entities The AICPA’s Health Care Entities Expert Panel has prepared three nonauthoritative issues analyses intended to provide information for health care entities adopting ASU 2016-14, Presentation of Financial Statements of Not-for-Profit Entities.

The issues analyses address the following areas:

  • Natural and functional class presentation
  • Liquidity and availability
  • Net asset presentation
The panel consists of 13 members who represent a mixture of firm practitioners as well as financial statement preparers and users who work in the health care industry.



PCAOB issues staff guidance on changes to the auditor’s report The Public Company Accounting Oversight Board (PCAOB) issued Staff Guidance, “Changes to the Auditor’s Report Effective for Audits of Fiscal Years Ending On or After December 15, 2017,” to address required key changes to the auditor’s report and provide firms with guidance on the implementation of the first phase of changes resulting from the adoption of AS 3101, Reports on Audited Financial Statements.

Key changes addressed include the form of the auditor’s report, disclosure of auditor tenure, a statement on auditor independence, and a required explanatory paragraph on internal control over financial reporting in certain circumstances. A high-level overview of the requirements related to critical audit matters is also provided.



GASB proposes implementation guidance update The Governmental Accounting Standards Board (GASB) issued the proposed Implementation Guide 201Y-X, Implementation Guidance Update – 201Y, which contains new questions and answers along with amendments to previously issued questions and answers. The objective of the guide is to provide guidance that clarifies, explains, or elaborates on existing GASB guidance.

The requirements of the final guide would be effective for reporting periods beginning after June 15, 2018. Earlier application is encouraged if the guidance addressed by the question and answer has been applied.

State and local governments would apply the provisions of the final guide retroactively by restating financial statements for all prior periods. If retroactive restatement is not practicable, these provisions would be applied as a restatement of beginning net position (or fund balance or fund net position, as applicable) for the earliest period restated, and certain disclosures would be required.

Comments on the proposal are due by February 16, 2018.



IASB November 2017 IFRIC update issued The IASB’s IFRS Interpretations Committee (IFRIC) has issued the November 2017 Update summarizing the decisions reached by the Committee during its November 20 public meeting.

Decisions on an IFRIC Interpretation become final only after the Committee has formally voted on the Interpretation, which is then sent to the IASB for ratification.

IFRS Foundation proposes annual improvements to the IFRS Taxonomy 2017 The IFRS Foundation has published a proposed IFRS Taxonomy Update, IFRS Taxonomy 2017 – Annual Improvements, to reflect changes to the 2017 taxonomy resulting from annual improvements.

Annual improvements are changes to the IFRS taxonomy other than those resulting from changes to existing IFRS guidance and analysis of common reporting practices. Annual improvements may include improvements to better reflect presentation and disclosure requirements in the existing IFRS guidance or improvements to data models to support consistent tagging.

The proposed improvements to the 2017 taxonomy include

  • Enhancements to the data model to support consistent tagging of reporting related to continuing and discontinued operations
  • Changes to better reflect the disaggregation of disclosures in IAS 19, Employee Benefits
  • Amendments to improve disclosures under IFRS 7, Financial Instruments: Disclosures, relating to the initial application of IFRS 9, Financial Instruments
The public comment period for the proposal ends January 29, 2018.



© 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.