Accounting Disclosure
Checklist – Annual
(12/12)
Prepared by
Year End
Date.
Purpose
The Accounting Disclosure Checklist -Annual is designed to serve as a “memory jogger” and as a means
to document consideration of financial statement disclosures. As a memory jogger, this disclosure
checklist does not replace the preparer’s judgment in determining necessary disclosures. Refer to
applicable literature for detailed disclosure requirements.
Applicability
This disclosure checklist is useful when preparing financial statements in conformity with generally
accepted accounting principles (GAAP) in the United States of America, except compiled financial
statements that omit substantially all disclosures and the financial statements of the following
plans/entities:
The financial statements of employee benefit plans.
The financial statements of state and local governmental entities.
The financial statements of certain U.S. Government entities.
The disclosure checklist is designed to address current-year disclosure requirements. In situations where
new standards or other literature replace previous literature, prior-year disclosures made pursuant to prioryear requirements should not be changed or deleted unless explicitly required in the new standard or
literature.
The disclosure checklist is designed to follow the topical structure of the FASB Accounting Standard
Codification and contains much of the original Codification language to provide the user with the most
relevant information available and limit the need to refer back to the actual Codification.
Certain disclosures included in the checklist are required to be disclosed, if applicable, in the financial
statements of entities subject to SEC reporting requirements (including SEC Observer comments relating
to EITF issues) that are prepared in conformity with GAAP pursuant to the Securities and Exchange
Commission’s Proxy Rules (Regulation 14A). The Proxy Rules incorporate Regulation S-X and certain
sections of Regulation S-K. Therefore, items under sections labeled “SEC Guidance” cover the
applicable sections of Regulation S-X, Regulation S-K, SEC Staff Accounting Bulletins, and other SEC
staff guidance. Additionally, certain content from the Financial Accounting Standards Board (FASB) is
applicable only to public entities (see definition below). Items that are identified as “SEC Guidance” or
as applicable to public entities are not required to be disclosed by non-SEC registrants. All other
disclosures included in the checklist (unless otherwise specifically indicated) are required to be disclosed,
if applicable, in financial statements prepared in conformity with GAAP.
Since the annual report to shareholders prepared under the annual Proxy Rules is often incorporated by
reference into the Form 10-K, it is important to note the major differences between those financial
statements required by Form 10-K and those required under the Proxy Rules (i.e., the rules that apply in
situations in which the solicitation of proxies is made in connection with an annual meeting of security
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Checklist - Annual
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holders, such as when directors are to be elected, and not when shareholders are voting on a business
acquisition or other transaction requiring additional financial information). The Proxy Rules do not
require separate financial statements of subsidiaries not consolidated and 50 percent-or-less-owned
persons (S-X, Rule 3-09), financial statements of guarantors and issuers of guaranteed securities
registered or being registered (S-X, Rule 3-10), financial statements of an inactive registrant (S-X, Rule 311), financial statements of affiliates whose securities collateralize an issue registered or being registered
(S-X, Rule 3-16), or financial statement schedules (S-X, Article 12). Neither the Proxy Rules nor Form
10-K require separate financial statements of businesses acquired or to be acquired (S-X, Rule 3-05), or
the pro forma financial information required by S-X, Article 11.
A public entity, for the purpose of this checklist, unless otherwise noted, is a business entity or a not-forprofit entity that meets any of the following conditions:
a. It has issued debt or equity securities or is a conduit bond obligor for conduit debt securities that
are traded in a public market (a domestic or foreign stock exchange or an over-the-counter
market, including local or regional markets).
b. It is required to file financial statements with a stock exchange.
c. It provides financial statements for the purpose of issuing any class of securities in a public
market.
A public entity in the context of ASC Topic 718, Compensation – Stock Compensation, and ASC
Subtopic 470-20, Debt – Debt with Conversion and Other Options – Cash Conversion, includes any
subsidiary of a public entity. Rules pertaining solely to regulated entities or specialized industries, such as
financial institutions or oil and gas, are not included in this checklist. Although certain disclosures in this
checklist are specifically for commercial and industrial public companies (as defined in Regulation S-X,
Article 5 (Rule 5-01) (ASC paragraph 205-10-S99-5)), certain of the items included in this checklist may
be applicable to other specialized industries.
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independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
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Section I—Literature
The checklist includes coded references to certain accounting literature. All literature listed below is
available electronically in Accounting Research Online (ARO). This version of the Accounting Disclosure
Checklist considers relevant information (as described in the “Purpose” on page 1) through December 12,
2012.
For interim and annual periods ending after September 15, 2009, entities should refer to applicable
Accounting Standards Codification (ASC or Codification) sections when citing specific guidance in U.S.
GAAP in financial statements. References to legacy standards may continue to be used when there is no
Codification reference (for example, “grandfathered” guidance). (CKI 105-10-65-1)
When citing specific SEC guidance in financial statements, entities should refer to the applicable SEC
rule or regulation. Codification references should not be used for SEC guidance, even in periods ending
after the Codification is effective. (CKI 105-10-65-1)
The Accounting Disclosure Checklist (12/12) includes only the references to the new Codification
references, where applicable.
