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On The Horizon: FASB ASU includes several amendments to Codification

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Contents FASB ASU includes several amendments to Codification
Narrow aspects of new leasing guidance clarified

SEC Final Rule increases threshold for compensatory arrangement exempt offerings

GAO publishes revised Yellow Book IASB issues update on July meetings International Federation of Accountants IAASB issues Exposure Draft on risks of material misstatements



FASB ASU includes several amendments to Codification As part of its ongoing effort to clarify, improve, or correct errors in the Codification, the FASB recently issued ASU 2018-09, Codification Improvements. The amendments affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected guidance.

Some amendments do not require transition guidance and are effective upon issuance. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the amendments requiring transition guidance for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. All other entities should apply these amendments for fiscal years beginning after December 15, 2019 and for interim periods in fiscal years beginning after December 15, 2020.

Entities are permitted to apply certain amendments that are not immediately effective prospectively, retrospectively by restating all prior periods presented, or on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Entities that have early adopted ASUs that are not yet effective should apply any amendments made to these ASUs on a modified retrospective basis.

The effective date and transition guidance for amendments made to recently issued ASUs that are not yet effective are the same as those for the recently issued guidance.

Early adoption is permitted for any fiscal year or interim period if the entity has not issued financial statements or made its financial statements available for issuance.

The FASB staff also issued proposed taxonomy improvements related to the ASU. Comments on these proposed taxonomy improvements are due August 14.

Narrow aspects of new leasing guidance clarified The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify, improve, and correct errors in the new leasing guidance codified in ASC 842. These improvements were issued in a separate ASU from the Codification improvements issued in ASU 2018-09 to ensure that stakeholders are aware of the amendments and to expedite the improvements.

Highlights of the amendments include the following clarifications:

  • The rate implicit in a lease should not be less than zero.
  • The lease classification reassessment should be performed on the basis of the facts and circumstances, as well as the modified terms and conditions of the lease if applicable, that exist as of the date the entity undertakes the reassessment.
  • A change in a reference index or rate on which variable lease payments are based does not constitute the resolution of a contingency for purposes of remeasuring the lease.
  • The application of the impairment guidance for the net investment in the lease includes cash flows from the lease receivable and the unguaranteed residual asset during and after the end of the remaining lease term.
  • A lessor should generally apply the lease modification guidance when a lessee exercises an option to extend or terminate the lease or to purchase the underlying asset, unless exercising that option is consistent with the lessor’s assumptions used in accounting for the lease at the commencement date.
  • If a lessor sells the lease receivable associated with a direct financing lease or a sales-type lease and retains an interest in the residual value of the asset, the lessor should not continue to accrete the unguaranteed residual asset to its estimated value over the remaining lease term.
  • The transition guidance on sale-leaseback transactions applies to all sale-leaseback transactions that occur before the effective date of ASC 842.
  • A seller-lessee in a failed sale-leaseback transaction should adjust the interest rate on its financial liability to ensure that the interest does not exceed total payments (as opposed to principal payments) on the financial liability.

For entities that have not yet adopted ASC 842, the amendments are effective upon adoption. For entities that have early adopted ASC 842, the amendments are effective upon issuance.

The FASB staff also issued proposed taxonomy improvements related to the ASU. Comments on these proposed taxonomy improvements are due August 17.



SEC Final Rule increases threshold for compensatory arrangement exempt offerings On July 18, the SEC adopted the Final Rule, Rule 701 – Exempt Offerings Pursuant to Compensatory Arrangements, to amend Securities Act Rule 701, which exempts from registration securities issued by non-reporting companies pursuant to certain compensatory benefit plans and compensation contracts. The Final Rule specifically amends Rule 701(e), by raising the threshold, from $5 million to $10 million, for the aggregate sales price or amount of securities sold during any consecutive 12-month period in excess of which the issuer is required to provide financial statements and other disclosures to investors.

On the same day, the SEC issued a related Concept Release requesting comments on various aspects of Securities Act Rule 701 and Form S-8, the registration statement used by reporting companies to register securities to be offered to employees and certain consultants under employee benefit plans. The SEC is seeking comments on possible ways to update the requirements of Rule 701 and Form S-8, the relationship between the two, and what effects any revised rule or form may have on a company’s decision to become a reporting company.

The Final Rule is effective July 23. Comments on the Concept Release are due September 24.



GAO publishes revised Yellow Book The U.S. Government Accountability Office (GAO) issued the 2018 revision of Generally Accepted Government Auditing Standards, also known as the “Yellow Book.” Key amendments include

  • An updated format that differentiates requirements from application guidance
  • Updates to independence requirements for auditors who also prepare the financial statements of an auditee
  • Revised peer review requirements for audit organizations
  • New guidance to define “waste” and to recharacterize auditor responsibilities to address waste and abuse detected during an audit
  • Updates to internal control guidance for performance audits

The 2018 Yellow Book is effective for financial audits, attestation engagements, and reviews of financial statements for periods ending on or after June 30, 2020 and for performance audits beginning on or after July 1, 2019. Early adoption is not permitted.



IASB issues update on July meetings All decisions reached at IASB meetings are tentative and may be changed or modified at future meetings. Board decisions become final only after completion of a formal ballot to issue a new Standard or Interpretation or to publish an Exposure Draft.

The IASB has issued the July 2018 Update summarizing the tentative decisions reached during its July public meetings. The Board discussed the following topics:

  • Rate-regulated activities
  • Management commentary
  • Business combinations under common control
  • Conceptual framework
  • Implementation
  • Goodwill and impairment
  • Disclosure initiative
  • Accounting policies and accounting estimates
  • Emerging economies group update



International Federation of Accountants IAASB issues Exposure Draft on risks of material misstatements The International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants issued an Exposure Draft on International Standard on Auditing (ISA) 315 (Revised), Identifying and Assessing the Risks of Material Misstatement. The primary goals of the proposed revisions include

  • Improving consistent and effective identification and assessment of risks of material misstatement
  • Modernizing ISA 315 to meet evolving business and information technology needs and to address how auditors use automated techniques to perform audit procedures
  • Improving the standard’s applicability across a wide variety of entities
  • Focusing auditors on exercising professional skepticism throughout risk identification and assessment

Comments are requested 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.