IMA MIDATLANTIC COUNCIL
SEPTEMBER 24, 2015
CURRENT STANDARD SETTING ACTIVITIES
KARL G. FASSNACHT, CPA
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Today’s Agenda
1
Recent Accounting Standards
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Proposed Accounting Standards
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Recent Accounting Standards
 ASU 2014-07 - Pushdown Accounting
 ASU 2015-01 - Extraordinary Items
 ASU 2014- 18 - Business Combinations - Accounting
for Identifiable Intangible Assets in a Business
Combination
 ASU 2015-03 - Interest - Imputation of Interest
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ASU 2014-17: Pushdown Accounting
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Permits an entity that has been acquired to elect to “push
down” into its separate financial statements the step-up in
basis of the acquirer that results from (would have resulted
from) the acquisition method of accounting
The election applies to each individual change-in-control
event
 Control can be obtained in many ways, including:
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Cash transfers or issuance of equity
By contract
Change in primary beneficiary of a variable interest entity
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ASU 2014-17: Pushdown Accounting
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Once elected, the policy cannot be reversed.
If not elected it can be applied in a later period to the most
recent change-in-control event as a change in accounting
principle.
Other requirements when elected:
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Goodwill must be pushed down.
Bargain purchase gains are not recognized by the acquiree.
Acquisition-related liabilities of the acquirer are recognized by
the acquiree if they are an obligation of the acquiree.
Disclosures
Effective as of November 18, 2014
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ASU 2014-17: Pushdown Accounting

Staff Accounting Bulletin 115

Removes the prior guidance from the SEC Staff on the
application of pushdown accounting:
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Pushdown accounting should be reflected when the transaction
resulted in a “substantially wholly owned subsidiary.”
Encouraged, but did not require, push down accounting when a
significant noncontrolling interest in the subsidiary existed
Specific guidance on the treatment of debt, debt issue costs and
related interest expense
As a result, SEC registrants should follow the requirements of
ASU 2014-17.
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Extraordinary Items (ASU 2015-01)
Accounting Standards Update 2015-01:
 Simplifying Income Statement Presentation by
Eliminating the Concept of Extraordinary Items

Extraordinary items were both:
 Unusual in nature, and
 Infrequent in occurrence

Extraordinary item concept and all related presentation and
disclosure guidance are removed from U.S. GAAP.
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Extraordinary Items (ASU 2015-01)
The guidance on unusual or infrequently occurring items is
retained.
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Unusual means the underlying event or transaction possesses a
high degree of abnormality or must be clearly unrelated to
ordinary/typical activities of the entity.
Infrequent means the underlying event or transaction should not be
reasonably expected to recur in the foreseeable future.
Items that are unusual in nature, infrequent in occurrence — or
both — shall be reported as a separate component of income
from continuing operations.
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Extraordinary Items (ASU 2015-01)
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Effective date:
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Annual period (including interim periods within) beginning after
December 15, 2015
Early adoption is permitted.
Transition:
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Prospective, or
 Disclose the nature and amount of any income statement effect on
continuing operations of items previously classified as extraordinary
items.
Retrospective
 Disclosures applicable for a change in accounting principle
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New Private Company Alternative (ASU 2014-18)
Accounting Standards Update 2014-18:
 Business Combinations (Topic 805): Accounting for
Identifiable Intangible Assets in a Business
Combination
 May be elected if the entity is not a:
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Public business entity
Not-for-profit entity
Employee benefit plan
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New Private Company Alternative (ASU 2014-18)
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Accounting alternative permits an entity to not
recognize, for certain transactions:
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Customer-related intangible assets unless they are capable
of being sold or licensed independently from other assets of a
business, and
Noncompetition agreements.
The impact is such that customer related intangible assets and non-complete
agreements are subsumed into the goodwill balance recognized in connection
with the transaction. Therefore, goodwill must also be amortized.
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New Private Company Alternative (ASU 2014-18)
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Applicable to these types of transactions:
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Business combinations
Investments accounting for under the equity method
Reorganizations applying fresh-start accounting
Once elected, the accounting alternative must be applied to
all qualifying transactions.
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Customer-Related Intangible Assets (ASU 2014-18)
Commonly Qualify
Customer
Relationships
Commonly
Do not Qualify
Never Qualify
Customer List
Leases
Backlog
Favorable Contracts with Customers
Contract Assets
Unfavorable Contracts
with Customers
Mortgage Servicing Rights
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Customer-Related Intangible Assets (ASU 2014-18)
Disclosures and Other Requirements