Code
Issuer
Literature Considered in Checklist
ASC
FASB
FASB Accounting Standards Codification
Portions of the FASB Accounting Standards Codification®, is copyrighted by
Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, and is
reproduced with permission.
Note: The FASB Accounting Standards Codification includes selected SEC
and SEC Staff content for reference purposes by public companies. The
Codification does not replace or affect how the SEC or SEC Staff issues or
updates SEC content. The FASB ASC references that follow the SEC
references in this document are included for information purposes only.
ASU
FASB
FASB Accounting Standards Update
EITF
EITF
EITF Abstracts (or draft ASUs) through December 12, 2012; in addition,
minutes of meetings through December 12, 2012
SOP
AcSEC
AICPA Statements of Position
PB
AcSEC
AICPA Practice Bulletins
AU
AICPA
U.S. Auditing Standards, Volume I of AICPA Professional Standards and/or
the Auditing Standards of the PCAOB, where applicable
AR
AICPA
Statements on Standards for Accounting and Review Services, Volume II of
AICPA Professional Standards
CKI
KPMG
Codification with KPMG Interpretation
SFAS
FASB
Statement of Financial Accounting Standards
FRR
SEC
Codified Financial Reporting Releases, as contained in the 2011 SEC Rules
and Regulations handbook
FIN
FASB
FASB Interpretations
FTB
FASB
FASB Technical Bulletins
FSP
FASB
FASB Staff Positions
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independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
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SEC
SEC
Financial Reporting Manual; Speeches; Current Accounting and Disclosure
Issues in the Division of Corporation Finance
S-X
SEC
Regulation S-X, as contained in the 2012 SEC Handbook: Rules and Forms for
Financial Statements and Related Disclosures
S-K
SEC
Regulation S-K, as contained in the 2012 SEC Handbook: Rules and Forms for
Financial Statements and Related Disclosures
SAB
SEC
Staff Accounting Bulletins
ARB
FASB
Accounting Research Bulletin
APB
FASB
Accounting Principles Board Opinions
TPA
AICPA
Technical Practice Aid
PB
AcSEC
AICPA Practice Bulletins
Financial statement preparers should consider disclosure requirements contained in literature
issued subsequent to the most recent literature considered in the checklist.
Additional information regarding financial statement disclosures is available in the following KPMG
guides on Accounting Research Online (ARO).:
KPMG Accounting and Reporting Guide – US (KARG)
Accounting for Business Combinations and Noncontrolling Interests
SEC Financial Statement Requirements for Business Combinations
Business Combinations Handbook Volume III: Other Issues Related to Business Combinations
Derivatives and Hedging Accounting Handbook (ASC Topic 815)
FASB Derivatives Implementation Group: Final Resolutions, Including KPMG’s Observations
Auditing Fair Value Measurements Manual
FAS 157 Q&A in KARG 70, Fair Value (ASC Subtopic 820-10) (Prior to adoption of ASU 2011-04)
Issues in-Depth 12-2, Questions and Interpretive Responses for Fair Value Measurement (Upon adoption
of ASU 2011-04)
Current Quarterly Outlook
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity: An
Analysis of Statement No. 150 (ASC Subtopic 480-10), Distinguishing Liabilities from Equity
Accounting for Income Taxes
SEC Staff Accounting Bulletin No. 104 (ASC Subtopic 605-10), Revenue Recognition
Accounting for Revenue Arrangements with Multiple Deliverables: An Analysis of Accounting Standards
Codification Subtopic 605-25
Software Revenue Recognition: An Analysis of SOP 97-2 (ASC Subtopic 985-605) and Related Guidance
Share-Based Payment
Guide to Accounting for Foreign Currency (ASC Topic 830)
Consolidation of Variable Interest Entities: An Analysis of the VIE Subsections of ASC Subtopic 810-10
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independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
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Section II—Index to the Accounting Disclosure Checklist
A.
Index to Checklist
Page
Ref.
Category of Financial Reporting Considerations
14
1. Subtopic 205-10: Presentation of Financial Statements—
Overall
17
2. Subtopic 205-10: Presentation of Financial Statements—
Overall—SEC Guidance
18
3. Subtopic 210-10: Balance Sheet—Overall – SEC
Guidance
23
4. Subtopic 210-20: Balance Sheet—Offsetting
25
5. Subtopic 215-10: Statement of Shareholder Equity—
Overall—SEC Guidance
25
6. Subtopic 220-10: Comprehensive Income—Overall, prior
to adoption of ASU 2011-05 and ASU 2011-12
(Note: For entities with a December 31st year-end, this
section is not applicable because ASU 2011-05 and ASU
2011-12 would be effective. See Section 7 below.)
(Note: An entity that has no items of other comprehensive
income in any period presented is not required to report
comprehensive income.)
28
7. Subtopic 220-10: Comprehensive Income—Overall, after
adoption of ASU 2011-05 and ASU 2011-12
(Note: This section is applicable for an entity with a
December 31st year-end.)
(Note: An entity that has no items of other comprehensive
income in any period presented is not required to report
comprehensive income.)
