On The Horizon: ASU eliminates Codification Topic 995

Contents FASB      ASU eliminates Codification Topic 995
     FAF appoints new FASAC members

SEC adopts temporary final rule for investment companies GASB      Changes proposed to the interest capitalization guidance
     Q4 2017 newsletter issued

CAQ      Highlights from its September SEC Regulations Committee meeting issued
     Tool issued to aid with implementation of auditor’s reporting model
     Updates made to broker-dealer resource page

OMB issues memo on administrative relief to hurricane impacted areas DHS OIG releases guidance on managing disaster-related project costs Comment letters issued

FASB ASU eliminates Codification Topic 995 The Board recently issued ASU 2017-15, Elimination of Topic 995, which eliminates the guidance in ASC 995, U. S. Steamship Entities, on unrecognized deferred taxes related to certain statutory reserve deposits that were made on or before December 15, 1992, which have now reached the 25-year limit for deferral. An entity that still has these unrecognized deferred taxes is now required to recognize them under ASC 740, Income Taxes.

The amendments in the ASU are effective for fiscal years, and for the first interim period within those fiscal years, beginning after December 15, 2018. Early adoption is permitted.

Entities are required to apply the amendments on a modified retrospective basis, with a cumulative-effect adjustment to beginning retained earnings in the period of adoption. The new guidance also requires disclosures in the period of adoption for a change in accounting principle and for the amount and types of temporary differences that resulted in previously unrecognized deferred taxes.

FAF appoints new FASAC members The Board of Trustees of the Financial Accounting Foundation (FAF) announced the appointment of nine new members to the Financial Accounting Standards Advisory Council (FASAC), effective January 1, 2018. The new FASAC members will initially serve a one-year term, and are eligible to be reappointed for up to three additional one-year terms.

The Board reappointed Andrew McMaster, Jr., as FASAC chairman for a two-year term ending December 31, 2019, and also reappointed 22 current FASAC members.

The FASAC advises the FASB on strategic and technical issues, project priorities, and other matters that affect standard-setting.

SEC adopts temporary final rule for investment companies On December 8, the SEC adopted the Temporary Final Rule, Investment Company Reporting Modernization, to delay the effectiveness of certain amendments to rules and forms, including certain aspects of the Final Rule, Investment Company Reporting Modernization, which was adopted in October 2016. Among other things, the Temporary Final Rule requires funds in larger fund groups to maintain the information that is required to be included in Form N-Port in their records, in lieu of submitting the required information on Form N-Port on EDGAR, until April 30, 2019. Smaller fund groups will be required to begin submitting the required information on Form N-Port on EDGAR by April 30, 2020.

The Temporary Final Rule is effective 30 days after publication in the Federal Register and is effective until March 31, 2026.

GASB Changes proposed to the interest capitalization guidance The Governmental Accounting Standards Board (GASB) recently issued the proposed Statement, Accounting for Interest Cost during the Period of Construction, which is intended to (1) enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period, and (2) simplify the accounting for interest cost incurred during the construction period.

Under the proposal, interest cost incurred during the construction period would be recognized as an expense in the period incurred, instead of being included in the historical cost of a capital asset, for financial statements prepared using the economic resources management focus, such as those for a business-type activity or an enterprise fund.

The proposal also reiterates that for financial statements prepared using the current financial resources management focus, interest cost incurred during the construction period should be recognized as an expenditure consistent with governmental fund accounting principles.

The requirements of the statement upon finalization would be effective for reporting periods beginning after December 15, 2018. Earlier application is encouraged.

State and local governments would apply the provisions of the statement prospectively.

Comments on the proposal are due by March 5, 2018.

Q4 2017 newsletter issued The GASB issued the Q4 2017 edition of its GASB Outlook e-newsletter, which includes summaries of the Board’s projects and key activities.

CAQ Highlights from September SEC Regulations Committee meeting issued The Center for Audit Quality (CAQ) SEC Regulations Committee meets periodically with the SEC staff to discuss emerging financial reporting issues relating to SEC rules and regulations. The highlights summarize matters discussed at the meetings and do not represent official positions of the AICPA or the CAQ, nor are they authoritative positions or interpretations issued by the SEC or its staff.

