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On the Horizon: Accounting and financial reporting considerations in Wayfair decision

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Contents Current reporting issue Accounting and financial reporting considerations in Wayfair decision

FASB ASU simplifies accounting for nonemployee share-based payments
Board clarifies scope of contribution accounting

AICPA PEEC proposes interpretation on disclosing client information for Quality Review

GASB issues new guidance for interest cost IASB Board issues update on June meetings
IFRIC update published
IFRS Taxonomy examples released



Current reporting issue Accounting and financial reporting considerations in Wayfair decision On June 21, the U.S. Supreme Court handed down its decision in the South Dakota v. Wayfair, Inc. case (the Wayfair decision) related to sales and use tax nexus standards. In this ruling, the Supreme Court overruled its previous decisions in other landmark cases, commonly referred to as National Bellas Hess and Quill, which had established a physical presence nexus standard for sales and use tax purposes. Under these prior decisions, entities were generally not required to collect and remit sales and use tax in states where they had no physical presence but sold products “remotely” to customers. Under the Wayfair decision, entities may now be required to collect sales and use tax in these states based solely on an economic nexus standard if the taxpayer has a substantial connection with the state. (See “Wayfair ruling overturns Quill physical presence requirement” for a summary of the Wayfair decision.)

Entities should apply the accounting guidance in ASC 450-20, Contingencies: Loss Contingencies, to any potential sales and use tax obligations when evaluating the accounting and financial reporting implications of the Wayfair decision. The accounting guidance in ASC 740, Income Taxes, including the guidance related to uncertainty in income taxes, does not apply to sales and use tax because sales and use tax is not a tax that is based on income.

Public business entities need to consider these implications in their current quarter, the second quarter ending June 30, 2018 for calendar-year public business entities. All entities need to understand the implications of the Wayfair decision on their sales and use tax practices in states where they lack a physical presence but act as “remote” sellers, delivering goods and services to customers. In other words, entities need to determine whether they now have nexus for sales and use tax purposes in a particular state based on an economic nexus standard instead of a physical presence nexus standard.

We expect states to act quickly to enact legislation and issue guidance that will require entities to apply an economic nexus standard for sales and use tax purposes. As a result, entities will also need to monitor and consider any related legislation that has already been, or will be, enacted by each state as a result of the Wayfair decision. This legislation will impact the timing and amount of sales and use tax that entities may be required to collect from customers and remit to each state in the future. Although it is uncertain when each state will require entities subject to the state’s economic nexus standard to begin collecting sales and use taxes from customers and remitting them to the state, we expect that most states will attempt to impose these requirements as soon as practicable.

While the Wayfair decision is expected to have the most significant effect on Internet retailers engaged in e-commerce activities with customers located in several states, many other entities will be affected. In addition, while the case specifically addresses sales and use tax, its implications may be broad enough to impact and solidify the existing economic nexus standards that are in place for income tax purposes as well. As a result, all entities that are remote sellers of goods and services that do not have a physical presence in a particular state should evaluate both their sales and use tax, as well as their income tax, nexus positions and the related financial statement implications under ASC 450-20 and ASC 740-10, respectively.



FASB ASU simplifies accounting for nonemployee share-based payments In an effort to improve the accounting for share-based payment awards, the FASB recently issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. The amendments expand the scope of ASC 718, Compensation – Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees, and supersede the guidance in ASC 505-50, Equity-Based Payments to Non-Employees, which includes the accounting for nonemployee awards.

The changes for entities that issue awards to nonemployees include

  • Using the grant date as the measurement date for equity-classified awards
  • Considering the probability that a performance condition will be satisfied when an award contains such a condition
  • Aligning the post-vesting classification considerations with those of employee awards
  • Providing certain relief for nonpublic entities, such as allowing them to make an election to (1) change the measurement of all liability-classified nonemployee awards from fair value to intrinsic value, and (2) use the historical volatility of an appropriate industry sector to calculate the fair value of share options. An entity can elect these practical expedients for nonemployee awards only if the accounting under the election is consistent with the accounting for employee awards under ASC 718.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, they are effective for fiscal years beginning after December 15, 2019 and for interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption of ASC 606, Revenue from Contracts with Customers.