31
8. Subtopic 225-10: Income Statement—Overall
32
9. Subtopic 225-10: Income Statement—Overall—SEC
Guidance
34
10. Subtopic 225-20: Income Statement—Extraordinary and
Unusual Items
36
11. Subtopic 225-30: Income Statement—Business
Interruption Insurance
37
12. Subtopic 230-10: Statement of Cash Flows—Overall
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Page
Ref.
Category of Financial Reporting Considerations
46
13. Subtopic 235-10: Notes to the Financial Statements—
Overall
48
14. Going Concern
49
15. Subtopic 250-10: Accounting Changes and Error
Corrections—Overall
54
16. Subtopic 255-10: Changing Prices—Overall
55
17. Subtopic 260-10: Earnings per Share—Overall (required
for public entities only)
58
18. Subtopic 270-10: Interim Reporting—Overall (4th
Quarter) (required for public entities only)
58
19. Subtopic 272-10: Limited Liability Companies—Overall
59
20. Subtopic 275-10: Risks and Uncertainties—Overall
63
21. Subtopic 280-10: Segment Reporting—Overall (required
for public entities only)
68
22. Subtopic 310-10: Receivables—Overall
77
23. Acquisitions, Development, and Construction (ADC)
Arrangements Subsection of Subtopic 310-10:
Receivables—Overall
77
24. Subtopic 310-20: Receivables—Nonrefundable Fees and
Other Costs
78
25. Subtopic 310-30: Receivables—Loans and Debt Securities
Acquired with Deteriorated Credit Quality
79
26. Subtopic 310-40: Receivables—Troubled Debt
Restructurings by Creditors
80
27. Subtopic 320-10: Investments—Debt and Equity
Securities—Overall
88
28. Subtopic 323-10: Investments—Equity Method and Joint
Ventures—Overall
Subtopic 323-740: Investments—Equity Method and
Joint Ventures—Income Taxes
91
29. Qualified Affordable Housing Project Investments
Subsection of Subtopic 323-740: Investments—Equity
Method and Joint Ventures—Income Taxes
91
30. Subtopic 325-20: Investments—Other—Cost Method
Investments
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Page
Ref.
Category of Financial Reporting Considerations
92
31. Subtopic 325-30: Investments—Other—Investments in
Insurance Contracts
92
32. Life Settlement Contracts Subsection of Subtopic 325-30:
Investments—Other—Investments in Insurance Contracts
94
33. Subtopic 330-10: Inventory—Overall
96
34. Subtopic 340-10: Deferred Costs and Other Assets—
Overall — SEC Guidance
97
35. Subtopic 340-20: Deferred Costs and Other Assets—
Capitalized Advertising Costs
97
36. Subtopic 340-30: Deferred Costs and Other Assets—
Insurance Contracts that Do Not Transfer Insurance Risks
98
37. Subtopic 350-20: Intangibles—Goodwill and Other—
Goodwill
102
38. Subtopic 350-30: Intangibles—Goodwill and Other—
General Intangibles Other Than Goodwill
104
39. Subtopic 360-10: Property, Plant, and Equipment—
Overall
105
40. Impairment or Disposal of Long-Lived Assets Subsection
of Subtopic 360-10: Property, Plant, and Equipment—
Overall
106
41. Subtopic 360-20: Property, Plant, and Equipment—Real
Estate Sales
106
42. Subtopic 205-20: Presentation of Financial Statements—
Discontinued Operations
109
43. Subtopic 405-20: Liabilities—Extinguishments of
Liabilities
109
44. Subtopic 405-30: Liabilities—Insurance-Related
Assessments
109
45. Subtopic 410-20: Asset Retirement and Environmental
Obligations—Asset Retirement Obligations
110
46. Subtopic 410-30: Asset Retirement and Environmental
Obligations—Environmental Obligations
113
47. Subtopic 420-10: Exit or Disposal Cost Obligations—
Overall (Restructuring)
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independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
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Page
Ref.
Category of Financial Reporting Considerations
115
48. Subtopic 420-10: Exit or Disposal Cost Obligations—
Overall (Restructuring)—SEC Guidance
116
49. Subtopic 440-10: Commitments—Overall
116
50. Unconditional Purchase Obligations Subsection of
Subtopic 440-10: Commitments—Overall
117
51. Subtopic 450-20: Contingencies—Loss Contingencies
120
52. Subtopic 450-30: Contingencies—Gain Contingencies
120
53. Subtopic 460-10: Guarantees—Overall
122
54. Product Warranties Subsection of Subtopic 460-10:
Guarantees—Overall
123
55. Subtopic 470-10: Debt—Overall
126
56. Subtopic 470-20: Debt—Debt with Conversion and Other
Options
127
57. Cash Conversion Subsection of Subtopic 470-20: Debt—
Debt with Conversion and Other Options
129
58. Subtopic 470-30: Debt—Participating Mortgage Loans
129
59. Subtopic 470-50: Debt—Modifications and
Extinguishments
130
60. Subtopic 470-60: Debt—Troubled Debt Restructurings by
Debtors
130
61. Subtopic 480-10: Distinguishing Liabilities from Equity—
Overall (Statement 150 and related interpretations)
134
62. Subtopic 480-10: Distinguishing Liabilities from Equity—
Overall—SEC Guidance (ASR 268, EITF D-98)
139
63. Subtopic 505-10: Equity—Overall
142
64. Subtopic 505-10: Equity—Overall—SEC Guidance
144
65. Subtopic 505-20: Equity—Stock Dividends and Stock
Splits—SEC Guidance
145
66. Subtopic 505-30: Equity—Treasury Stock
145
67. Subtopic 505-50: Equity—Equity-Based Payments to
Non-Employees
146
68. Subtopic 605-10: Revenue Recognition—Overall
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Page
Ref.
