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On The Horizon: FASB amends credit losses guidance

RFP
On the Horizon newsletterContents FASB

Board amends credit losses guidance
Proposed ASU features improvements to three ASUs
Highlights from Nov. 14 meeting posted
Recap of Small Business Advisory Committee meeting posted

SEC staff updates Investment Company Reporting Modernization FAQs PCAOB approves its five-year strategic plan GAO issues Professional Standards Update 71 IASB approves proposal to defer effective date of IFRS 17 IFAC

IAASB seeks comment on Exposure Draft on agreed-upon procedures

Comment letter issued

FASB Board amends credit losses guidance The Board issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which amends two areas of the guidance in ASC 326.

The amendments require entities that are not public business entities to adopt ASU 2016-13 in fiscal years beginning after Dec. 15, 2021, and in interim periods within those fiscal years. As originally issued, ASU 2016-13 required entities that are not public business entities to adopt this new guidance in fiscal years beginning after Dec. 15, 2020, and in interim periods within fiscal years beginning after Dec. 15, 2021. ASU 2018-19 does not impact the effective date requirements for public business entities.

The amendments also exclude operating lease receivables from the scope of ASC 326-20. Instead, entities should account for the impairment of receivables resulting from operating leases under the guidance in ASC 842, Leases. Net investments in leases resulting from sales-type and direct financing leases remain within the scope of ASC 326-20.

The effective date and transition requirements for this ASU are the same as those for ASU 2016-13.

Proposed ASU features improvements to three ASUs The Board issued the proposed ASU, Codification Improvements – Financial Instruments, which includes proposed amendments to the guidance in:

  • ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
  • ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
  • ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

The Codification improvements included in the proposed ASU are grouped as follows:

  • Topic 1 – Improvements resulting from the June 11, 2018, Credit Losses Transition Resource Group (TRG) meeting
  • Topic 2 – Improvements to ASU 2016-13
  • Topic 3 – Improvements to ASU 2017-12 and other hedging items
  • Topic 4 – Improvements to ASU 2016-01
  • Topic 5 – Improvements resulting from the Nov. 1, 2018, Credit Losses TRG meeting

For entities that have not adopted ASU 2016-13, the effective dates and transition requirements for the applicable proposed amendments (Topics 1, 2, and 5) would be the same as those under ASU 2016-13. The Board will determine the effective dates and transition requirements for entities that have already adopted ASU 2016-13 after it considers stakeholders’ feedback on the proposed ASU.

For entities that have not adopted ASU 2017-12, the effective dates and transition requirements for the applicable proposed amendments (Topic 3) would be the same as those under ASU 2017-12. For entities that have adopted ASU 2017-12 before a final ASU comprising the amendments is issued, the effective date would be either the beginning of the first quarterly period (if applicable) or the first annual period after a final ASU is issued, whichever is earlier. For those entities, early adoption would be permitted, including adoption on any date on or after a final ASU is issued.

Entities that have adopted ASU 2017-12 could also elect either to retrospectively apply the proposed amendments as of the date the entity adopted ASU 2017-12, or to prospectively apply the proposed amendments as of the date when these amendments are adopted, with certain exceptions.

For entities that have not adopted ASU 2016-01, the effective dates and transition requirements for the applicable proposed amendments (Topic 4) would be the same as those under ASU 2016-01. The Board will determine the effective dates and transition requirements for entities that have already adopted ASU 2016-01 after it considers stakeholders’ feedback on the proposed ASU.

Comments on the proposal are due Dec. 19, 2018.

See NDS 2018-08 for a summary of the implementation issues discussed by the Credit Losses TRG at the June 11 meeting, and the Sept. 6 On the Horizon for a summary of the Board’s tentative decisions related to these issues.

See the Sept. 13 On the Horizon for a summary of the Board’s tentative decisions related to the proposed amendments to ASU 2016-01, ASU 2016-13, and ASU 2017-12.

See the Nov. 15 On the Horizon for a summary of the Board’s tentative decisions related to implementation issues discussed by the Credit Losses TRG at the November 1 meeting.

Highlights from Nov. 14 meeting posted
All decisions reached at Board meetings are tentative and may be changed at future meetings.

The Board met on Nov. 14 to redeliberate two proposals that would amend existing financial statement disclosure requirements and to discuss proposed amendments to two ASUs. The Board also discussed, but made no tentative decisions about, the staff’s monitoring efforts related to the financial reporting implications of the Tax Cuts and Jobs Act of 2017 (TCJA), directing the staff to perform additional related research.

Refer to NDS 2018-03, Accounting and financial reporting implications of the Tax Cuts and Jobs Act of 2017, for information on the TCJA.

The Board’s actions related to the other topics are summarized below.

