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FASB proposes changes to recent ASUs

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Contents FASB posts highlights from Sept. 5 meeting GASB amends guidance on majority equity interests in certain entities


FASB posts highlights from Sept. 5 meeting All decisions reached at Board meetings are tentative and may be changed at future meetings.

The Board met on Sept. 5 to discuss proposed amendments to clarify implementation issues related to three recently issued ASUs on financial instruments, as well as a scope clarification to the proposed private company accounting alternative amending related-party guidance for variable-interest entities. The Board’s actions are summarized below.

Proposed amendments to recently issued ASUs The Board tentatively decided to amend the guidance in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, for the following issues:

  • Determination of effective interest rate (EIR) for variable-rate loans
  • Adjustment of the EIR for prepayment expectations
  • Consideration of costs to sell when foreclosure becomes probable
  • Clarification that reinsurance receivables are within the scope of ASC 326-20, Financial Instruments – Credit Losses: Measured at Amortized Cost
  • Correction of a reference error in ASC 310-40-55-14, Receivables – Troubled Debt Restructuring by Creditors: Implementation Guidance and Illustrations
  • Addition of cross-references in the guidance for equity-method losses

The Board also discussed implementation-related technical inquiries received from stakeholders associated with ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The FASB staff’s interpretations related to these issues are posted on the Board’s Hedging Implementation website page.

Tentative decisions were also made to amend the guidance in ASU 2017-12 for each of the following issues:

  • Partial-term fair-value hedges of both interest-rate risk and foreign-exchange risk
  • Amortization of basis adjustments to fair-value hedges
  • Disclosure of basis adjustments to fair-value hedges
  • Consideration of the hedged contractually specified interest rate under the hypothetical derivative method
  • Scope of guidance for not-for-profit entities
  • Hedge accounting provisions for certain private companies and not-for-profit entities
  • Application of a “first-of” cash flow hedging technique to overall cash flows on a group of variable-interest payments
  • Clarification of transition guidance

The guidance in ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, would be amended in each of the following areas:

  • Applicability of ASC 820, Fair Value Measurement, to the measurement alternative
  • Fair-value disclosure exclusion for held-to-maturity debt securities measured at amortized cost for nonpublic business entities
  • Scope exceptions for certain reporting entities from applying the guidance in ASC 320, Investments – Debt and Equity Securities, and in ASC 321, Investments – Equity Securities
  • Inclusion of certain marketable securities as nonmonetary balance-sheet items when applying the remeasurement guidance in ASC 830, Foreign Currency Matters

The Board directed the staff to draft a proposed ASU for vote by written ballot, including both the proposed amendments described above as well as the proposed amendments to ASU 2016-13 on issues discussed at the June 11 Credit Losses Transition Resource Group (TRG) meeting. The proposed ASU would have a comment period of 30 days.

A summary of the proposed amendments to these three ASUs can be found in the Board Meeting Handout on the Past FASB Meetings web page.

See the Sept. 6 On the Horizon for a summary of the proposed amendments from the June 11 Credit Losses TRG meeting.

Targeted improvements to related-party guidance for variable-interest entities The Board discussed a scope clarification for entities that qualify for the proposed private company accounting alternative, which will be included in a forthcoming ASU. Under the proposed private company accounting alternative, a private company reporting entity would not be required to apply the variable-interest guidance to a legal entity if the following criteria are met:

  • The reporting entity and the legal entity are under common control.
  • The reporting entity and the legal entity are not under the common control of a public business entity.
  • The legal entity under common control is not a public business entity.

The Board tentatively decided that a private company reporting entity cannot apply the private company accounting alternative to a legal entity in which it has a direct or indirect controlling financial (voting) interest when considering the general subsections of ASC 810, Consolidation.

The Board directed the staff to continue drafting a final ASU reflecting this tentative decision.




GASB amends guidance on majority equity interests in certain entities The GASB recently issued Statement 90, Majority Equity Interests (an amendment of GASB Statements No. 14 and No. 61), to clarify how a government should account for its majority equity interest in an organization that remains legally separate after being acquired (for example, a public hospital acquires a rehabilitation center that remains legally separate after being acquired).

Under Statement 90, a government should report its holding of a majority equity interest in a legally separate organization as an investment if the holding meets the GASB’s definition of an investment in Statement 72, Fair Value Measurement and Application. If the majority equity interest meets this definition, the government should not report this legally separate organization as a component unit. This type of interest should be measured under the equity method, unless it is held by a special-purpose government engaged only in fiduciary activities, a fiduciary fund, or an endowment (including permanent and term endowments) or a permanent fund. In these cases, the interest should instead be measured at fair value.

All other holdings of a majority equity interest in a legally separate organization that do not meet the GASB’s definition of an investment should be reported as a component unit, and the government or fund that holds the equity interest should report an asset related to the majority equity interest under the equity method.

The new guidance also requires that governments use values as of the acquisition date to measure the assets, deferred outflows of resources, liabilities, and deferred inflows of resources for a component unit in which the primary government acquires a 100% equity interest. Transactions presented in flows statements of the component unit should include only those transactions that occurred after this acquisition.

The requirements of Statement 90 are effective for reporting periods beginning after Dec. 15, 2018. Earlier application is encouraged.

Statement 90 should be applied retroactively by restating financial statements for prior periods, except for provisions related to (1) reporting a majority equity interest in an organization reported as a component unit, and (2) reporting a component unit if a government acquires a 100% equity interest. These provisions should instead be applied prospectively.

If a restatement for prior periods is not practicable, the cumulative effect, if any, of applying Statement 90 should be reported as a restatement of the beginning net position (or fund balance or fund net position, as applicable) for the earliest period restated, and the government should disclose the reason for not restating prior periods.



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