Category of Financial Reporting Considerations
147
69. Subtopic 605-15: Revenue Recognition—Products
148
70. Subtopic 605-20: Revenue Recognition—Services
149
71. Subtopic 605-25: Revenue Recognition—Multiple
Element Arrangements
150
72. Subtopic 605-28: Revenue Recognition—Milestone
Method
150
73. Subtopic 605-35: Revenue Recognition—ConstructionType and Production-Type Contracts
152
74. Subtopic 605-40: Revenue Recognition—Gains and
Losses
152
75. Subtopic 605-45: Revenue Recognition—Principal Agent
Considerations
154
76. Subtopic 605-50: Revenue Recognition—Customer
Payments and Incentives
154
77. Subtopic 710-10: Compensation—General—Overall
154
78. Subtopic 712-10: Compensation—Nonretirement
Postemployment Benefits—Overall
155
79. Pension and Other Postretirement Benefits Guidance
(Subtopics 715-20, 715-30, and 715-60) That Applies to
Both Public and Nonpublic Entities
157
80. Pension and Other Postretirement Benefits Guidance
(Subtopics 715-20, 715-30, and 715-60) That Applies to
Public Entities Only
162
81. Pension and Other Postretirement Benefits Guidance
(Subtopics 715-20, 715-30, and 715-60) That Applies to
Nonpublic Entities Only
166
82. Medicare Prescription Drug, Improvement, and
Modernization Act Subsection of Subtopic 715-60:
Compensation—Retirement Benefits—Defined Benefit
Plans—Other Postretirement
167
83. Subtopic 715-70: Compensation—Retirement Benefits—
Defined Contribution Plans
167
84. Subtopic 715-80: Compensation—Retirement Benefits—
Multiemployer Plans
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Page
Ref.
Category of Financial Reporting Considerations
171
85. Subtopic 718-10: Compensation—Stock Compensation—
Overall
177
86. Subtopic 718-10: Compensation—Stock Compensation—
Overall—SEC Guidance
178
87. Subtopic 718-40: Compensation—Stock Compensation—
Employee Stock Ownership Plans
179
88. Claims-Made Contracts Subsection of Subtopic 720-20:
Other Expenses—Insurance Costs
180
89. Subtopic 720-35: Other Expenses—Advertising Costs
180
90. Subtopic 720-50: Other Expenses—Fees Paid to the
Federal Government by Pharmaceutical Manufacturers
180
91. Subtopic 730-10: Research and Development—Overall
180
92. Subtopic 730-20: Research and Development—Research
and Development Arrangements
181
93. Income Taxes (Subtopics 740-10, 740-20, and 740-30)
189
94. Business Combinations (Subtopics 805-10, 805-20, and
805-30)
197
95. Transactions Between Entities Under Common Control
Subsection of Subtopic 805-50: Business Combinations—
Related Issues
198
96. New Basis of Accounting (Pushdown) Subsection of
Subtopic 805-50: Business Combinations—Related
Issues—SEC Guidance
198
97. Subtopic 808-10: Collaborative Arrangements—Overall
199
98. Subtopic 810-10: Consolidation—Overall
205
99. Variable Interest Entities Subsection of Subtopic 810-10:
Consolidation—Overall
209
100. Subtopic 815-10: Derivatives and Hedging—Overall
218
101. Subtopic 815-15: Derivatives and Hedging—Embedded
Derivatives
219
102. Subtopic 815-25: Derivatives and Hedging—Fair Value
Hedging
220
103. Subtopic 815-30: Derivatives and Hedging—Cash Flow
Hedges
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Page
Ref.
Category of Financial Reporting Considerations
221
104. Subtopic 815-35: Derivatives and Hedging—Net
Investment Hedges
221
105. Subtopic 815-40: Derivatives and Hedging—Contracts in
Entity’s Own Equity
223
106. Subtopic 820-10: Fair Value Measurements and
Disclosures—Overall prior to the adoption of ASU 201104
(Note: For entities with a December 31st year-end, this
section is not applicable because ASU 2011-04 would be
effective. See Section 107 below.)
231
107. Subtopic 820-10: Fair Value Measurements and
Disclosures—Overall, after the adoption of ASU 201104
(Note: This section is applicable for an entity with a
December 31st year-end.)
237
108. Subtopic 825-10: Financial Instruments—Overall
(Note: The disclosure guidance in this Subsection applies
to all entities but is optional for an entity that meets all of
the following criteria: (a) the entity is a nonpublic entity,
(b) the entity’s total assets are less than $100 million on
the date of the financial statements, and (c) the entity has
no instrument that, in whole or in part, is accounted for as
a derivative instrument under Topic 815 other than
commitments related to the origination of mortgage loans
to be held for sale during the reporting period.)