Disclosure framework: disclosure review – income taxes

The Board continued to redeliberate the proposed ASU, Income Taxes (Topic 740): Disclosure Framework – Changes to the Disclosure Requirements for Income Taxes, and discussed whether to add new disclosures, or to remove existing disclosures, to reflect the accounting effects of the TCJA. The Board’s actions related to this topic are summarized as follows:

  • Potential new disclosures resulting from the Act – The Board directed the staff to research preparer practices to determine what disclosures, if any, entities are currently providing for the one-time transition tax, which requires taxpayers with untaxed foreign earnings and profits to pay this tax as if those earnings and profits had been repatriated to the United States. However, the Board tentatively decided not to require any additional disclosures related to other provisions of the TCJA impacting how an entity’s foreign operations and investments are taxed in the United States.
  • Change in tax law – The Board tentatively decided to remove the proposed disclosure that would have required all entities to provide a description of an enacted change in tax law that is considered probable of having an effect in a future period.
  • Disaggregation of pretax income (loss) from continuing operations, income tax expense (benefit), and income taxes paid – The Board tentatively affirmed the proposed amendments that would require all entities to disclose on a disaggregated basis between domestic and foreign (1) income (or loss) from continuing operations before income tax expense (or benefit), and (2) income tax expense (or benefit) and income taxes paid. In addition, entities would be required to disclose pretax income (or loss) from continuing operations before intracompany eliminations, but would not be required to disclose income taxes paid to any country that are significant compared to the total amount of income taxes paid.
  • Indefinitely reinvested foreign earnings – The Board tentatively decided to remove (1) a proposed disclosure that would have required all entities to explain why they changed an assertion about the indefinite reinvestment of undistributed foreign earnings, along with the amount of those earnings, and (2) an existing disclosure that requires all entities to disclose the cumulative amount of each type of deferred income tax liability that is not recognized under certain exceptions to the recognition guidance for deferred income taxes.
  • Cash, cash equivalents, and marketable securities – A tentative decision was made to remove the proposed amendment that would have required all entities to disclose the total of cash, cash equivalents, and marketable securities held by foreign subsidiaries.
  • Unrecognized tax benefits – The Board tentatively decided to remove the proposed disclosure that would have required public business entities to disclose settlements related to uncertain income tax positions separately based on how these positions were settled. It also tentatively affirmed the proposed amendments that would require public business entities to disclose the line items on the balance sheet where unrecognized income tax benefits are presented, along with the related amounts. Entities would no longer be required to disclose the amount of unrecognized income tax benefits that could change in the next 12 months, nor to provide an explanation regarding such amounts.
  • Valuation allowances – The proposed disclosure that would require public business entities to disclose the amount and an explanation of the valuation allowance recognized or released during the reporting period was affirmed.
  • Effective tax rate reconciliation – The Board tentatively affirmed the amendments that would change the existing income-tax-rate reconciliation requirement for public business entities so that the requirement would be consistent with the same requirement in SEC Regulation S-X. The Board also tentatively affirmed the proposed disclosure that would require public business entities to explain year-to-year changes in the reconciling items included in the income-tax-rate reconciliation.
  • Carryforward disclosures – The Board removed the proposed amendment that would have required public business entities to disclose the gross (non-tax-effected) amount of income tax carryforwards, but tentatively decided to require public business entities to disclose the valuation allowances related to the tax-effected amounts of federal, state, and foreign income tax carryforwards. In addition, entities other than public business entities would tentatively be required to present income tax credit carryforwards separately from income tax loss carryforwards.
  • Interim cash taxes paid – The Board tentatively decided that all entities preparing interim financial statements should disclose income taxes paid during interim periods.

The Board directed the staff to prepare a draft of a final ASU incorporating these tentative decisions. It will then consider whether all the disclosures discussed above should be included in a proposed ASU or whether certain previously proposed amendments should be separated and included in a final ASU.

Disclosures by business entities about government assistance

The Board continued to redeliberate another proposed ASU, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, and directed the staff to draft clarifying language highlighting its tentative decision to include the following types of government assistance within the scope of the proposed amendments:

  • Grants of assets
  • Assistance with taxes
  • Low-interest-rate loans
  • Guarantees of loans
  • Forgiveness of liabilities

The Board also tentatively reaffirmed that the amendments in a final ASU would be applied on a modified prospective basis in the first set of financial statements following the effective date of a final ASU to agreements that either exist at the effective date or are entered into after the effective date. Retrospective application would also be permitted.

Further, the Board reaffirmed that the disclosure requirements in a final ASU would be the same for public business entities and private companies.

Public business entities would apply the amendments in a final ASU in fiscal years ending after Dec. 15, 2020, and nonpublic business entities would apply these amendments in fiscal years ending after Dec. 15, 2021. Early adoption would be permitted.

