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On The Horizon—FASB discusses TDR accounting under CECL

RFP
Contents Current reporting issue
   Presentation of discontinued operations in a classified balance sheet
FASB
   Highlights from September 6 meeting posted
   Comments requested on proposed 2018 taxonomies
COSO releases updated Enterprise Risk Management Framework
Comment letters issued



Current reporting issue Presentation of discontinued operations in a classified balance sheet Questions have arisen in practice regarding the presentation of current and noncurrent assets and liabilities of a discontinued operation in the statement of financial position. In particular, stakeholders have questioned whether there are circumstances in which it is appropriate to classify as current all assets and liabilities of the discontinued operation. For example, if the held-for-sale criteria are met at the current balance-sheet date and the sale is expected within one year, would all assets and liabilities of a discontinued operation now be presented as current, and, similarly, would the prior-period comparative balance sheet be recast to reflect previously noncurrent assets and liabilities as current?

The guidance in ASC 205-20-45-10, Presentation of Financial Statements: Discontinued Operations, states that

      "In the period(s) that a discontinued operation is classified as held for sale and for all prior periods presented, the assets and liabilities of the discontinued operation shall be presented separately in the asset and liability sections, respectively, of the statement of financial position."

However, the guidance in ASC 205-20 does not address
  • Whether a reporting entity should present those assets and liabilities as current and noncurrent in a classified balance sheet
  • How to determine which assets and liabilities should be classified as current
  • Whether there should be changes to the prior comparative-period classifications of assets and liabilities now that the held-for-sale criteria are met for a discontinued operation
When a discontinued operation is classified as held-for-sale, we believe that, subject to the following discussion, those existing classifications should continue but should be condensed into four balance-sheet line items: current assets held-for-sale, noncurrent assets held-for-sale, current liabilities held-for-sale, and noncurrent liabilities held-for-sale.

However, if it is probable that a sale will occur within one year of when the assets or liabilities meet the held-for-sale criteria and the sale is expected to qualify for recognition as a completed sale, we believe that it is appropriate to classify all assets and liabilities of a discontinued operation as current in the current-period balance sheet when the determination of held-for-sale is met, even though they were classified as noncurrent in prior periods.

In contrast, prior comparative periods would not be recast to reflect as current all of the assets and liabilities of a now discontinued operation. That is, we believe that current and noncurrent classification of the assets and liabilities in the prior comparative periods should not change. Those assets and liabilities did not meet the held-for-sale criteria in the prior periods, even though the held-for-sale criteria was subsequently met, and they are presented as current assets and liabilities in the current balance sheet.



FASB
Highlights from September 6 meeting posted All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on September 6 to discuss the identification and measurement of reasonably expected troubled debt restructurings (TDRs) upon adoption of ASU 2016-13, Measurement of credit losses on financial instruments. These issues were discussed by the Transition Resource Group (TRG) for Credit Losses at their meeting on June 12, 2017 and remained unresolved at that meeting.

The Board agreed with the staff’s recommendations that an entity should recognize the effects of the TDR in the allowance for credit losses when a loan is individually identified as a reasonably expected TDR and use the discounted cash flow (DCF) method if the TDR involves a concession that can be captured using only a DCF method (or another method that is reconcilable with a DCF method).

Comments requested on proposed 2018 taxonomies The FASB released the proposed 2018 GAAP Financial Reporting Taxonomy for public review. The 2018 edition contains updates for recently issued accounting standards and other recommended improvements to the taxonomy.

The FASB also issued the proposed 2018 Shared Reporting Taxonomy, which contains elements of the GAAP Financial Reporting Taxonomy used by IFRS filers for SEC-specific disclosure requirements. The new taxonomy eliminates the need to import the GAAP Financial Reporting Taxonomy.

The FASB is presenting a live webinar on this topic, IN FOCUS: 2018 GAAP Financial Reporting Taxonomy/Shared Reporting Taxonomy Proposed Improvements and SEC Update, on October 3. Those interested can register on the FASB’s website.

Comments on both documents are due October 31.



COSO releases updated Enterprise Risk Management Framework
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) released its updated Enterprise Risk Management (ERM) Framework, Enterprise Risk Management – Aligning Risk With Strategy and Performance. This ERM framework presents a perspective on current and evolving concepts and applications of ERM and the resulting challenges and expectations that business leaders and boards face in meeting the demands of an evolving business environment.

Additional information on the updated ERM Framework, including an Executive Summary, an FAQ, and a slide presentation, is available on the COSO website.



Comment letters issued On August 30, Grant Thornton issued a comment letter in response to the PCAOB’s proposed Auditing Standard, Auditing Accounting Estimates, Including Fair Value Measurements and Proposed Amendments to PCAOB Auditing Standards.

The firm also issued a comment letter to the PCAOB’s Proposed Amendments to Auditing Standards for Auditor’s Use of the Work of Specialists.



© 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.