242
109. Fair Value Option Subsection of Subtopic 825-10:
Financial Instruments—Overall
246
110. Subtopic 825-20: Financial Instruments—Registration
Payment Arrangements
247
111. Subtopic 830-20: Foreign Currency Matters—Foreign
Currency Transactions; Subtopic 830-740: Foreign
Currency Matters—Income Taxes
248
112. Subtopic 830-30: Foreign Currency Matters—Translation
of Financial Statements
249
113. Subtopic 835-20: Interest—Capitalization of Interest
249
114. Lessees and Real Estate Subsections of Topic 840:
Leases
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Page
Ref.
Category of Financial Reporting Considerations
252
115. Lessors Subsections of Topic 840: Leases
255
116. Subtopic 845-10: Nonmonetary Transactions—Overall
255
117. Purchase and Sales of Inventory Subsection of Subtopic
845-10: Nonmonetary Transactions—Overall
255
118. Subtopic 850-10: Related Party Disclosures—Overall
257
119. Subtopic 852-10: Reorganizations—Overall
260
120. Subtopic 852-20: Reorganizations—QuasiReorganizations
260
121. Subtopic 855-10: Subsequent Events—Overall
262
122. Subtopic 860-10: Transfers and Servicing—Overall
264
123. Subtopic 860-20: Transfers and Servicing—Sales of
Financial Assets
268
124. Subtopic 860-30: Transfers and Servicing—Secured
Borrowing and Collateral
268
125. Subtopic 860-50: Transfers and Servicing—Servicing
Assets and Liabilities
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B.
Index to Specialized Checklists
The following specialized checklists address certain additional disclosures for selected specialized
industries and supplement this Accounting Disclosure Checklist (except for Accounting Disclosure
Checklist – Employee Benefit Plans, which substitutes for this checklist)..
Form
Accounting Disclosure Checklist – Broker/Dealer
Accounting Disclosure Checklist – Depository and Lending
Institutions
Accounting Disclosure Checklist – Health Care
Note: ASU 2012-01 clarifies for continuing care retirement
communities amends the accounting and reporting for refundable
advance fees. Although the ASU does not contain additional
disclosure requirements, the transition disclosures in paragraph 25010-50-1 (in this checklist) are required.
Accounting Disclosure Checklist – Higher Education, Research, and
Other Not-for-Profits (HERON)
Accounting Disclosure Checklist – Insurance Companies
Accounting Disclosure Checklist – Investment Companies
Accounting Disclosure Checklist – Management’s Discussion &
Analysis
Accounting Disclosure Checklist – Public Utilities
Accounting Disclosure Checklist – Entities with Oil and Gas
Producing Activities
For other specialized industries, refer to Section IV of this disclosure checklist.
There is also an Interim Accounting Disclosure Checklist which serves as a “memory jogger” of the
minimum disclosures in condensed interim financial information.
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Section III—Accounting Disclosure Checklist
1
Subtopic 205-10: Presentation of Financial Statements–Overall
Note: Natural disasters such as Hurricane Sandy may create a number of issues for
affected entities related to:
• Involuntary conversions;
• Impairment of long-lived assets;
• Impairment of intangible assets and goodwill;
• Subsequent events;
• Receivables, loans, and other financial instruments;
• Recognition of non-impairment losses and costs;
• Insurance policies;
• Financial statement classification of losses and insurance recoveries; and
• Other disclosures
For disclosure guidance related to natural disasters, refer to the “KPMG and Other
Guidance” subsection of ASC Subtopics 205-10 and 225-20 (in this checklist).
Additionally, see FASB ASC Subtopic 410-30 for more information about the
disclosure implications of natural disasters.
Presentation
Note: See paragraphs 210-10-45-1 through 210-10-45-12 for guidance on classifying
assets and liabilities as current and non-current in a classified balance sheet.
> Comparative Financial Statements
205-10-45-2. In any one year it is ordinarily desirable that the statement of financial
position, the income statement, and the statement of changes in equity be
presented for one or more preceding years, as well as for the current year.
205-10-45-3. Prior-year figures shown for comparative purposes shall in fact be
comparable with those shown for the most recent period. Any exceptions to
comparability shall be clearly brought out as described in Topic 250.
205-10-45-4. Notes to financial statements, explanations, and accountants’ reports
containing qualifications that appeared on the statements for the preceding years
shall be repeated, or at least referred to, in the comparative statements to the
extent that they continue to be of significance.
Disclosure
215-10-50-1. For disclosure guidance on items that comprise shareholder’s equity, see
Topic 505, Equity.
> Changes Affecting Comparability
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205-10-50-1. If, because of reclassifications or for other reasons, changes have occurred
in the manner of or basis for presenting corresponding items for two or more
periods, information shall be furnished that will explain the change.
KPMG and Other Guidance
1
Each page of the financial statements should be captioned, “See accompanying
notes to (consolidated) financial statements.”
2
AU 504.06; AU 551.13; AU 558.02–.03. Each page of unaudited financial
statements and/or unaudited supplementary information should be captioned,
“Unaudited—see accompanying accountants’ report”.
