On the Horizon: FASB improves presentation of defined benefit plan costs

Contents FASB      Board issues ASU on improving presentation of defined benefit plan costs
     ASU proposes simplifying accounting for nonemployee share-based payments
     Highlights from March 8 meeting posted
     SEC adopts U.S. GAAP taxonomy
     New EITF members appointed

SEC      SEC warns of phishing scam targeting EDGAR filers

GASB      GASB issues Q1 2017 newsletter

FASB Board issues ASU on improving presentation of defined benefit plan costs The Board issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, to address stakeholder concerns about the lack of transparency of the elements of defined benefit costs in the financial statements.

The amendments will require sponsors of defined benefit plans to present

  • The service cost component of net benefit cost in the same income statement line item(s) as other compensation costs arising from services rendered by employees during the period.
  • Other components of net benefit cost separately from the service cost component and outside any subtotal of income from operations using an appropriate description.

Under the new guidance, only the service cost component will be eligible for capitalization (for example, as a cost of either internally manufactured inventory or a self-constructed asset).

For public business entities, the amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2018 and for interim periods in annual periods beginning after December 15, 2019.

Early adoption is permitted as of the beginning of an annual period for which interim or annual financial statements have not been issued or been made available for issuance.

The amended presentation requirements should be applied retrospectively, and the guidance about cost capitalization should be applied prospectively. The amendments provide a practical expedient to the retrospective application requirement, which allows employers to use the amounts disclosed in the pension and other postretirement benefit plan note for the prior comparative period as the estimation basis for applying the presentation requirements. Entities that apply the practical expedient will be required to disclose that the expedient was used.

ASU proposes simplifying accounting for nonemployee share-based payments The Board issued the proposed ASU, Improvements to Nonemployee Share-Based Payment Accounting, which is intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. The proposed ASU expands the scope of ASC 718, Compensation – Stock Compensation, which currently applies to share-based payments to employees, to include share-based payments for goods and services to nonemployees. The amendments in this ASU would supersede the guidance in ASC 505-50, Equity: Equity-Based Payments to Non-Employees. In its place, entities would apply the requirements in ASC 718 to nonemployee awards, except for specific guidance to be included within ASC 718 on inputs to an option pricing model and attribution cost.

An entity would apply the amendments to beginning retained earnings in the year of adoption, with a cumulative-effect adjustment. Nonpublic entities that use calculated value for expected volatility when measuring share-based payment awards would apply the amendments prospectively to awards measured at fair value after the effective date. The Board will determine the effective date, and whether early adoption will be permitted, after it considers feedback on the proposal.

Comments on the proposal are due June 5.

Highlights from March 8 meeting posted All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on March 8 to redeliberate issues and comments received on the proposed ASU on hedging and to discuss the improvement of the consolidation guidance related to reorganization and related-party consolidation guidance for variable-interest entities (VIEs). The Board’s actions are summarized below.

Accounting for financial instruments – hedging

The Board discussed feedback received on the proposed ASU, Targeted Improvements to Accounting for Hedging Activities, and tentatively decided to

  • Exclude the market yield test in the proposed ASU from the final ASU.
  • Incorporate the “last of layer” approach into the current hedge accounting project for fair value hedges of interest-rate risk of prepayable assets. The last of layer approach would allow an entity to designate as the hedged item the last dollar amount of either a prepayable asset or a closed portfolio of prepayable assets.

Consolidation reorganization

The Board also tentatively decided to remove the guidance on the consolidation of entities controlled by contract from ASC 810, Consolidation, and instead to insert that guidance into ASC 958, Not-for-Profit Entities.

As part of the reorganization of ASC 810, the Board also directed the staff to incorporate language on how to apply the term expected and to consider the development of nonauthoritative guidance on how to interpret and apply the concept of expected in the VIE guidance.

The staff was directed to draft a proposed ASU incorporating these changes, as well as creating a new Codification Topic 812, with separate subsections for VIEs and voting-interest entities.

The forthcoming amendments would be applied retrospectively.

Targeted improvements to related party-consolidation guidance for VIEs

After discussing the existing related-party consolidation guidance for VIEs, the Board tentatively decided to

  • Provide an exemption for private companies that would allow them to make an accounting policy election not to apply the VIE guidance in ASC 810 to private companies under common control if none of the entities are public business entities. Companies making this election would be required to apply the policy to all legal entities and to provide additional disclosures.
  • Remove the alternative for private company leasing arrangements under common control from the VIE guidance in ASC 810.
  • Consider an indirect interest held by a decision maker in a VIE through a related party under common control on a proportional basis when evaluating whether the decision maker’s fee is a variable interest.

For situations in which a related-party group of commonly controlled entities holds a controlling financial interest, but no single entity within the group has a controlling interest, the Board also tentatively decided to

  • Require consolidation of related parties under common control if substantially all of the activities of a VIE involve, or are conducted on behalf of, that related party.
  • Remove the current consolidation requirement at the commonly controlled entity reporting level by providing criteria for a reporting entity to consider in determining whether a related party in a common-control arrangement has a controlling financial interest in a VIE.

The guidance would continue to require parent entities to consolidate VIEs in which they have a controlling financial interest, regardless of the consolidation outcome at the stand-alone level of the commonly controlled entities.

The forthcoming amendments would be applied retrospectively.

The Board directed the staff to prepare a draft ASU for external review.

SEC adopts U.S. GAAP taxonomy The Board announced that the SEC has adopted the 2017 GAAP Financial Reporting Taxonomy, which has been updated to address accounting guidance released since the previous version and includes other additional improvements.

In connection with the 2017 release, the taxonomy staff has issued several final 2017 XBRL Taxonomy Implementation Guides.

For more information on the 2017 taxonomy, the FASB is hosting a webcast, “IN FOCUS: 2017 GAAP Financial Reporting Taxonomy Improvements and SEC Update,” on March 28 from 1 p.m. to 2:15 p.m. Eastern.

New EITF members appointed The FASB announced the appointment of Kimber Bascom and Lawrence Dodyk to the Emerging Issues Task Force (EITF). Mr. Bascom is the partner-in-charge of KPMG’s Accounting Standards Group and replaces Robert Malhotra. Mr. Dodyk is a partner in PwC’s National Professional Services Group and will replace John Althoff beginning June 8, 2017.

SEC SEC warns of phishing scam targeting EDGAR filers
The SEC recently released a notice to alert EDGAR filers of malicious emails appearing to be from the SEC about changes to Form 10-K. The SEC confirmed in the notice that it has not made any recent changes to Form 10-K and has not sent such notifications to EDGAR filers.

GASB issues Q1 2017 newsletter The GASB issued the Q1 2017 edition of its GASB Outlook e-newsletter, which includes summaries of the Board’s projects and key activities.

© 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.