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On The Horizon: FASB proposes amendments to lessor accounting guidance

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Contents FASB       Board proposes amendments to lessor accounting guidance in ASC 842
      Public companies asked to participate in study on segment reporting

SEC staff releases Small Entity Compliance Guides AICPA       ASB issues supplement on attestation standards Exposure Draft
      PEEC extends effective date for hosting services
      FinREC releases first set of credit losses implementation working drafts

PCAOB seeks public comment on its five-year strategic plan GASB proposes changes to reporting guidance for certain debt obligations


FASB Board proposes amendments to lessor accounting guidance in ASC 842
The FASB issued a proposed ASU, Leases (Topic 842): Narrow-Scope Improvements for Lessors, to address certain issues raised by lessors when implementing the new leases guidance in ASU 2016-02, Leases (Topic 842). The amendments in the proposed ASU would

  • Permit lessors to elect not to evaluate whether certain sales taxes and other similar taxes are costs of either the lessor or the lessee, but instead to account for those amounts as if they were costs of the lessee and to exclude them from lease revenue. Lessors making this accounting policy election would be required to make additional disclosures in the financial statements.
  • Require lessors to exclude certain lessor costs paid directly by lessees to third parties on behalf of the lessor from variable payments (and from variable lease revenue) if the lessor cannot readily determine the amount of those costs.
  • Require lessors to allocate (rather than recognize, as currently required) certain variable payments to the lease and nonlease components of a contract when the changes in facts and circumstances that trigger the variable payments occur. As a result, in a contract with lease and nonlease components, lessors would recognize the portion of the variable payments allocated to the lease component under the guidance in ASC 842, and the portion of the variable payments allocated to the nonlease component using the guidance in other Codification topics, such as ASC 606, Revenue from Contracts with Customers.

The effective date and transition requirements for the proposed amendments for entities that have not adopted ASC 842 when the proposed amendments are finalized would be the same as the effective date and transition requirements for ASC 842. The Board will determine the effective date and transition requirements for the proposed amendments for entities that have already adopted ASC 842 before the proposal is finalized after it considers stakeholder feedback on the proposal.

Comments on the proposed ASU are due September 12.

Public companies asked to participate in study on segment reporting The FASB announced that it is seeking public companies to participate in a study on potential improvements to the segment aggregation guidance and the reportable segments process.

The Board is asking participants in the study to provide information on how they use the segment aggregation criteria, and how two potential alternative approaches would affect their segment reporting. The staff will present a summary of the findings from the survey at future public Board meetings.

Entities interested in participating in the survey can register on the FASB’s website.



SEC staff releases Small Entity Compliance Guides
Small Entity Compliance Guides summarize and explain rules adopted by the SEC, but they are not a substitute for SEC rules. Only an SEC rule provides complete and definitive information regarding its requirements.

The staff of the SEC’s Division of Corporation Finance recently issued a Small Entity Compliance Guide to summarize key provisions of the Final Rule, Amendments to Smaller Reporting Company Definition, which raises the financial thresholds in the “smaller reporting company” (SRC) definition and expands the scope of companies that qualify for scaled disclosures.

Among other things, this guide clarifies transition provisions for a company newly qualifying as an SRC under the amended definition after the Final Rule’s effective date of September 10, 2018 and provides illustrative examples. A company newly qualifying as an SRC may apply scaled disclosures in its next periodic or current report due after September 10, 2018. This means that an issuer with a June 30 fiscal year-end may elect to apply SRC scaled disclosures in its 2018 Form 10-K if it is filed after September 10, 2018.

For more information on the Final Rule, refer to the July 12 On the Horizon and NDS 2018-09, “Revised ‘smaller reporting company’ definition: SEC expands scope of companies that qualify for scaled disclosures.”

The staff of the SEC’s Division of Investment Management also recently issued a Small Entity Compliance Guide to summarize the key provisions of the Commission’s Final Rule, Optional Internet Availability of Investment Company Shareholder Reports. Among other things, the Final Rule provides certain registered investment companies with an option to satisfy the requirements to transmit shareholder reports by making such reports and other materials available at a website address specified in a notice to investors.

