On The Horizon: SEC staff allows certain entities to use private entity effective date to adopt ASC 606 and ASC 842

Contents EITF meeting held on July 20
    SEC staff allows certain entities to use private entity effective date to adopt ASC 606 and ASC 842
    Implementation costs incurred in a cloud computing arrangement that is a service contract

FASB posts tentative decisions from July 19 meeting
FAC unable to accept 2017 DCF submissions

EITF meeting held on July 20 Because consensuses 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.

SEC staff allows certain entities to use private entity effective date to adopt ASC 606 and ASC 842 The SEC observer attending the FASB’s Emerging Issues Task Force (EITF) meeting on July 20 announced that the SEC staff would not object to an entity using the effective dates for nonpublic business entities when adopting the new revenue and leasing standards if the 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.

An example is an equity method nonpublic investee that meets certain significance thresholds of an investor that files with the SEC. In that case, the investee’s financial statements are included in the SEC filings of the investor under SEC Regulation 3-09, and the investee therefore meets the definition of a PBE, even though it is not a PBE for its own financial reporting purposes or any other reason. Absent the SEC staff announcement, the investee would have been required to adopt ASC 606 and ASC 842 in accordance with the PBE timeline in those financial statements.

The announcement does not include the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, since that guidance distinguishes between effective dates for SEC filers and PBEs that are not SEC filers.

Implementation costs incurred in a cloud computing arrangement that is a service contract Also during the meeting, the EITF discussed Issue 17 A, “Customer’s Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) Incurred in a Cloud Computing Arrangement That is Considered a Service Contract.”

The purpose of the EITF project is to address the diversity in practice that exists today on how to account for implementation costs incurred in cloud computing arrangements that are considered to be service contracts. The Task Force members generally expressed support for either

  • Recognizing the costs as an asset or expense using existing GAAP, such as ASC 340, Other Assets and Deferred Costs; ASC 350-40, Intangibles – Goodwill and Other: Internal-Use Software; ASC 360, Property, Plant, and Equipment; or ASC 720-45: Other Expenses: Business and Technology Reengineering
  • Accounting for the costs in the same manner as implementation costs associated with a software license in ASC 350-40

The FASB staff plans to perform additional research, including

  • Understanding what issues stakeholders currently struggle with in applying ASC 350-40 and whether the issues would also exist if entities were to apply the same guidance to cloud computing costs
  • Applying the guidance to representative examples in practice
  • Exploring if there are other areas of GAAP that provide a basis for developing criteria to capitalize costs incurred in a cloud computing arrangement that is considered a service contract, including a model similar to that outlined in the leasing guidance
  • Understanding if stakeholders need more guidance to determine the units of account for the various components of a cloud computing arrangement

The staff will present its research findings at a future EITF meeting.

FASB posts tentative decisions from July 19 meeting All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on July 19 to discuss issues related to the proposed Concepts Statement, Conceptual Framework for Financial Reporting – Chapter 8, Notes to Financial Statements, and tentatively decided to

  • Retain not-for-profit entities and private companies within the scope of the Concepts Statement.
  • Include a discussion in the Concepts Statement about the possible adverse consequences of disclosures.
  • Reaffirm that under the Concepts Statement, the Board would consider disclosure of (1) changes in certain financial statement line items that are not easily understood, and (2) alternative measures that are clearly useful when assessing prospects for future cash flows.

The Board also tentatively decided that it would provide specific requirements or guidance on how to meet disclosure objectives before establishing those objectives.

The Board directed the staff to perform research on certain issues.

FAC unable to accept 2017 DCF submissions The Federal Audit Clearinghouse (FAC) system is currently not able to accept Single Audit Data Collection Form submissions for fiscal years ending in 2017. It is expected that the system will be available for 2017 fiscal year-end submissions by early August. The FAC will post an announcement on its website in the “Important Announcements” section when the system become available.

© 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.