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On the Horizon -- FASB closer to final standard on hedging activities

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FASB posts tentative decisions from June 7 meeting
    Financial instruments – hedging
    Revenue recognition of grants and contracts by NFPs
OMB releases draft 2017 compliance supplement for planning purposes
GASB issues Q2 2017 newsletter
Comment letter issued




FASB posts tentative decisions from June 7 meeting

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

The FASB met on June 7 to discuss its projects on hedging and on how not-for-profit (NFP) entities recognize revenue from grants and contracts.

The Board’s actions related to these projects are summarized below.

Financial instruments – hedging

The Board discussed several issues related to the proposed ASU, Targeted Improvements to Accounting for Hedging Activities, and made the following tentative decisions related to “sweep” issues, which arose during drafting and external reviews:

  • To include certain NFPs within the scope of a previous tentative decision that would allow additional time for private companies that are not financial institutions to perform and document their initial and subsequent hedge-effectiveness testing
  • To include hedges of a net investment in a foreign operation within the scope of the hedging relationships to which an entity may apply the amortization approach when determining amounts that may be excluded from the assessment of hedge effectiveness

The following tentative decisions related to transition issues arising from redeliberations and external reviews were also made:

  • An entity would not be required to assess similar hedges under the same basis when comparing similar hedging relationships executed before and after the adoption date for certain types of hedging relationships.
  • An entity would not be required to assess similar hedges in a similar manner when assessing effectiveness under the qualitative basis included in the proposed ASU, and would instead perform this qualitative assessment on a hedge-by-hedge basis.
  • Upon transition, an entity could elect to transfer financial assets classified as held-to-maturity that qualify as hedged items under the last-of-layer method to the available-for-sale category.
  • Cross-currency basis spreads could be excluded from the assessment of effectiveness for fair value hedging relationships existing at the adoption date.
  • Private companies that are not financial institutions as well as certain NFPs would be required to make transition elections before the next set of interim (if applicable) or annual financial statements are available to be issued. All other entities would be required to make those elections before the first effectiveness testing date after adoption.
  • An entity would be permitted to make an election to partially designate a portion of the hedged item for certain fair value hedges of interest-rate risk existing at the adoption date, and would reclassify the basis adjustment associated with the portion of the designated hedged item to the beginning balance of retained earnings.

The Board tentatively decided that a final ASU would be effective for public business entities in annual periods, including interim periods therein, beginning after December 15, 2018. For all other entities, a final ASU would be effective in annual periods beginning after December 15, 2019 and in interim periods in annual periods beginning after December 15, 2020. Early adoption would be permitted in any interim or annual period after issuance of a final ASU.

The Board also tentatively decided that no additional analysis was required related to the substantive drafting amendments to be made to the final ASU, and that a transition resource group was not necessary to address implementation questions.

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

Revenue recognition of grants and contracts by NFPs

The Board discussed comments from external reviewers on a draft of a proposed ASU that would clarify the scope and the accounting guidance related to contributions in ASC 958, Not-for-Profit Entities.

As a result, the Board tentatively decided to remove the phrase “future and uncertain event” from the definition of a donor-imposed condition, to alleviate the ambiguity and confusion in practice resulting from the misinterpretation of how that phrase impacts the evaluation of whether or not the definition is met. In addition, the Board established a comment period of 90 days from the issuance date of a forthcoming proposed ASU.

The staff will draft a proposed ASU for vote by written ballot.




OMB releases draft 2017 compliance supplement for planning purposes

The White House Office of Management and Budget (OMB) released a draft of the 2017 2 CFR Part 200, Appendix XI – Compliance Supplement for purposes of planning 2017 single audit engagements. The draft includes new guidance in addition to the standard changes made by the OMB, such as the addition, deletion, and modification of various federal programs. “Appendix V – List of Changes for the 2017 Compliance Supplement” details the changes contained in the 2017 supplement. While no significant modifications are expected, the draft could change during the final clearance process.




GASB issues Q2 2017 newsletter

The GASB issued the Q2 2017 edition of its GASB Outlook e-newsletter, which includes summaries of the Board’s projects and key activities.




Comment letter issued

On June 5, the firm issued a comment letter in response to the FASB’s proposed ASU, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.




© 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.