For more information on the Final Rule, refer to the June 14 On the Horizon.



AICPA ASB issues supplement on attestation standards Exposure Draft The Auditing Standards Board (ASB) of the AICPA issued a supplement to the Exposure Draft, Proposed Statement on Standards for Attestation Engagements, Revisions to Statements on Standards for Attestation Engagements No. 18, Attestations Standards: Clarification and Recodification. The supplement provides marked-up versions of two sections of SSAE 18 (AT-C Section 105, Concepts Common to All Attestation Engagements, and AT-C Section 205, Examination Engagements) in matrices that identify the proposed changes included in the exposure draft. The matrix also provides application guidance and other explanatory material.
 
PEEC extends effective date for hosting services The AICPA’s Professional Ethics and Executive Committee (PEEC) has extended the effective date for applying AICPA ET Section 1.295.143, Hosting Services, until July 1, 2019. The original effective date was September 1, 2018.

FinREC releases first set of credit losses implementation working drafts The AICPA’s Financial Reporting Executive Committee (FinREC) released working drafts of two credit losses implementation issues for comment. These working drafts discuss considerations about, and provide illustrative examples for, entities implementing the new guidance in ASU 2016-13, Financial Instruments – Credit Losses. These working drafts include

  • Issue No. 1, Zero Expected Credit Losses
  • Issue No. 22, Reversion Method: Estimation vs. Accounting Policy

FinRec is developing a new accounting and auditing guide related to credit losses that will focus on lending institutions and insurance companies. These implementation issues will be included in the completed guide after the review of public comments and finalization of the issues.
 
The comment period for these working drafts ends October 10.



PCAOB seeks public comment on its five-year strategic plan The Public Company Accounting Oversight Board (PCAOB) released its “Draft Strategic Plan 2018-2022” and is inviting public comment on “areas of strategic focus” for the first time. The PCAOB based its five-year strategic plan on the Board’s own study and a survey of the PCAOB staff and the public.
 
Based on this roadmap, the Board plans to

  • Broaden its approach to driving improvement in the quality of audit services and more clearly communicate how it is driving that improvement
  • Ensure that its inspections and standard-setting activities are responsive to and do not impede technological innovations
  • Engage proactively more often and directly with investors, audit committees, and other stakeholders to encourage relevant and timely conversations about the quality of audit services
  • Optimize PCAOB operations to more efficiently and effectively use resources
  • Reinforce the PCAOB’s culture of integrity, excellence, effectiveness, collaboration and accountability

Comments are due by September 10.



GASB proposes changes to reporting guidance for certain debt obligations The Governmental Accounting Standards Board (GASB) announced that it has issued the proposed Statement, Conduit Debt Obligations, which is intended to provide a single method for state and local governments to report conduit debt obligations and related obligations in their financial statements. The proposal is expected to eliminate diversity in practice related to how these obligations are reported.

Conduit debt obligations are debt instruments issued by a state or local government (the issuer) to provide financing for a specific third party (the third-party obligor) that is primarily liable for repaying the debt instrument. A third-party obligor enters into this type of arrangement to finance such projects as not-for-profit hospitals and universities, and certain private businesses. Under the existing guidance, issuers have the option to report conduit debt obligations as liabilities in their financial statements.
 
The proposal would
  • Clarify the existing definition of a “conduit debt obligation”
  • Establish that an arrangement meeting the definition of a conduit debt obligation is a liability of the third-party obligor, and not an obligation of the issuer
  • Establish accounting and financial reporting guidance for (1) additional commitments extended by issuers and (2) other arrangements associated with conduit debt obligations
  • Improve required disclosures in the notes to the financial statements

The requirements of the statement would be effective for reporting periods beginning after December 15, 2020. Earlier application is encouraged.

State and local governments would apply the provisions of the statement retroactively by restating the financial statements for all prior periods presented. If restatement of all prior periods is not practicable, state and local governments would recognize the cumulative effect of applying these provisions as an adjustment to the beginning net position (or fund balance) for the earliest period that is restated.

Comments on the proposal are due by November 2.



© 2018 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