Existing required disclosures remain unchanged:
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Business combinations qualitatively disclose the components
of goodwill.
Equity method investments have no additional disclosures.
An entity electing this alternative must also apply the
alternative on amortizing goodwill under ASU 2014-02.
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Customer-Related Intangible Assets (ASU 2014-18)
Transition and Effective Date

Prospectively applied upon election to adopt, upon the first
qualifying transaction that occurs subsequent to the annual period
beginning after December 15, 2015
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If the first qualifying transaction is in the first annual period after
December 15, 2015 the guidance is effective at the beginning of the
annual period.
If the first qualifying transaction is in a subsequent annual period the
guidance is effective at the beginning of the interim period in that
annual period.
Early adoption for any financial statements not yet made available for
issuance is permitted.
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Customer-Related Intangible Assets (ASU 2014-18)
Considerations Upon Adoption
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Is the value of entities acquired heavily reliant on customerrelated intangibles that would cause the financial statements
to be less useful?
Do users of the financial statements expect to see customerrelated intangibles?
Are financial covenants impacted?
Do plans exist that may result in the entity no longer
qualifying within the scope as a private company?
The FASB is researching changes to the goodwill impairment model and
the recognition guidance of intangible assets for all entities.
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Debt Issuance Costs
FINAL STANDARD ISSUED:
 ASU 2015-03 Interest ― Imputation of Interest (Subtopic
835-30): Simplifying the Presentation of Debt Issuance
Costs
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Debt issuance costs related to a recognized debt liability are
required to be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent
with debt discounts.
Only addresses presentation, not recognition or measurement
Effective for years beginning after December 31, 2015 (January 1,
2016). Retrospective application required.
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Debt Issuance Costs
Why the Change?
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Different balance sheet presentation requirements for debt
issuance costs and debt discount and premium creates
unnecessary complexity
Convergence with IFRS
Concepts Statement 6 states that debt issuance costs cannot
be an asset because they provide no future economic benefit.
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Proposed Accounting Standards
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Equity Method and Joint Ventures – Simplifying the
Equity Method of Accounting
Compensation – Stock Compensation to Employee
Share-based Payment Accounting
Not-for-Profit Entities and Health Care Entities
Income Taxes – Balance Sheet Classification of
Deferred Taxes
Business Combinations – Simplifying the Accounting for
Measurement – Period Adjustments
Leases
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Exposure Drafts: Equity Method of Accounting
Investments—Equity Method and Joint Ventures (Topic
323): Simplifying the Equity Method of Accounting:
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Eliminates the requirement that the investor entity accounts for
the basis difference.
 Fair value basis differences
 Goodwill
 Intangible assets
Eliminates the requirement that investors retroactively apply the
equity method of accounting if a change in their ownership
interest triggers a requirement to follow the equity method of
accounting.
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Exposure Drafts: Stock Compensation
Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment
Accounting
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Statutory withholding
Forfeitures
Accounting for income taxes when awards vest or are settled
Classification of awards with repurchase features
Private company practical expedients:
 Estimate of expected term
 Elect a one-time change in accounting principle to measure
liability-classified awards at intrinsic value, if currently
measured at fair value
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Exposure Drafts: Stock Compensation
Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment
Accounting
Statutory Withholding
 Under current guidance, if the fair value of the shares withheld to pay
income taxes exceeds the employer’s minimum statutory withholding
obligation, the entire award must be classified as a liability.
 The proposal allows for an employer to avoid triggering liability
accounting if the value of the shares repurchased does not exceed the
amount of the employee’s maximum individual statutory rate in the
applicable jurisdiction.
 Will allow companies to repurchase shares from employees in highincome tax brackets for withholding purposes without triggering liability
accounting.
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Exposure Drafts: Stock Compensation
Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment
Accounting
Forfeitures
 The proposal would allow companies to elect to account for forfeitures of
share-based payments meeting certain conditions as they occur (e.g.,
when an employee leaves the company) or to estimate forfeitures and
adjust the estimates as they change, as is required by current guidance.
 Election would apply to awards with only service conditions and those
with performance conditions that are deemed probable to occur at the
date of grant.
 Required to be applied at an entity level.
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Exposure Drafts: Stock Compensation
Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment
Accounting
Accounting for income taxes when awards vest or are settled
 APIC pools would be eliminated.
 Would require companies to include all excess tax benefits and tax
deficiencies as income tax expense or benefit in the income statement.
 Would eliminate the requirement that excess tax benefits be realized (i.e.,
reduce income taxes payable) before being recognized.
 Would require companies to present excess tax benefits as an operating
activity in the statement of cash flows rather than as a financing activity.
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Exposure Drafts: Stock Compensation
Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment
Accounting
Classification of awards with repurchase features
 A company would focus solely on the probability that the contingent event
would occur to determine whether to classify these awards as liabilities or
equity (i.e., which party controls the contingent event would no longer be
relevant).
 Intended to eliminate diversity in practice.
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Exposure Drafts: Stock Compensation
Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment
Accounting
Private company practical expedients
 Estimate of expected term
 Elect a one-time change in accounting principle to measure liabilityclassified awards at intrinsic value, if currently measured at fair value
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Exposure Drafts: Not-for-Profit
Not-for-Profit Entities (Topic 958) and Health Care Entities
(Topic 954): Presentation of Financial Statements of
Not-for-Profit Entities
The main provisions would require a not-for-profit entity to:
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Present on the face of the statement of financial position amounts for two
classes of net assets (net assets with donor restrictions and net assets
without donor restrictions) at the end of the period, rather than for the
currently required three classes.
Present on the face of the statement of activities the amount of the
change in each of the two classes of net assets rather than that of the
currently required three classes.
Present on the face of the statement of activities two additional amounts
(subtotals) of the operating activities that are associated with changes in
net assets without donor restrictions.
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Exposure Drafts: Not-for-Profit
Not-for-Profit Entities (Topic 958) and Health Care Entities
(Topic 954): Presentation of Financial Statements of
Not-for-Profit Entities
The main provisions would require a not-for-profit entity to (cont.):