3
AR 100.40. For non-public entities, each page of compiled or reviewed financial
statements and supplementary information should be captioned, “See accompanying
review (or compilation) report of ABC LLP” or “See accompanying accountants’
review (or compilation) report”.
4
Disclosure Implications of Natural Disasters: Accounting implications of natural
disasters could include, among other things, involuntary conversions of
nonmonetary assets; impairments of long-lived assets, intangible assets, and/or
goodwill; valuation of receivables, loans, and other financial instruments; and
recognition of insurance recoveries.
FASB ASC Subtopic 225-20, Income Statement—Extraordinary and Unusual
Items, defines an extraordinary event as an event that is both unusual in nature and
nonrecurring. The magnitude of loss from the event is not a factor for determining
whether it is extraordinary. A natural disaster that is reasonably expected to re-occur
would not meet both conditions and would not be classified as an extraordinary
event. For example, a hurricane in an area that is susceptible to hurricanes is not an
extraordinary event.
ASC paragraph 225-20-45-16 provides presentation and disclosure requirements for
events that are considered to be unusual or infrequent. ASC paragraph 225-30-50-1
requires entities to disclose (a) the nature of the event resulting in the business
interruption losses, (b) the aggregate amount of business interruption insurance
recoveries recognized during the period, and (c) the line item(s) in the statement of
operations in which those recoveries are classified. Additionally, entities should
consider the disclosure requirements of the applicable literature.
In addition, entities should provide additional disclosures to enable users of the
financial statements to evaluate the financial effects of the natural disaster and
related events. Those additional disclosures may include (a) the nature and amounts
of losses recognized as a result of the natural disaster and the amounts of any related
insurance recoveries, (b) a description of contingencies from the event that have not
yet been recognized in the financial statements but that are reasonably expected to
impact the entity’s financial statements, (for example, future losses and costs and
probable future insurance recoveries), (c) amount of the exposure to credit loss and
how that risk was evaluated, (d) potential loss of customer base and the related
revenue recognition, (e) major disruptions in supply chain that impact inventory and
(f) additional information regarding significant estimates and uncertainties related to
the natural disasters that may impact the financial statements.
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5
6
SEC registrants also should consider the disclosure requirements of Item 303
(Management's Discussion and Analysis) of Regulations S-K. This includes
discussion of events that impact or create uncertainties in liquidity, material
commitments for capital resources, material changes in capital resources, impact to
results of operations including material changes to amount of reported income from
continuing operations (specific components of revenue and expense), material
changes in the relationship between costs and revenues (including known future
increases). For example, entities may have uninsured losses that impact capital
resources, plant shut-downs that impact results of operations, and uncertainties
regarding plant operations due to limitations in the power supply. To the extent that
an entity has significant operations that were impacted, it may be appropriate to
summarize information about operations in Japan.
Staff Audit Practice Alert No. 9, Assessing and Responding to Risk in the Current
Economic Environment, updates Practice Alert No. 3, Audit Considerations in the
Current Economic Environment, released in December 2008. Practice Alert No. 9
highlights critical matters related to the current economic environment that might
affect the risk of material misstatement and, therefore, require additional audit
attention. Many of the risks in Practice Alert No. 3 continue to be relevant.
Practice Alert No. 9 updates references to the PCAOB standards about the
auditor’s assessment of, and response to, risk, that were superseded when the
PCAOB adopted eight new risk assessment standards (PCAOB Auditing
Standards Nos. 8-15) in 2010.
The Practice Alert addresses considering the effect of economic conditions on the
audit, auditing fair value measurements and estimates, the auditor’s consideration
of a company’s ability to continue as a going concern, and auditing financial
statement disclosures.
The PCAOB chairman stated, “today’s volatile economic environment may affect
companies’ operations and financial reporting, which has implications for audits.
The alert reminds auditors of their responsibilities under these conditions.”
Many regions and entities around the world continue to be affected by the slow
economic recovery and volatile markets. The economic environment also
contributes to sovereign debt issues in Europe, including related government
austerity programs. These issues may affect accounting and disclosures related to
investments, foreign operations, and other areas.
As the crisis in the eurozone continues to evolve, there is uncertainty about
whether one or more countries will discontinue using the euro as their currency.
There is speculation that a withdrawal from the eurozone could be sudden and
without warning. Financial statement preparers should understand the
implications of one or more countries exiting the eurozone. Some of the items
that may have accounting and/or disclosure implications include:
•
Accounting for a change in functional currency
•
Potential bank holiday
•
Status of highly inflationary economy
•
Hedging relationships
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•
Impairment of assets
•
Disclosure implications
•
Disposals of foreign operations and CTA considerations
Note: Subtopic 205-20: Presentation of Financial Statements—Discontinued
Operations appears immediately after Subtopic 360-20. See Section 42 (in this
checklist).
2
Subtopic 205-10: Presentation of Financial Statements–Overall—SEC Guidance
> Form and Order of Financial Statements
> > Presentation of Amounts
1
Regulation S-X, Rule 3-01. Present balance sheets as of the end of the two most
recent fiscal years.
2
Regulation S-X, Rule 3-02. Present statements of income and cash flows for each of
the three most recent fiscal years.
