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On The Horizon: Proposed ASU addresses credit losses transition guidance

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On the Horizon newsletterContents Current reporting issue FASB proposes ASU to ease transition to credit losses guidance SEC staff updates Small Entity Compliance Guide AICPA

FinREC extends comment period for draft of inventory valuation guidance

International Federation of Accountants

IAASB releases proposed quality management standards
Proposed Strategy and Work Plan published



Current reporting issue
Based on recent developments, Grant Thornton has updated Question #3 in its Accounting Alert 2019-01, focusing on how to determine the incremental borrowing rate under ASC 842, Leases.



FASB proposes ASU to ease transition to credit losses guidanceThe FASB issued the proposed ASU, Targeted Transition Relief for Topic 326, Financial Instruments – Credit Losses, which would permit entities to irrevocably elect the fair value option in ASC 825-10, Financial Instruments, on an instrument-by-instrument basis for eligible financial assets previously measured at amortized cost basis upon adopting the new credit losses guidance codified in ASC 326, Financial Instruments – Credit Losses.

Entities that elect this fair value option would subsequently apply the guidance in ASC 820-10, Fair Value Measurement, and in ASC 825-10 to these financial instruments.

The proposed amendments would not apply to held-to-maturity debt securities.

For entities that have not adopted ASC 326, the effective dates and transition requirements for the proposed amendments would be the same as those under ASC 326. The Board will determine the effective dates and transition requirements for entities that have already adopted ASC 326 after it considers stakeholders’ feedback on the proposed ASU.

Comments on the proposal are due March 8.

The FASB staff also issued proposed taxonomy improvements related to the proposed ASU.



SEC staff updates Small Entity Compliance GuideSmall Entity Compliance Guides summarize and explain rules adopted by the SEC, but they are not a substitute for SEC rules. Only an SEC rule provides complete and definitive information regarding its requirements.

The staff of the SEC’s Division of Corporation Finance recently updated Amendments to Regulation A: A Small Entity Compliance Guide to incorporate provisions of the recently issued Final Rule, Amendments to Regulation A. The Final Rule permits companies subject to the reporting requirements of Exchange Act Sections 13 or 15(d) to use Regulation A and was effective on Jan. 31, 2019.



AICPAFinREC extends comment period for draft of inventory valuation guidance The AICPA’s Financial Reporting Executive Committee (FinREC) has extended the comment period from Feb. 1 to May 1 for an early working draft of Inventory Valuation Guidance, which is intended to be part of a broader forthcoming release of the AICPA’s Accounting and Valuation Guide, Business Combinations.

See the Dec. 6, 2018, On the Horizon for a summary of the early working draft.



International Federation of Accountants IAASB releases proposed quality management standards The International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants proposed three interrelated standards related to quality management and is seeking public comment on them. The proposed standards include significant changes to how firms manage quality for audits, reviews and other assurance services by taking a more proactive risk-based approach and addressing scalability in the proposed standards. The three exposure drafts and summary memorandum released are:

  • Overall Explanatory Memorandum, “The IAASB’s Exposure Drafts for Quality Management at the Firm and Engagement Level, Including Engagement Quality Reviews”
  • Proposed International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (previously ISQC 1)
  • Proposed International Standard on Quality Management 2, Engagement Quality Reviews
  • Proposed International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements

Comments on the exposure drafts are due July 1.

Proposed Strategy and Work Plan published The IAASB published its Proposed Strategy for 2020-2023 and Work Plan for 2020-2021, which includes strategies to respond to changing technology and emerging reporting needs. The IAASB is seeking public comment on the proposed draft by June 4.



© 2019 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.