On The Horizon: FASB highlights from May 16 meeting posted

Contents FASB       Highlights from May 16 meeting posted
      FASB posts recap of Small Business Advisory Committee May 10 meeting

CAQ issues highlights from its March SEC Regulations Committee meeting IASB       May 2018 IFRIC update issued

Comment letters issued

FASB Highlights from May 16 meeting posted All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on May 16 to discuss comments received from stakeholders on the proposed ASU, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, and made the tentative decisions outlined below.

Private company accounting alternative

The Board confirmed its previous decision to permit a reporting entity that is a private company to elect an accounting policy not to apply the variable-interest entity (VIE) guidance when evaluating whether it should consolidate a legal entity under common control if both the parent of the reporting entity and the legal entity being evaluated for consolidation are not public business entities. Reporting entities electing to apply this accounting policy would

  • Apply it to all current and future legal entities under common control meeting the criteria for applying the policy.
  • Continue to apply other consolidation guidance, such as the voting interest entity guidance, unless the reporting entity can apply another scope exception.
  • Provide certain disclosures about the reporting entity’s involvement with, and exposure to, the legal entity under common control.

The Board also tentatively decided to clarify and provide illustrative guidance on how common control should be assessed when the reporting entity applies this accounting policy.

The Board members tentatively agreed to align the effective date and transition guidance for this accounting policy alternative with those under ASU 2016-03, Intangibles – Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance (a Consensus of the Private Company Council). The amendments in ASU 2016-03 made the private company guidance in certain ASUs effective immediately by removing their individual effective dates.

As a result of this tentative decision, a reporting entity may elect to apply this proposed accounting policy alternative upon issuance of a final ASU. Entities would apply the accounting policy alternative retrospectively, with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented.

The Board also tentatively decided that entities electing this accounting policy alternative for the first time would not be required to apply the preferability assessment under ASC 250, Accounting Changes and Error Corrections.

When the final guidance is issued, these proposed transition provisions would exist indefinitely because a private company could elect to apply the accounting policy alternative at any time.

Decision-making fees

The Board also confirmed its proposed “decision-making fee” guidance, which would require entities to consider indirect interests held through related parties in common-control arrangements on a proportional basis when determining whether fees paid to decision-makers and service providers are variable interests.

Under the current guidance, entities are required to consider these indirect interests as direct interests in their entirety when making this determination. The revised guidance would be consistent with how entities consider indirect interests held through related parties that are not under common control under existing guidance.

The amendments to the decision-making fee guidance in the final ASU would

  • Be effective for all entities in fiscal years beginning after December 15, 2019 and in interim periods within those fiscal years. Early adoption would be permitted.
  • Be applied by all entities retrospectively, with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented.
  • Include certain provisions allowing an entity to consolidate and deconsolidate another entity upon transition, which is consistent with recent amendments to the consolidation guidance.

VIE related-party guidance

The Board tentatively decided to exclude the proposed amendments to the related-party guidance for determining the primary beneficiary of a VIE that were part of the originally proposed ASU. Instead, it added a project to its research agenda to determine whether any amendments to the existing VIE related-party guidance might be required upon issuance of a final ASU.

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

FASB posts recap of Small Business Advisory Committee May 10 meeting At the May 10 meeting of the FASB Small Business Advisory Committee (SBAC), the FASB staff provided updates to, and SBAC members provided input on, various topics, including government assistance disclosures required by businesses; income taxes, including backwards tracing; and initial and ongoing costs related to ASC 606, Revenue from Contracts with Customers.

The next SBAC meeting will be held on November 8.

The SBAC focuses on topics relevant for small public companies. Its members represent companies, investors, and auditors who provide input and feedback to the FASB and its staff on pertinent topics. At times, the discussion focuses on whether private company accommodations should be extended to other small businesses, such as banks and small public companies.

