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On The Horizon: FASB proposes amendments to definition of 'collections'

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Contents FASB Board proposes amendments to definition of 'collections'
Highlights from June 27 meeting posted
PCC posts recap of June 26 meeting

SEC issues three Final Rules ‘Smaller reporting company’ definition revised
Use of Inline XBRL required
Investment company liquidity disclosures amended

AICPA revises auditing standards to conform to recent amendments IASB issues paper on accounting for certain financial instruments Comment letter issued


FASB Board proposes amendments to definition of 'collections' The FASB issued a proposed ASU, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections, to amend the definition of "collections" in the Codification Master Glossary so that it aligns with the definition in the American Alliance of Museums’ Code of Ethics for Museums. Accounting for collections is an issue that generally affects certain not-for-profit (NFP) entities because collections are primarily held by NFPs; however, the amendments in the proposal would apply to all entities that maintain collections.

Under the existing guidance in ASC 958, entities are not required to recognize contributions of works of art, historical treasures, and similar assets if the donated items are added to collections and meet certain conditions. The proposal would amend one of these conditions by requiring the proceeds from collection items that are sold to be used for the direct care of existing collections or to acquire other collection items. Under existing guidance, this condition requires the proceeds from collection items that are sold to be used only to acquire other collection items.

The amendments in the proposal would be effective upon issuance of a final ASU, and entities would be allowed to apply the amendments on a either a prospective or a retrospective basis.

The FASB staff also issued proposed taxonomy improvements related to the proposed ASU.

Comments on the proposed ASU and on the related proposed taxonomy improvements are due August 10.

Highlights from June 27 meeting posted All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on June 27 to discuss an Emerging Issues Task Force (EITF) consensus and consensus-for-exposure, comments received on the proposal to reorganize the existing consolidation guidance, and a conceptual framework project. The Board’s actions are summarized below.

Ratifications of an EITF consensus and consensus-for-exposure

The Board ratified the consensus reached by the EITF at the June 7 meeting on Issue 17-A, “Customer’s Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) Incurred in a Cloud Computing Arrangement that is Considered a Service Contract,” and directed the staff to draft an ASU for vote by written ballot.

The Board also ratified the consensus-for-exposure reached by the EITF at the June 7 meeting on Issue 18-A, “Recognition under Topic 805 for an Assumed Liability in a Revenue Contract,” and tentatively decided to issue a proposed ASU, with a public comment period of 30 days.

See the June 14 On the Horizon for summaries of Issue 17-A and Issue 18-A

Consolidation reorganization and targeted improvements

The Board discussed comments received from stakeholders on the proposed ASU, Consolidation (Topic 812): Reorganization, and tentatively decided to continue to reorganize the guidance in ASC 810, Consolidation. It also instructed the staff to develop nonauthoritative educational materials addressing certain aspects of the consolidation guidance.

Conceptual framework – elements

The Board discussed issues related to the tentative definition of a “liability” (an entity’s present obligation to transfer an economic benefit), and made the following tentative decisions:

  • The requirement to have a present obligation, which is an essential characteristic of a liability, adequately distinguishes business risks from liabilities.
  • The present description of constructive obligations provides an adequate basis to reach standards-level conclusions related to whether a constructive obligation exists.
  • The term stand-ready obligation should not be used, and instead the concepts should explain that there are present obligations with an uncertain outcome. Further, the Board stated that present obligations with an uncertain outcome do not result from engaging in business activities absent a law or contract establishing such an obligation or the entity creating an obligation consistent with other constructive obligations.

PCC posts recap of June 26 meeting The PCC reaches official positions only after extensive due process and deliberations. The PCC’s consensuses and consensuses-for-exposure are subject to ratification by the FASB.

During the Private Company Council (PCC) meeting on June 26, the PCC members provided input on the following FASB projects:

  • Balance-sheet classification of debt: The PCC asked the FASB to reconsider its prior tentative decision to allow entities to classify obligations due within 12 months as long-term debt if the entity has unused long-term financing arrangements at the balance-sheet date.
  • Consolidation reorganization: The PCC generally supported the Board’s project to reorganize the existing consolidation guidance in ASC 810 into a new topic, ASC 812, but some PCC members are concerned that this reorganization might unintentionally change how entities apply this guidance.
  • EITF Issue 17-A on accounting for cloud computing arrangements: The PCC supported the consensus on this issue reached at the EITF’s June 7 meeting. As discussed in the previous article, the FASB ratified this consensus at its June 27 meeting.
  • Share-based compensation: The PCC discussed the results of recent outreach performed with users of private company financial statements and discovered that these users believe share-based compensation expense is relevant and is used to determine the significance of compensation arrangements at a private company. The PCC directed the FASB staff to perform additional research on whether potential practical expedients for recognizing share-based compensation awards at fair value would be useful and feasible for private companies. Further, the PCC requested additional research on improving the accounting for profits-interests arrangements.
  • Revenue recognition: The PCC discussed revenue recognition issues specific to private companies included in a comment letter submitted by the AICPA Technical Issues Committee and the Center for Plain English Accounting related to (1) determining the legal enforceability of rights and obligations in a contract, (2) accounting for short-cycle manufacturing contracts, and (3) accounting for out-of-pocket costs under ASC 606, Revenue from Contracts with Customers.

The next PCC meeting will be held on October 9.



SEC issues three Final Rules ‘Smaller reporting company’ definition revised On June 28, the SEC adopted the Final Rule, Amendments to Smaller Reporting Company Definition, raising the financial thresholds in the “smaller reporting company” (SRC) definition and expanding the scope of companies that qualify for scaled disclosures. As a result of these amendments, the criteria to qualify as an SRC are no longer aligned with those under which a registrant would be considered a non-accelerated filer.

