On The Horizon: FASB proposes Codification improvements

Contents FASB       Proposed ASU would address inconsistencies in the Codification
      Highlights from October 4 meeting posted
            Financial instruments – credit losses implementation
            Targeted improvements to collaborative arrangements
            Disclosure framework – Board’s decision process

AICPA       FinREC releases revenue recognition implementation working drafts

PCAOB issues staff audit alert on implementation of revenue standard Office of Management and Budget       Single Audit requirement relief to hurricane impacted areas

IASB       September 2017 IFRS for SMEs Update issued

FASB Proposed ASU would address inconsistencies in the Codification The Board issued a proposed ASU, Codification Improvements, stemming from the Board’s consideration of suggestions submitted by stakeholders for minor corrections to, and clarifications of, existing guidance in the Codification.

The proposal would also amend existing guidance in the Codification that may have been incorrectly or inconsistently applied by certain entities, as follows:
  • ASC 220-10, Comprehensive Income
  • ASC 470-50, Debt: Modifications and Extinguishments
  • ASC 480-10, Distinguishing Liabilities from Equity
  • ASC 718-740, Compensation – Stock Compensation: Income Taxes
  • ASC 805-740, Business Combinations: Income Taxes
  • ASC 815-10, Derivatives and Hedging
  • ASC 820-10, Fair Value Measurement
  • ASC 940-405, Financial Services – Brokers and Dealers: Liabilities
  • ASC 962-325, Plan Accounting – Defined Contribution Pension Plans: Investments – Other

Many of the proposed amendments are not expected to require transition guidance and, as a result, would be effective upon issuance of a final ASU. However, some of the proposed amendments would impact recently issued guidance that is not yet effective, and the effective date and transition guidance for these proposed amendments would be the same as those for the related guidance.

The effective date, transition approach (prospective, retrospective, or modified retrospective), and early adoption will be determined by the Board after it considers stakeholder feedback on the proposal.

Comments on the proposal are due December 4.

Highlights from October 4 meeting posted All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on October 4 to discuss four agenda items and took the actions summarized below.

Financial instruments – credit losses implementation

The Board discussed an issue related to how an entity should determine the estimated life of a credit card receivable. This issue was discussed by the Transition Resource Group (TRG) for Credit Losses at its meeting on July 12 but remained unresolved.

The July 12 TRG discussion on determining the estimated life of a credit card receivable addressed only how an entity should allocate a borrower’s future expected payments on that credit card to the various components of the credit card receivable balance at the measurement date (the issue of payment allocation). The TRG generally agreed that future cash flows should be allocated according to the Credit CARD Act. Additionally, the TRG generally agreed that future expected payments could be estimated by either considering the borrower’s future draws or without considering the borrower’s future draws. However, the TRG did not reach an agreement on how to determine the amount of future expected principal payments that should be available to service the credit card receivable balance at the measurement date when an entity estimates future payments by considering future borrower draws (the issue of payment determination).

The Board tentatively decided that when an entity estimates the expected future payment amounts on credit card receivables, it would be acceptable under the guidance in ASU 2016-13, Measurement of Credit Losses on Financial Instruments, to estimate these amounts by either

  • Applying all expected principal payments only to the balance at the measurement date, according to the Credit CARD Act payment allocation hierarchy
  • Applying expected principal payments to the measurement-date balance and to future anticipated draws in a way that reflects how the Credit CARD Act payment allocation hierarchy is expected to affect the application of principal payments over time

The Board also clarified that these methods for estimating future payment amounts would be acceptable under either of the payment allocation models that were generally agreed to at the TRG’s July 12 meeting.


The Board redeliberated the amendments related to participating insurance contracts, deferred acquisition costs, and market risk benefits in the proposed ASU, Targeted Improvements to the Accounting for Long-Duration Contracts, and made the following tentative decisions:

  • Participating insurance contracts: Retain the existing guidance for the liability for future policy benefits, and apply the proposed changes to the amortization of deferred acquisition costs to participating insurance contracts.
  • Deferred acquisition costs: (1) Simplify the amortization, (2) replace the amortization method in the proposed ASU with a principle that results in amortization on a constant basis over the expected life of the contract, (3) write off actual experience in excess of expected experience, without consideration of contract profitability, and (4) align the transition guidance with the proposed transition guidance related to the liability for future policy benefits.
  • Market risk benefits: (1) Expand the scope of the proposal to include general account deposit products, such as fixed-indexed annuities, (2) measure at fair value, (3) recognize all gains and losses from changes in fair value in net income, except for gains and losses from changes in the instrument-specific credit risk, which would be recognized in other comprehensive income, and (4) apply the proposed amendments retrospectively to all prior periods, with hindsight permitted.   

The Board will discuss presentation and disclosures, as well as the effective date, at future meetings.

Targeted improvements to collaborative arrangements

The Board discussed potential improvements to ASC 808, Collaborative Arrangements, and made several tentative decisions related to when and how the new revenue guidance in ASC 606, Revenue from Contracts with Customers, should be applied to transactions between the parties to a collaboration arrangement.

The Board also tentatively decided to expand the scope of this project to include guidance on the unit of accounting in ASC 808, and to consider whether this guidance should be consistent with the distinct good or service guidance in ASC 606.

The Board asked the staff to discuss with stakeholders the staff’s ideas related to accounting for transactions between the parties to a collaboration arrangement that do not meet the criteria to apply either ASC 606 or other existing guidance.

Disclosure framework – Board’s decision process

The Board tentatively decided to exclude employee benefit plan financial statements from the scope of the proposed Concepts Statement, Conceptual Framework for Financial Reporting – Chapter 8, Notes to Financial Statements.

AICPA FinREC releases revenue recognition implementation working drafts The AICPA Financial Reporting Executive Committee (FinREC) released working drafts of several revenue recognition implementation issues for comment. This latest set of working drafts discusses considerations about, and provides illustrative examples for, entities implementing the new revenue standard in the following industries:

  • Airlines
  • Asset management
  • Engineering and construction
  • Gaming
  • Health care
  • Oil and gas
  • Power and utility
  • Telecommunications

These implementation issues will be added to the AICPA audit and accounting guide on revenue recognition after the review of public comments and finalization of the issues.

The comment period for these working drafts ends December 1.

PCAOB issues staff audit alert on implementation of revenue standard The PCAOB issued Staff Audit Practice Alert 15, “Matters Related to Auditing Revenue from Contracts with Customers,” highlighting requirements and other considerations for audits of a company’s implementation of the new revenue accounting standard, including

  • Transition disclosures
  • Internal control over financial reporting
  • Fraud risks
  • Revenue recognition
  • Disclosures

Office of Management and Budget Single Audit requirement relief to hurricane impacted areas The Office of Management and Budget (OMB) expects to release in the next couple of weeks a waiver letter that would provide administrative relief in certain areas, such as single audit completion and submission extensions, for entities affected by the recent hurricanes. Until the waiver is issued, it is recommended that entities with an immediate need or questions reach out to their cognizant or oversight agency. Information for each federal agency can be found in Appendix III, “Federal Agency Single Audit Key, Management Liaison, and Program Contacts,” of the OMB Compliance Supplement

IASB September 2017 IFRS for SMEs Update issued The IASB’s staff has issued the September 2017 IFRS for SMEs Update, which is a quarterly summary of news, events, and other information about the IFRS for SMEs standard, along with related SME activities.

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