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On the Horizon: SEC approves investment company rulemaking package

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Contents FASB posts highlights from June 6 meeting SEC approves investment company rulemaking package EITF Meeting held on June
New EITF member appointed

AICPA revises auditing standards to conform to recent amendments International Federation of Accountants IAASB releases survey on future strategy



FASB posts highlights from June 6 meeting All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on June 6 to discuss proposals on the accounting for long-duration insurance contracts and on the related-party guidance for variable interest entities (VIEs), along with its project related to distinguishing liabilities from equity.

These discussions are summarized below.

Targeted improvements to long-duration insurance contracts The Board discussed the amendments in the proposed ASU, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, and made the following tentative decisions:
  • Discount rate reset upon initial adoption (liability for future policy benefits for traditional and limited-payment contracts): An insurance entity would retain the discount rate assumption for purposes of calculating net premiums and interest accretion when applying the modified retrospective transition method as of the beginning of the earliest period presented (the transition date). The liability on the balance sheet would be remeasured at the current upper-medium grade fixed-income instrument yield, resulting in an adjustment to opening accumulated other comprehensive income at the transition date.
  • Effective date: The amendments in a final ASU would be effective for public business entities in fiscal years, and in interim periods within those fiscal years, beginning after December 15, 2020. All other entities would apply the amendments in fiscal years beginning after December 15, 2021 and in interim periods beginning after December 15, 2022. Early adoption would be permitted for all entities.
The Board directed the staff to draft a final ASU for vote by written ballot.

Targeted improvements to related-party guidance for VIEs The Board reconsidered its previous tentative decisions related to the effective date and transition requirements for the proposed ASU, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, and tentatively decided that private companies should adopt the amendments in the final ASU in fiscal years beginning after December 15, 2020, with early adoption permitted. Entities would be required to apply the amendments retrospectively, with a cumulative-effect adjustment made to retained earnings at the beginning of the earliest period presented.

The Board directed the staff to continue drafting a final ASU for vote by written ballot.

Distinguishing liabilities from equity (including convertible debt) The Board discussed several alternative accounting models for (1) accounting for convertible instruments, and (2) determining whether instruments are indexed to an entity’s own stock under the derivative scope exception. The Board directed the staff to perform further research. No tentative decisions were made.



SEC approves investment company rulemaking package On June 5, the SEC announced a rulemaking package that aims to modernize the design, delivery, and content of disclosures provided by mutual funds and other investment companies to investors. The rulemaking package includes
  • Final Rule, Optional Internet Availability of Investment Company Shareholder Reports, to adopt new rule 30-e3 under the Investment Company Act of 1940 and to amend certain rules and forms. The Final Rule provides certain registered investment companies with an option to satisfy requirements to transmit shareholder reports by making such reports and other materials available at a website address specified in a notice to investors. The Final Rule is effective January 1, 2019, with certain exceptions; however, the earliest a fund may rely on rule 30-e3 is January 1, 2021.
  • Request for Comment on enhancing disclosures by mutual funds, exchange-traded funds, and other types of investment funds to improve the investor experience and to help investors make more informed investment decisions
  • Request for Comment on the processing fees charged by intermediaries for distributing materials other than proxy materials, such as shareholder reports and prospectuses, to fund investors
Comments are due by October 31, 2018 for both Requests for Comment.



EITF Meeting held on June 7 Because a consensus-for-exposure is subject to ratification by the FASB and some of the details of conclusions reached at an EITF meeting are determined during the process of developing the minutes of the meeting, the following descriptions are preliminary.

The FASB’s Emerging Issues Task Force (EITF) met on June 7 and discussed issues related to accounting for certain costs incurred in a cloud computing arrangement, recognizing a liability related to a revenue contract of an acquiree in a business combination, and improving accounting for episodic television series.

These discussions are summarized below.

Issue 17-A, “Customer’s Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) in a Cloud Computing Arrangement That Is Considered a Service Contract”

The Task Force discussed comment letters received from stakeholders on the proposed ASU, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract; Disclosures for Implementation Costs Incurred for Internal-Use Software and Cloud Computing Arrangements (a consensus of the FASB Emerging Issues Task Force).

The Task Force reached a final consensus that would require implementation costs associated with a cloud computing arrangement that is considered a service contract (referred to as a “hosting arrangement”) to be accounted for in the same way as implementation costs associated with a software license, as prescribed in ASC 350 40, Intangibles – Goodwill and Other: Internal-Use Software. Therefore, implementation costs incurred in the preliminary and post-implementation phases of a project would be expensed, along with data conversion and training costs. Implementation costs incurred in the application development phase, such as costs for the cloud computing arrangement’s integration with on-premise software, coding, and configuration or customization, would be capitalized.

