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On The Horizon: ASU expands list of interest rates permitted for hedge accounting

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Contents FASB       ASU expands list of interest rates permitted for hedge accounting

      FASB posts highlights from Oct. 24 meeting

AICPA       FinREC releases an additional credit losses implementation working draft

      Audit Risk Alert on general accounting and auditing developments published

      Audit and Accounting Guides issued

PCAOB Investor Advisory Group meeting on Nov. 8 IASB issues update on October meetings IPSASB issues improvements to IPSAS Comment letter issued



FASB ASU expands list of interest rates permitted for hedge accounting
The Board issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which expands the list of U.S. benchmark interest rates permitted in applying hedge accounting.

The amendments permit all entities that elect to apply hedge accounting to benchmark interest rate hedges under ASC 815, Derivatives and Hedging, to use the OIS rate based on SOFR as a U.S. benchmark interest rate in addition to the four eligible U.S. benchmark interest rates.

The ASU also adds the following definition of the SOFR OIS rate to the ASC Master Glossary:

The fixed rate on a U.S. dollar, constant-notional interest rate swap that has its variable-rate leg referenced to the Secured Overnight Financing Rate (SOFR) (an overnight rate) with no additional spread over SOFR on that variable-rate leg. That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equates to the present value of the variable cash flows.

For entities that have not already adopted ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, the amendments in ASU 2018-16 are required to be adopted concurrently with the amendments in ASU 2017-12.

The amendments in ASU 2018-16 are effective for public business entities that have adopted ASU 2017-12 in fiscal years beginning after December 15, 2018 and in interim periods within those fiscal years. All other entities that have adopted ASU 2017-12 should adopt the amendments in ASU 2018-16 in fiscal years beginning after December 15, 2019 and in interim periods within those fiscal years.

Early adoption is permitted in any interim period upon issuance of ASU 2018-16 if an entity already has adopted ASU 2017-12.

Entities should apply the amendments prospectively for qualifying new or redesignated hedging relationships entered into on or after the date of adoption.

FASB posts highlights from Oct. 24 meeting
All decisions reached at Board meetings are tentative and may be changed at future meetings.

The Board met on Oct. 24 to discuss comments received on a proposal to amend the recently issued ASU on credit losses, redeliberate a proposed ASU on the classification of debt, and discuss the research project on the accounting for certain identifiable assets in a business combination and the subsequent accounting for goodwill. The Board’s actions are summarized below.

Codification improvements – financial instruments - credit losses

The Board discussed comments received from stakeholders on the proposed ASU, Codification Improvements to Topic 326, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (Update 2016-13), and reaffirmed its decisions in the proposal to amend the guidance in ASC 326.

See the Aug. 23 On the Horizon for a summary of the proposal.

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

Simplifying the balance sheet classification of debt

The Board continued to redeliberate the proposed ASU, Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent), focusing on how the classification principle in the proposal should apply to unused long-term financing arrangements. No tentative decisions were made.

The Board directed the staff to conduct additional research, focusing on a potential alternative to its previous tentative decision that entities should disregard an unused long-term financing arrangement, such as an unused line of credit, in place at the balance sheet date when determining how to classify debt.

Accounting for certain identifiable assets in a business combination and subsequent accounting for goodwill for public business entities and not-for-profits

The Board discussed the pre-agenda research project related to the accounting for certain identifiable assets in a business combination and the subsequent accounting for goodwill, and tentatively decided to add this project to its agenda for not-for-profit (NFP) entities. It directed the staff to draft a proposed ASU for vote by written ballot that would also permit NFPs to apply the guidance in the following ASUs:

  • ASU 2014-02, Intangibles – Goodwill and Other (Topic 350): Accounting for Goodwill (a consensus of the Private Company Council)
  • ASU 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination (a consensus of the Private Company Council)

The Board also tentatively decided that the comment period for this proposed ASU would be 60 days.