3
Regulation S-X, Rule 3-04. Present statements of stockholders’ equity for each
period an income statement is required to be filed (alternatively, as a note to the
financial statements).
4
Regulation S-X Rule 4-01(b).
a. All money amounts required to be shown in financial statements may be
expressed in whole dollars or multiples thereof, as appropriate: provided, that,
when stated in other than whole dollars, an indication to that effect is inserted
immediately beneath the caption of the statement or schedule, at the top of the
money columns, or at an appropriate point in narrative material.
b. Negative amounts (red figures) shall be shown in a manner which clearly
distinguishes the negative attribute.
5
SAB Topic 11.E. Financial statements and other data read consistently from left to
right in same chronological order.
> Supplemental Schedules
6
Regulation S-X Rule 5-04(c), for requirements for Supplemental Schedules I – V.
a. Schedule I—Condensed Financial Information of Registrant as of the date and
for the periods specified by S-X, Rules 3-01 and 3-02, when the restricted net
assets of consolidated subsidiaries exceed 25 percent of consolidated net assets
as of the end of the most recent fiscal year.
b. Schedule II—Valuation and Qualifying Accounts for each period for which an
audited income statement is required.
c. Schedule III—Real Estate and Accumulated Depreciation as of the date of the
most recent balance sheet.
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d. Schedule IV—Mortgage Loans on Real Estate as of the date and for the periods
specified in the schedule.
e. Schedule V—Supplemental Information Concerning Property-Casualty
Insurance Operations Registrant as of the date and for the periods specified by
S-X, Rules 3-01 and 3-02 when a registrant, its subsidiaries, or 50 percent-orless-owned equity-basis investees have liabilities for property-casualty
insurance claims.
f.
3
The information required in the above schedules may be furnished in a single
schedule, the financial statements, or a footnote. If the registrant information is
shown separately, the information is properly summarized, and the statements
are not unclear or confusing.
Subtopic 210-10: Balance Sheet—Overall—SEC Guidance
Regulation S-X Rule 5-02, Balance Sheets.
ASSETS AND OTHER DEBITS
Current Assets, when appropriate
1
Cash and cash items.
a. Pledges or restrictions, including contractual compensating balances.
1 FRR 203.02.c.iv. In general, compensating balance arrangements should only
be disclosed for the latest fiscal year and later interim period for which
financial statements are presented. If the terms of arrangements require
balance sheet segregation, however, this should be reflected in all balance
sheets presented. In addition, if the change in the arrangements from one
period to the next is so great as to constitute a fact of unusual significance to
the investor in appraising the company, the change should be disclosed.
b. Separate disclosure of cash or cash items restricted as to withdrawal or use.
c. Describe provisions of restrictions in the notes to financial statements.
d. Describe in the notes to financial statements arrangements and amounts, if
determinable, of compensating balance arrangements that exist but are not
agreements that legally restrict the use of cash amounts.
e. Describe in the notes to financial statements compensating balances maintained
under an agreement to ensure future credit availability, including amount and
terms.
2
Marketable securities. The accounting and disclosure requirements for current
marketable equity securities are specified by generally accepted accounting
principles. With respect to all other current marketable securities, state,
parenthetically or otherwise, the basis of determining the aggregate amount shown
in the balance sheet, along with the alternatives of the aggregate cost or the
aggregate market value at the balance sheet date.
3
Accounts and notes receivable.
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a. State separately amounts receivable from
1
customers (trade);
2
related parties;
3
underwriters, promoters, and employees (other than related parties) which
arose in other than the ordinary course of business; and
4
others
b. If the aggregate amount of notes receivable exceeds 10 percent of the aggregate
amount of receivables, the above information shall be set forth separately, in the
balance sheet or in a note thereto, for accounts receivable and notes receivable.
c. If receivables include amounts due under long-term contracts, state separately in
the balance sheet or in a note to the financial statements the following amounts:
1
Balances billed but not paid by customers under retainage provisions in
contracts.
2
Amounts representing the recognized sales value of performance and such
amounts that had not been billed and were not billable to customers at the
date of the balance sheet.
Include a general description of the prerequisites for billing.
3
Billed or unbilled amounts representing claims or other similar items
subject to uncertainty concerning their determination or ultimate realization.
Include a description of the nature and status of the principal items
comprising such amount.
4
With respect to (1) through (3) above, also state the amounts included in
each item which are expected to be collected after one year. Also state, by
year, if practicable, when the amounts of retainage (see (1) above) are
expected to be collected.
4
Allowances for doubtful accounts and notes receivable. The amount is to be set forth
separately in the balance sheet or in a note thereto.
5
Unearned income.
6
Inventories.
a. State separately in the balance sheet or in a note thereto, if practicable, the
amounts of major classes of inventory such as:
1 Finished goods;
2 inventoried costs relating to long-term contracts or programs;
3 work in process (see § 210.4–05);
4 raw materials; and
5 supplies.
If the method of calculating a LIFO inventory does not allow for the practical
determination of amounts assigned to major classes of inventory, the amounts of
those classes may be stated under cost flow assumptions other that LIFO with
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the excess of such total amount over the aggregate LIFO amount shown as a
deduction to arrive at the amount of the LIFO inventory.
b. The basis of determining the amounts shall be stated.