CAQ issues highlights from its March SEC Regulations Committee meeting The Center for Audit Quality (CAQ) SEC Regulations Committee meets periodically with the SEC staff to discuss emerging financial reporting issues relating to SEC rules and regulations. The highlights summarize matters discussed at the meetings and do not represent official positions of the AICPA or the CAQ, nor are they authoritative positions or interpretations issued by the SEC or its staff.

The CAQ recently issued highlights of the March 13 joint meeting between its SEC Regulations Committee and the SEC staff, which included the following topics:

  • Discussion of two acceptable approaches if a registrant chooses to present supplemental discussion of comparable periods in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), pursuant to Regulation S-K, Item 303, when using the modified retrospective transition method to adopt ASC 606:
    • Presentation as if ASC 606 had been applied to all historical periods should be limited to only those items for which the registrant is able to determine the impacts. While it is not appropriate to present a full supplemental income statement, net income under ASC 606 for the prior periods may be discussed if a registrant is able to determine the impacts on all affected income statement line items.
    • Presentation of the results for the year of adoption as determined pursuant to ASC 605, Revenue Recognition, should be only for the year of adoption in order to help with comparability. The supplemental MD&A discussion should align to those disclosures required by ASC 250.
    Under either approach, supplemental MD&A discussion should not be more prominent than the historical MD&A discussion.
  • SEC staff views related to the presentation of the impacts of the Tax Cuts and Jobs Act (Tax Act):
    • Certain non-GAAP adjustments for the impacts of the Tax Act may be appropriate but, if presented, should be balanced to disclose the impacts on both revenues and expenses. However, non-GAAP adjustments that apply the new tax rate to periods prior to enactment may not be appropriate, as they may not reflect performance during the historical periods when the tax laws were different.
    • For pro forma financial statements, registrants are encouraged to discuss their specific facts and circumstances with the SEC staff on a prefiling basis if they wish to reflect the impacts of the Tax Act as a material event pursuant to Regulation S-X, Rule 11-01(a)(8).
  • Indication from the SEC staff that it is permissible, in a waiver request under Regulation S-X, Rule 3-13, to request that relief be granted for the current filing as well as for all future filings that would require the same financial statements under Regulation S-X, Rule 3-09, assuming the equity method investment(s) is not significant in a future period.
  • Confirmation from the SEC staff that a company conducting an IPO through the submission of a draft registration statement can assess significance under Regulation S-X, Rule 1-02(w), using the financial statements for its most recent year-end for an acquisition that takes place after year-end, even if those financial statements are not included in the draft registration statement, as long as those audited financial statements will be included in the first public filing. Registrants are encouraged to inform its Assistant Director’s office prior to submitting the draft registration statement when significance will be calculated in this manner.
  • Confirmation from the SEC staff that after the completion of a reverse merger between a public operating company and a non-public operating company that is an accounting acquirer in such transaction, any reissuance of pre-acquisition annual financial statements of the accounting acquirer in a registration statement or in Form 10-K requires a PCAOB opinion for all periods presented. Similar considerations would apply to other disclosures that are unique to issuers, such as supplementary financial information, segment reporting, and earnings per share.

Registrants may submit to the SEC staff live fact patterns showing potential inconsistencies between the requirements of Regulation S-X, Rule 5-03(b), and the requirements of ASC 606 and ASC 842, Leases, for the presentation of revenue categories on the face of the financial statements. Additionally, registrants are encouraged to discuss with the SEC staff the application of the updated guidance in Financial Reporting Manual Sections 3250.1(m) and 10230.1 when there are unique or complex fact patterns. Refer to the December 8, 2017 On the Horizon for a discussion on these Sections.

IASB May 2018 IFRIC update issued The IASB’s IFRS Interpretations Committee (IFRIC) has issued the May 2018 Update summarizing the decisions reached by the Committee during its May 9 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.

Comment letters issued On May 17, the firm issued three comment letters to the AICPA in response to the following proposed Statements on Auditing Standards:

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