On The Horizon: FASB discusses CECL implementation issues

Contents FASB       Highlights from December 13 meeting posted
      PCC posts recap of December 8 meeting
      Board appoints new NAC members

GASB       FAF appoints new GASAC members

IASB       Board issues annual improvements to IFRS Standards
      Q&A guidance targets SME issuers
      IFRS Taxonomy guide published
      IFRS Foundation appoints new trustees

Comment letter issued

FASB Highlights from December 13 meeting posted All decisions reached at Board meetings are tentative and may be changed at future meetings.

The Board met on December 13 to discuss (1) implementation of the new credit losses guidance, (2) stakeholder feedback on two recent proposals, including nonemployee share-based payment improvements, and (3) plans and other matters related to three projects recently added to its technical agenda. These discussions are summarized below.

Financial instruments – credit losses implementation

The Board discussed implementation activities related to ASU 2016-13, Measurement of Credit Losses on Financial Instruments, and made the following tentative decisions:

  • Troubled debt restructurings (TDRs): To provide transition relief for entities that elect to use a prepayment-adjusted effective interest rate (EIR) in a discounted cash flow (DCF) method to measure credit losses on TDRs that exist as of the adoption date, permitting them to calculate the prepayment-adjusted EIR based on the original contractual terms of the loan and prepayment assumptions as of the date of adoption rather than calculating the prepayment-adjusted EIR for each TDR as of the date preceding the asset restructure. The Board will make an addendum to the June 12, 2017 Transition Resource Group meeting minutes to reflect this tentative decision.
  • Variable-rate financial assets: To permit entities to determine the effective interest rate and expected cash flows, including prepayments and defaults, based on their expectations of future interest rate environments when estimating credit losses on variable-rate financial assets using a DCF method, as long as these expectations are reasonable and supportable. The staff will draft an amendment to the Codification to reflect this tentative decision.
  • Subsequent events: To preclude an entity from recognizing the effects of any events that occur after the balance-sheet date but before the financial statements are issued (or are available to be issued) when estimating credit losses. Subsequent events should be included in the credit losses estimate only if the entity determines that an error correction is necessary.

Nonemployee share-based payment accounting improvements

The Board discussed feedback received on the proposed ASU, Improvements to Nonemployee Share-Based Payment Accounting, and tentatively decided to

  • Continue to require entities to measure nonemployee share-based payment transactions by estimating the fair value of the equity instruments that the entity is obligated to issue under the arrangement
  • Permit an entity to use an expected term (instead of the contractual term) on an award-by-award basis as an input to the option-pricing model for nonemployee share-based-payment transactions if the entity can support the use of an expected term
  • Require an entity to measure unsettled nonemployee share-based payment awards at fair value as of the adoption date of the final guidance; however, an entity would not be required to apply this measurement guidance to vested equity-classified awards
  • Not permit an entity to retrospectively adjust, as of the adoption date of the final guidance, the carrying value of an asset that includes previously capitalized costs related to the nonemployee share-based payment
  • Address a technical improvement, as part of the Codification Improvements project, to the measurement guidance in ASC 606, Revenue from Contracts with Customers, which would also include equity instruments granted in conjunction with selling goods and services as a form of consideration payable to a customer

The Board also tentatively decided that the effective date for public business entities would be in fiscal years, and in interim periods within those fiscal years, beginning after December 15, 2018. For other entities, the effective date would be in fiscal years beginning after December 15, 2019 and in interim periods within fiscal years beginning after December 15, 2020. Early adoption would be permitted for all entities, but no earlier than when an entity adopts ASC 606.

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

Other news

The Board discussed comments received from stakeholders on the proposed ASU, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, but made no technical decisions.

The Board also discussed project plans and other matters related to projects recently added to its technical agenda, but made no technical decisions. These projects include

  • Distinguishing liabilities from equity (including convertible debt)
  • Segment reporting
  • Financial performance reporting – disaggregation of performance information

PCC posts recap of December 8 meeting During the Private Company Council (PCC) meeting on December 8, the FASB staff delivered project updates about, and PCC members provided input on, the following FASB projects:

  • Cloud computing (EITF Issue 17-A): PCC members observed that a customer should capitalize implementation costs incurred in a cloud computing arrangement accounted for as a service contract, but that the fees (such as hosting costs) paid under this type of arrangement should be expensed as incurred.
  • Financial performance reporting: The PCC discussed the FASB staff research on private company financial statements and the potential impact that disaggregation of performance information could have on the private company sector.
  • Invitation to Comment, Agenda Consultation: The FASB staff provided an update on the Board’s tentative decisions from its September 20, 2017 meeting. See On the Horizon dated September 28, 2017 for a summary of these tentative decisions.

The next PCC meeting will be held on April 30, 2018.

Board appoints new NAC members The Board announced the appointment of the following new members to its Not-for-Profit Advisory Committee (NAC), effective January 1, 2018:

  • John D. Griffin
  • David C. Horne
  • Kim E. Keenoy
  • Kimberly K. McKay
  • Tammy R. Waymire

The NAC’s role is to obtain input from the not-for-profit (NFP) sector on existing financial reporting guidance, current and proposed technical agenda projects, and longer term or pervasive financial reporting matters affecting NFP organizations.

GASB FAF appoints new GASAC members The Board of Trustees of the Financial Accounting Foundation (FAF) announced the appointment of the following new members to the Governmental Accounting Standards Advisory Council (GASAC), effective January 1, 2018:

  • Peggy Arrivas
  • Thad Calabrese
  • Paul Kwiatkoski
  • Angus Maciver
  • Terry Patton

The new GASAC members will initially serve a two-year term, and are eligible to be reappointed for up to two additional two-year terms.

The Board reappointed eight current GASAC members and appointed current GASAC member Alan Skelton as vice-chairman.

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

IASB Board issues annual improvements to IFRS Standards The IASB issued Annual Improvements to IFRS Standards 2015 – 2017 Cycle, which makes narrow-scope improvements to the following IFRS Standards:

  • IFRS 3, Business Combinations
  • IFRS 11, Joint Arrangements
  • IAS 12, Income Taxes
  • IAS 23, Borrowing Costs

Annual improvements are part of the IASB’s process for maintaining IFRS Standards and contain interpretations that either clarify an IFRS Standard or correct minor oversights or conflicts between existing requirements of IFRS Standards.

The amendments are effective from January 1, 2019, and early adoption is permitted.

Q&A guidance targets SME issuers The IFRS Foundation has published question-and-answers (Q&As) to provide guidance on how small and medium-sized (SME) issuers should account for financial guarantee contracts under the IFRS for SMEs Standard. The Q&As were developed by the SME Implementation Group.

IFRS Taxonomy guide published The IFRS Foundation published Using the IFRS Taxonomy – A preparer’s guide, which explains how entities using the IFRS Taxonomy tag information in financial statements prepared under the IFRS Standards.

The guide is part of a set of documents produced by the Foundation to support the use of the IFRS Taxonomy around the world by regulators, companies, and other users of financial information.

IFRS Foundation appoints new trustees The IFRS Foundation announced the appointment of seven new Trustees for a three-year term, effective January 1, 2018.

The Foundation also announced that Michel Prada, Chair of the Trustees, will continue in that role until a successor is named, with Sheila Fraser and Takafumi Sato serving as Vice-chairs.

The Trustees are responsible for the governance and oversight of the IASB, which issues IFRS Standards.

Comment letter issued On December 14, 2017, the firm issued a comment letter in response to the AICPA’s Proposed Statement on Standards for Accounting and Review Services (SSARS), Omnibus Statement on Standards for Accounting and Review Services – 2018.

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