Among other things, the Final Rule

  • Raises the initial qualification thresholds in the SRC definition so that a company qualifies as an SRC when it meets at least one of two criteria:
    • Public float is less than $250 million, regardless of revenue levels (compared to the previous $75 million), or
    • Annual revenues are less than $100 million and it either has no public float or its public float is less than $700 million (compared to the previous $50 million in annual revenues when the company had no public float)
    For the first fiscal year ending after the Final Rule’s effective date, all issuers may evaluate SRC eligibility by applying the amended initial qualification thresholds, regardless of their prior filing status. Once a company fails to qualify as an SRC, it would remain unqualified until it determines it meets the subsequent qualification thresholds, which are set at 80 percent of the initial thresholds.
  • Amends Regulation S-X, Rule 3-05, to increase the net revenue threshold from $50 million to $100 million in paragraph (b)(2)(iv) under which a registrant may omit the earliest of the three fiscal years of audited financial statements of certain targets.
  • Amends the definitions of “accelerated filer” and “large accelerated filer” to eliminate the provision that excludes registrants that are SRCs, thus preserving the application of the current public float thresholds in those definitions. Accordingly, a registrant with greater than $75 million in public float could qualify as both an SRC and an accelerated filer. This means the registrant would be eligible to use the scaled disclosures available to SRCs; however, it would nevertheless be subject to the accelerated filing deadlines for periodic reports and would be required to comply with Sarbanes-Oxley Act Section 404(b), the auditor attestation requirement for a registrant’s internal control over financial reporting, unless the company is an emerging growth company.

Along with this rulemaking, SEC Chairman Jay Clayton has directed the staff to formulate recommendations for potential changes to the accelerated filer definition that, if adopted, would reduce the number of registrants defined as accelerated filers.

The Final Rule is effective September 10. See NDS 2018-09 for further details on the Final Rule.

Use of Inline XBRL required Further, the SEC adopted on June 28 the Final Rule, Inline XBRL Filing of Tagged Data, to require operating companies to submit financial statement information, and mutual funds to submit risk/return summaries, using the Inline XBRL format, which allows filers to embed XBRL data directly into an HTML document. The Final Rule also eliminates the requirement for filers to post Interactive Data Files to their websites.

Operating company filers are required to comply with the Final Rule beginning with the first Form 10-Q filed for a fiscal period ending on or after the applicable compliance date, as follows:

  • Large accelerated filers that prepare their financial statements in accordance with U.S. GAAP are required to comply beginning with fiscal periods ending on or after June 15, 2019.
  • Accelerated filers that prepare their financial statements in accordance with U.S. GAAP are required to comply beginning with fiscal periods ending on or after June 15, 2020.
  • All other operating company filers are required to comply beginning with fiscal periods ending on or after June 15, 2021.

The Final Rule includes a similar phase-in compliance approach for mutual funds based on net asset size and eliminates the current 15-business-day XBRL filing period for fund risk/return summaries.

Similar to current XBRL exhibits, Inline XBRL data is subject to disclosure controls and procedures; however, such data is excluded from the officer certification requirements under Rules 13a-14(f) and 15d-14(f) of the Exchange Act. In addition, there is no requirement in the Final Rule for auditors to provide any form of assurance on the Inline XBRL data.

The Final Rule is effective 30 days after publication in the Federal Register.

Investment company liquidity disclosures amended On June 28, the SEC also adopted the Final Rule, Investment Company Liquidity Disclosure, to add, amend, and rescind certain disclosure requirements for registered open-end investment companies, including certain disclosures on Form N-PORT adopted in the 2016 Final Rule, Investment Company Liquidity Risk Management Programs.

Among other things, the Final Rule replaces the requirement in Form N-PORT that a fund should publicly disclose, on an aggregate basis, the percentage of its investments that it has allocated to each liquidity classification category with a new narrative discussion in the fund’s annual or semi-annual shareholder report about the operation and effectiveness of the fund’s liquidity risk-management program. The Final Rule also amends Form N-PORT to permit funds to split their portfolio holdings into more than one liquidity classification category under certain specified circumstances and to require funds to report their holdings of cash and cash equivalents not disclosed elsewhere in the form.

The Final Rule is effective September 10.



AICPA revises auditing standards to conform to recent amendments The Auditing Standards Board (ASB) of the AICPA issued revisions to selected auditing standards to conform to Statement on Auditing Standards (SAS) 133, Auditor Involvement With Exempt Offering Documents (AU-C Section 945). In addition to revising certain standards, the ASB also removed the appendices to AU-C Section 945.

Revised sections include

  • AU-C Section 560, Subsequent Events and Subsequently Discovered Facts
  • AU-C Section 925, Filings With the U.S. Securities and Exchange Commission Under the Securities Act of 1933




IASB issues paper on accounting for certain financial instruments The IASB has issued for public comment Discussion Paper 2018/01, Financial Instruments with Characteristics of Equity, to obtain stakeholder feedback on the Board’s preliminary views on the classification, presentation, and disclosure of these financial instruments.

Comments on the Discussion Paper are due January 7, 2019.



Comment letter issued On June 15, the firm issued a comment letter in response to an Exposure Draft issued by the AICPA’s Professional Ethics Executive Committee, which proposes revisions to AICPA ET Section 1.295.145, Information Systems Design, Implementation, or Integration. The proposed interpretation is titled Information System Services.



© 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.