The final consensus would also require entities to amortize the capitalized implementation costs over the noncancellable term of the cloud computing arrangement, including any renewal periods, to the extent that it is reasonably certain the renewal will be exercised. The amortization of capitalized implementation costs would be reflected in the same line item within the income statement as the periodic payments for the hosting service.

The EITF also reached a final consensus to reduce the volume of disclosures that were originally required under the proposed ASU. The proposal would have required entities to provide additional disclosures about the terms of the cloud computing arrangement, significant judgments and assumptions made, and qualitative and/or quantitative information about the costs expensed and capitalized as well as the period in which the costs are amortized. These disclosures would have also been required for internal-use software arrangements that are currently accounted for under ASC 350-40. The final consensus would require entities to disclose the nature of the hosting arrangement and certain disclosures similar to the disclosures required for property, plant, and equipment in ASC 360, Property, Plant and Equipment.

The Task Force also tentatively decided to add guidance on the impairment of capitalized implementation costs of a hosting arrangement based on the existing impairment guidance in ASC 350-40. The unit of account for applying the abandonment guidance would be the asset related to a module or a component of the hosting arrangement.

Public business entities would apply the amendments in a final consensus in fiscal years beginning after December 15, 2019 and in interim periods within those fiscal years. All other entities would apply the amendments in fiscal years beginning after December 15, 2020 and in interim periods within fiscal years beginning after December 15, 2021. Early adoption would be permitted for all entities in any annual or interim period for which the financial statements have not been issued or made available for issuance.

Issue 18-A, “Recognition under Topic 805 for an Assumed Liability in a Revenue Contract”

This issue addresses how an entity should recognize a revenue contract with a customer that is acquired in a business combination if the entity has already adopted the guidance in ASC 606, Revenue from Contracts with Customers. The issue discusses whether an entity should recognize an identifiable liability (such as deferred revenue) related to a revenue contract acquired in a business combination (1) only if the entity has a legal obligation to perform under the revenue contract, or (2) based on whether the entity has a performance obligation under ASC 606.

The Task Force reached a consensus-for-exposure that an entity should recognize an identifiable liability related to a revenue contract acquired in a business combination if it has a performance obligation under ASC 606. The Task Force also reached a consensus-for-exposure that the guidance would be applied on a prospective transition method.

Issue 18-B, “Improvements to Accounting for Episodic Television Series”

The existing guidance in ASC 926-20, Entertainment – Films: Other Assets – Film Costs, addresses the costs that an entity is permitted to capitalize for each episode in a television series. The objective of this issue is to determine whether this existing guidance is still appropriate considering the changes in the entertainment industry’s production and distribution models since the guidance was issued.

The EITF tentatively decided that entities producing episodic television series would be permitted to capitalize production costs under the same guidance that is applied by entities producing films, but it did not reach a consensus-for-exposure on this issue.

New EITF member appointed The FASB appointed Eric C. West to the EITF.



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 them to Statement on Auditing Standards (SAS) 132, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern. In addition to revising certain standards, the ASB also removed sections that were superseded by SAS 132. Revised sections include
  • AU-C Section 800, Special Considerations – Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks
  • AU-C Section 930, Interim Financial Information
Removed sections include
  • AU-C Section 570A, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern
  • AU-C Section 9570A, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern – Auditing Interpretations of Section 570A
  • The appendix to AU-C Section 570, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern



International Federation of Accountants IAASB releases survey on future strategy The International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants released a survey, “Envisioning the Future – Survey on the IAASB’s Future Strategy,” to solicit stakeholder feedback on emerging developments and trends likely to be important to its strategy for the 2020-2023 period. The IAASB will use the survey results to inform a Consultation Paper on its 2020-2023 strategy, which is expected to be published at the end of 2018. The survey is divided into four sections:
  • Section I – Description of the IAASB’s current strategy, projects, and initiatives (including revisions of the standards on auditing accounting estimates, identifying and assessing risks of material misstatement, and quality control for firms and audit engagements, as well as work on agreed upon procedures engagements and emerging forms of external reporting), which will continue into 2020 and impact the beginning of the 2020-2023 period
  • Section II – Description of the IAASB’s views on what might affect the IAASB during the 2020-2023 period, and the implications this will have on its people, processes, technology, and activities
  • Section III – Request for respondent information, including in what capacity respondents are completing the survey
  • Section IV – Specific questions for respondents
The survey remains open until July 24.



© 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.