The CAQ recently issued highlights of the September 26 joint meeting between its SEC Regulations Committee and the SEC staff, which included the following topics:

  • Waiver requests under Regulation S-X, Rule 3-13, to permit the omission of, or substitution for, certain financial statements otherwise required by Regulation S-X, including those requests to provide abbreviated financial statements of a predecessor entity when full financial statements for some successor periods have been included in a filing. Additionally, the staff discussed oral communications in advance of written submissions and their request that written submissions contain concise and pertinent information. The SEC staff previously updated its Financial Reporting Manual in late August to address certain reporting considerations on the same topic.
  • Omission of information required by Regulation S-K, Item 301, for non-Emerging Growth Company domestic registrants: clarification to contact either the Division of Corporation Finance Office of Chief Accountant or the registrant’s respective Assistant Director industry review office to discuss whether such information may be omitted.
  • Clarifications related to the additional staff guidance issued in August 2017 regarding the expanded non-public review process for certain draft registration statements, including specific fact patterns related to the types of offerings and forms eligible for non-public review, as well as interim and other financial information requirements of both the registrant and other entities.
  • Confirmation that financial statements prepared pursuant to Regulation S-X, Rule 3-10(g), for recently acquired subsidiary issuers or subsidiary guarantors are also within the scope of the SEC observer’s announcement at the July 20 EITF meeting concerning the definition of a public business entity and the adoption of the new revenue and leases standards. Refer to the July 27 On the Horizon for a discussion of this announcement.
  • Indication from the SEC staff that the earliest two years in pro forma financial statements prepared in connection with a reorganization of entities under common control or for discontinued operations should be limited to the impacts of recasting the financial statements as required by U.S. GAAP. Other pro forma adjustments should be limited to the annual and interim periods specified in Regulation S-X, Article 11-02(c)(2)(i).
  • Continued discussion of the effects of accounting changes by a successor entity on the predecessor-period financial statements when a different basis of accounting is used. The SEC staff observed that there is no U.S. GAAP or other regulatory requirement to retrospectively adjust predecessor financial statements when a successor entity adopts a new accounting principle.

Tool issued to aid with implementation of auditor’s reporting model The Center for Audit Quality (CAQ) issued a new tool, “The Auditor’s Report: Considerations for Audit Committees,” explaining changes to the auditor’s report resulting from the PCAOB’s adoption of the auditor’s reporting model, including disclosure of auditor tenure, critical audit matters (CAMs), and other new reporting requirements.

Updates made to broker-dealer resource page The CAQ announced updates to its dedicated resource page on audits of brokers and dealers. The updates include a series of broker-dealer alerts on specific topical areas and a page of links to useful resources

OMB issues memo on administrative relief to hurricane impacted areas The Office of Management and Budget (OMB) posted a memorandum, “Administrative Relief for Grantees Impacted by Hurricanes Harvey, Irma and Maria,” identifying actions that federal agencies can take to relieve short-term administrative, financial management, and audit requirements under the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) for grantees in counties or parishes where a major disaster has been declared due to hurricanes. In addition to various exemptions, as well as extensions impacting indirect cost rates, report submission, and award expiration dates, the memo also instructs agencies to allow impacted grantees to delay the completion and submission of single audits for an additional 12 months.

The memorandum does not provide any relief to affected grantees. Each federal agency needs to consider the guidance in the memorandum and then issue its own guidance as deemed appropriate by the agency and permitted by law. Agencies should post information relating to administrative provisions that apply to affected grantees in a prominent website location.

DHS OIG releases guidance on managing disaster-related project costs The Department of Homeland Security (DHS) Office of Inspector General (OIG) released guidance, “Audit Tips for Managing Disaster-Related Project Costs,” to assist recipients and subrecipients of Federal Emergency Management Agency (FEMA) disaster assistance grants to (1) document and account for disaster-related costs, (2) minimize the loss of FEMA disaster assistance funds, (3) maximize financial recovery, and (4) prevent fraud, waste, and abuse of disaster funds. It is effective for all emergencies and major disasters declared on or after April 1, 2017.

Comment letters issued On December 4, Grant Thornton issued a comment letter in response to the FASB’s proposed ASU, Consolidation (Topic 812) – Reorganization.

On December 6, the firm also issued a comment letter in response to the proposed Statement on Standards for Attestation Engagements, Selected Procedures, released by the AICPA’s Accounting and Review Services Committee.

© 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.