The Board directed the staff to prepare a draft of a final ASU and to perform additional outreach with stakeholders to consider at a future meeting.

Codification improvements – nonemployee share-based payments

The Board discussed proposed amendments to the guidance in ASU 2018-07, and tentatively decided to add a project to its agenda clarifying how entities should account for share-based payments that are consideration payable to a customer under ASC 606. It then tentatively decided that the guidance in ASU 2018-07 would be amended to clarify that these payments should be measured and classified under the guidance in ASC 718.

Entities that have not already adopted the amendments in ASU 2018-07 would apply the same effective date and transition requirements to these proposed amendments as those under ASU 2018-07.

Entities that have adopted ASU 2018-07 would apply the same transition provisions to these proposed amendments as those under ASU 2018-07 retrospectively to all relevant prior periods beginning with the initial adoption date of ASU 2018-07.

Previously issued awards with a grant date before the initial adoption of ASU 2018-07 should be measured prospectively using the award’s fair value at the initial adoption date.

The Board directed the staff to draft a proposed ASU for vote by written ballot, with a comment period ending on either March 29, 2019, or 30 days after the proposed ASU is issued, whichever is longer.

Credit losses guidance – transition relief

The Board discussed the staff’s pre-agenda research related to requests received from stakeholders for transition relief when adopting the amendments in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and tentatively decided to add a project to its technical agenda to permit entities, upon adopting ASC 326, to make an irrevocable election to apply the fair value option for financial assets within the scope of ASC 326-20 that are eligible for the fair value option under ASC 825-10, Financial Instruments, on an instrument-by-instrument basis.

Further, the Board tentatively agreed not to give entities an option to discontinue fair value measurements for financial assets measured at fair value.

The Board directed the staff to draft a proposed ASU for vote by written ballot with a comment period of 30 days, including a question in the proposal about situations where an entity would prefer to discontinue measuring certain financial assets at fair value.

Recap of Small Business Advisory Committee meeting posted At the Nov. 8 meeting of the FASB Small Business Advisory Committee (SBAC), the FASB staff provided updates to, and SBAC members provided input on, various topics.

The next SBAC meeting will be held in May 2019.



SEC staff updates Investment Company Reporting Modernization FAQsResponses to FAQs were prepared by and represent the views of the SEC staff. They are not rules, regulations, or statements of the Commission. The Commission has neither approved nor disapproved these FAQs or the interpretive answers to these FAQs.

The staff of the SEC’s Division of Investment Management recently updated its Investment Company Reporting Modernization Frequently Asked Questions to address, among other things, certain disclosure requirements and compliance dates associated with the investment company reporting modernization reforms adopted in October 2016 and revised in December 2017. Refer to the Changes to April 27, 2018, version document included on the FAQ webpage for further details.



PCAOB approves its five-year strategic plan The Public Company Accounting Oversight Board (PCAOB) approved its 2018-2022 strategic plan. The strategic plan will guide the PCAOB’s programs and operations for the next five years and focuses on four primary strategic priorities:

  • Effective oversight
  • Innovation
  • Improved engagement
  • Process and culture optimization



GAO issues Professional Standards Update 71The Government Accountability Office (GAO) published Professional Standards Update (PSU) 71, which highlights the issuance and some key points of standards published from July through September 2018. This PSU includes the 2018 revisions to Generally Accepted Government Auditing Standards (also known as the Yellow Book), which superseded the 2011 revision. The 2018 Yellow Book is effective for financial statement audits, attestation engagements, and reviews of financial statements for periods ending on or after June 30, 2020, and for performance audits beginning on or after July 1, 2019. Early implementation is not permitted.



IASB approves proposal to defer effective date of IFRS 17 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 voted in November to propose deferring the effective date of IFRS 17, Insurance Contracts, by one year to 2022. The Board also tentatively decided to propose extending the temporary exemption for insurers to apply IFRS 9, Financial Instruments, so that entities can apply both IFRS 17 and IFRS 9 at the same time.

When issued by the Board, the proposal will be subject to public comment.

The IASB issued an Update summarizing this and other tentative decisions reached during its November public meetings. The Board discussed the following topics:

  • IFRS 17
  • Primary financial statements
  • IFRS implementation issues
  • Management commentary
  • Classification of liabilities as current or noncurrent (amendments to IAS 1, Presentation of Financial Statements)
  • Update of a reference to the Conceptual Framework (amendments to IFRS 3, Business Combinations)
  • Rate-regulated activities



Comment letter issued On Nov. 13, Grant Thornton submitted a comment letter in response to the SEC’s proposed rule, Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities.



© 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.