Further, the Board tentatively decided to add another project to the technical agenda and directed the staff to draft an Invitation to Comment to obtain input from stakeholders on the subsequent accounting for goodwill, the accounting for certain identifiable intangible assets, and the scope of the project on these topics.



AICPA FinREC releases an additional credit losses implementation working draft
The AICPA’s Financial Reporting Executive Committee (FinREC) released a working draft of a credit losses implementation issue No. 6: Reasonable and Supportable Forecast – Developing the Period and Use of Historical Information for comment.

FinRec is developing a new accounting and auditing guide related to credit losses that will focus on lending institutions and insurance companies. Implementation issues will be included in the completed guide after the review of public comments and finalization of the issues.

The comment period for this working draft ends Dec. 31.

Audit Risk Alert on general accounting and auditing developments published
The AICPA published Audit Risk Alert, General Accounting and Auditing Developments – 2018/19. This alert provides an overview of regulatory activities, economic and industry developments and trends, technical and professional developments, as well as future or emerging issues.

Audit and Accounting Guides issued
The AICPA issued updated versions of the following Audit and Accounting Guides:

  • Brokers and Dealers in Securities, updated as of Sept. 1
  • Gaming, updated as of Sept. 1
  • Health Care Entities, updated as of Sept. 1
  • Entities with Oil and Gas Producing Activities, clarified and updated as of Aug. 1
  • Life and Health Insurance Entities, updated as of Aug. 1
  • Revenue Recognition, updated as of Aug. 1
  • Construction Contractors, updated as of July 1
  • Depository and Lending Institutions: Banks and Savings Institutions, Credit Unions, Finance Companies, and Mortgage Companies, updated as of July 1
  • Investment Companies, updated as of July 1



PCAOB Investor Advisory Group meeting on Nov. 8 The Public Company Accounting Oversight Board’s (PCAOB) Investor Group Advisory Group will hold a meeting in Washington, D.C. on Nov. 8. Except for the breakout sessions in the afternoon, the meeting will be open to the public from 9:30 a.m. to 12:15 p.m. Agenda topics include:

  • Implementation of goals and priorities of the draft 2018-2022 strategic plan
  • Potential improvement in quality control standards
  • New auditor’s reporting model
  • AuditorSearch database



IASB issues update on October 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 October 2018 Update summarizing the tentative decisions reached during its October public meetings. The Board discussed the following topics:

  • Disclosure initiative: accounting policy
  • Goodwill and impairment
  • Implementation: deferred tax – tax base of assets and liabilities
  • Insurance contracts
  • Management commentary
  • Rate-regulated activities
  • Updating the Preface to IFRS Standards
  • Primary financial statements

The discussion related to insurance contracts addressed feedback received from stakeholders about IFRS 17, Insurance Contacts, and whether based on this feedback, further steps, including possible standard-setting, is required. The Board discussed whether to respond to this feedback, but was not asked by the staff to make decisions about whether to propose any changes to IFRS 17. The Board agreed on the criteria it will use in evaluating potential changes to IFRS 17, and will discuss whether there is a need to propose changes to this new guidance in the future.



IPSASB issues improvements to IPSAS The International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants (IFAC) issued Improvements to IPSAS, 2018, which includes improvements to International Public Sector Accounting Standards (IPSAS). These improvements are designed to

  • Address comments received from stakeholders (Part I)
  • Converge with amendments to IFRS Standards, based on the IASB’s improvements and narrow-scope amendments projects, and with the interpretations of the IFRS Interpretations Committee (IFRIC)(Part II)

The amendments in Part I and Part II are effective for annual financial statements for periods beginning on or after Jan. 1, 2019, except for one amendment in Part II which is effective for periods beginning on or after Jan. 1, 2021. Earlier application is permitted.


Comment letter issued On Oct. 11, the Grant Thornton LLP submitted a comment letter in response to the AICPA’s Proposed Statement on Standards for Attestation Engagements (SSAE), Revisions to Statement on Standards for Attestation Engagements No. 18, Attestation Standards: Clarification and Recodification.


© 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.