An entity should apply the amendments to outstanding liability awards and equity-classified awards lacking a measurement date by remeasuring these awards at fair value as of the adoption date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the annual period of adoption. An entity should not remeasure any assets that are completed, such as finished goods inventory or equipment that has begun amortization.

The FASB also released the proposed XBRL Taxonomy improvements related to this ASU. Comments on the proposal are due July 20.

Board clarifies scope of contribution accounting The FASB issued ASU 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, to address concerns about the diversity in accounting for grants and contracts for not-for-profit (NFP) entities. The amendments provide (1) a framework for determining whether a particular transaction is an exchange transaction or a contribution transaction, including how to evaluate whether a resource provider is receiving commensurate value in an exchange transaction, and (2) guidance to assist entities in determining whether a contribution is either conditional or unconditional. The guidance applies to both recipients and resource providers.

For resource recipients that are either public business entities or NFPs that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, the amendments are effective for fiscal years beginning after June 15, 2018, including interim periods within those annual periods. All other entities are required to adopt the amendments in fiscal years beginning after December 15, 2018 and in interim periods within fiscal years beginning after December 15, 2019.

For resource providers that are either public business entities or NFPs that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. All other entities are required to adopt the amendments in fiscal years beginning after December 15, 2019 and in interim periods within fiscal years beginning after December 15, 2020.

Early adoption is permitted.

NFPs will be required to apply either a retrospective transition approach or a modified prospective approach in the year when the new guidance is first applied.

The FASB also released the proposed XBRL Taxonomy improvements related to this ASU. Comments are due July 19.



AICPA PEEC proposes interpretation on disclosing client information for Quality Review The AICPA’s Professional Ethics and Executive Committee (PEEC) issued an Exposure Draft proposing a new Interpretation, “Disclosing Client Information in Connection with a Quality Review.” The new Interpretation would expand the instances in which members may disclose confidential client information without the client’s specific consent in connection with tax practice quality reviews, conditioned on the member meeting both of the following requirements:

  • At a minimum, the member complies with the requirements of Treasury Regulation 301.7216-2(p) related to disclosures of tax return information during such reviews.
  • If the member determines that threats to compliance with the Confidential Client Information Rule have not been sufficiently reduced to an acceptable level, the member should apply additional safeguards, for example, entering into a written confidentiality agreement with the reviewer or de-identifying tax return information provided to the reviewer.

Comments on the proposal are due by August 20.



GASB issues new guidance for interest cost The GASB recently issued Statement 89, Accounting for Interest Cost Incurred before the End of a Construction Period, to simplify the accounting for interest costs incurred before the end of a construction period and to enhance the comparability of financial reporting.

For financial statements prepared using the economic resources measurement focus, the new guidance requires entities to recognize interest cost incurred before the end of a construction period as an expense in the period the cost is incurred. For financial statements prepared using the current financial resources measurement focus, entities should continue to recognize cost as an expenditure on a basis consistent with governmental fund accounting principles.

Statement 89 is effective for reporting periods beginning after December 15, 2019 and should be applied prospectively. Earlier application is encouraged.



IASB Board issues update on June 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 June 2018 Update summarizing the tentative decisions reached during its June public meetings, including a joint meeting with the FASB. The IASB discussed the following topics:

  • Disclosure framework and disclosure initiative
  • Dynamic risk management
  • Research program
  • Research project proposal on InterBank Offering Rate (IBOR) reform
  • Primary financial statements
  • Insurance contracts
  • Islamic Finance Consultative Group
  • Business combinations under common control
  • Segment reporting
  • Fair value measurement
  • Goodwill and impairment
  • Implementation of revenue and leases standards

IFRIC update published The IASB’s IFRS Interpretations Committee (IFRIC) has issued the June 2018 Update summarizing the decisions reached by the Committee during its June 12 public meeting. Decisions on an IFRIC Interpretation become final only after the Committee has formally voted on the Interpretation, which is then sent to the IASB for ratification.

IFRS Taxonomy examples released The IFRS Foundation published “IFRS Taxonomy Illustrative Examples 2018,” which uses elements in the 2018 IFRS Taxonomy to tag illustrative examples contained within the IFRS Standards.



© 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.