Present on the face of the statement of cash flows the net amount for
operating cash flows using the direct method of reporting.

Classify certain cash flows differently than how they are classified under
current guidance,
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Provide enhanced disclosures.
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Use the placed-in-service approach for reporting expirations of restrictions
on gifts of cash or other assets to be used to acquire or construct a longlived asset.

Report investment income net of external and direct internal investment
expenses.
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Accounting for Income Taxes
EXPOSURE DRAFTS:
 Intra-Entity Asset Transfers
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Eliminates the exception that prohibits recognizing current and
deferred income tax consequences for an intra-entity asset transfer
until the asset or assets have been sold to an outside party.
Requires that an entity recognize the current and deferred income tax
consequences of an intra-entity asset transfer when the transfer
occurs.
Aligns with IAS 12 Income Taxes
Balance Sheet Classification of Deferred Taxes
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Deferred tax liabilities and assets should be classified as noncurrent in
a classified statement of financial position.
Aligns with IAS 1 Presentation of Financial Statements
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Exposure Drafts: Business Combinations
Business Combinations (Topic 805): Simplifying the
Accounting for Measurement-Period Adjustments
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US GAAP requires the acquirer to retrospectively adjust the provisional
amounts recognized at the acquisition date
 to reflect that information with a corresponding adjustment to
goodwill, and
 revise comparative information for prior periods presented.
The proposed amendments would require that the acquirer recognize
adjustments to provisional amounts that are identified
 during the measurement period in the reporting period in
which the adjustment amount is determined,
 as well as the effect on earnings, if any, as a result of the change to
the provisional amounts, calculated as if the accounting had been
completed at the acquisition date.
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Project: Leases
The FASB has directed the staff to
prepare a final standard!!
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The FASB will discuss the benefits and costs of the
new leases standard, effective date, and any issues
that arise during drafting of the final leases standard.
The Board will discuss private company
considerations at a future Board meeting.
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Project: Leases
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Affirmed the exemption for short-term leases with terms
less than 12 months
“Type A” and “Type B” leases are presented separately on
the balance sheet.
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Principal payments on Type A leases are presented as
financing activities.
Sale-leaseback transaction where the lease is a Type A
lease is not treated as a sale
Type A leases are similar to today’s capital leases, while Type B leases are
recorded on the balance sheet, but have income statement presentation
similar to today’s operating leases.
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Project: Leases
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Transition will be a modified retrospective approach as of the
earliest comparative period presented – full retrospective will not
be permitted.
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Permit the election of a package of relief measures
Permit the use of hindsight for renewals and purchase options
Entities need not re-evaluate sale-lease backs using Topic 606
The IASB and FASB will not be fully converged, differences
include:
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Different income statement presentation for Type A and Type B leases
Accounting for reassessment of the discount rate and variable lease
payments
Certain disclosures
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