If cost is used to determine any portion of the inventory amounts, the
description of this method shall include the nature of the cost elements included
in inventory. Elements of cost include, among other items, retained costs
representing the excess of manufacturing or production costs over the amounts
charged to cost of sales or delivered or in-process units, initial tooling or other
deferred startup costs, or general and administrative costs.
The method by which amounts are removed from inventory (e. g., average cost,
first-in, first-out, last-in, first-out, estimated average cost per unit) shall be
described. If the estimated average cost per unit is used as a basis to determine
amounts removed from inventory under a total program or similar basis of
accounting, the principal assumptions (including, where meaningful, the
aggregate number of units expected to be delivered under the program, the
number of units delivered to date and the number of units on order) shall be
disclosed.
If any general and administrative costs are charged to inventory, state in a note
to the financial statements the aggregate amount of the general and
administrative costs incurred in each period and the actual or estimated amount
remaining in inventory at the date of each balance sheet.
c. If the LIFO inventory method is used, the excess of replacement or current cost
over stated LIFO value shall, if material, be stated parenthetically or in a note to
the financial statements.
d. For all long-term contracts or programs, the following information, if
applicable, shall be stated in a note to the financial statements:
1. The aggregate amount of manufacturing or production costs and any related
deferred costs (e. g., initial tooling costs) which exceeds the aggregate
estimated cost of all in-process and delivered units on the basis of the
estimated average cost of all units expected to be produced under long-term
contracts and programs not yet complete, as well as that portion of such
amount which would not be absorbed in cost of sales based on existing firm
orders at the latest balance sheet date. In addition, if practicable, disclose
the amount of deferred costs by type of cost (e. g., initial tooling, deferred
production, etc.)
2. The aggregate amount representing claims or other similar items subject to
uncertainty concerning their determination or ultimate realization, and
include a description of the nature and status of the principal items
comprising such aggregate amount.
3. The amount of progress payments netted against inventory at the date of the
balance sheet.
7
Prepaid expenses.
8
Other current assets. State separately, in the balance sheet or in a note thereto, any
amounts in excess of five percent of total current assets.
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9
Total current assets, when appropriate.
10 Securities of related parties.
11 Indebtedness of related parties—not current.
12 Other investments. The accounting and disclosure requirements for non-current
marketable equity securities are specified by generally accepted accounting
principles. With respect to other security investments and any other investment,
state, parenthetically or otherwise, the basis of determining the aggregate amounts
shown in the balance sheet, along with the alternate of the aggregate cost or
aggregate market value at the balance sheet date.
13 Property, plant and equipment.
a. State the basis of determining the amounts.
b. Tangible and intangible utility plant of a public utility company shall be
segregated so as to show separately the original cost, plant acquisition
adjustments, and plant adjustments, as required by the system of accounts
prescribed by the applicable regulatory authorities. This rule shall not be
applicable in respect to companies which are not required to make such a
classification.
14 Accumulated depreciation, depletion, and amortization of property, plant and
equipment. The amount is to be set forth separately in the balance sheet or in a note
thereto.
15 Intangible assets. State separately each class of such assets which is in excess of five
percent of the total assets, along with the basis of determining the respective
amounts. Any significant addition or deletion shall be explained in a note.
16 Accumulated depreciation and amortization of intangible assets. The amount is to be
set forth separately in the balance sheet or in a note thereto.
17 Other assets. State separately, in the balance sheet or in a note thereto, any other
item not properly classed in one of the preceding asset captions which is in excess of
five percent to total assets. Any significant addition or deletion should be explained
in a note. With respect to any significant deferred charge, state the policy for
deferral and amortization.
18 Total assets.
LIABILITIES
Current Liabilities, when appropriate
19 Accounts and notes payable.
a. State separately amounts payable to:
1 banks for borrowings;
2 factors or other financial institutions for borrowings;
3 holders of commercial paper;
4 trade creditors;
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5 related parties;
6 underwriters, promoters, and employees (other than related parties); and
7 others.
Amounts applicable to (1), (2) and (3) may be stated separately in the balance
sheet or in a note thereto.
b. The amount and terms of unused lines of credit for short-term financing shall be
disclosed, if significant, in the notes to the financial statements.
1 Disclose commitment fees and conditions under which lines of credit may
be withdrawn.
2 Disclose weighted-average interest rate on short-term borrowings
outstanding as of the date of each balance sheet.
3 Separately identify the amounts that support a commercial paper or similar
borrowing arrangement.
20 Other current liabilities. State separately, in the balance sheet or in a note thereto,
any item in excess of 5 percent of total current liabilities.
21 Total current liabilities, when appropriate.
Long-Term Debt.
22 Bonds, mortgages and other long-term debt, including capitalized leases.
a. State separately, in the balance sheet or in a note thereto, each issue or type of
obligation and such information as will indicate:
1 The general character of each type of debt including the rate of interest;
2 The date of maturity, or, if maturing serially, a brief indication of the serial
maturities, such as “maturing serially from 2000 to 2015”;
3 if the payment of principal or interest is contingent, an appropriate
indication of such contingency;
4 a brief indication of priority; and
5 if convertible, the basis.
For amounts owed to related parties see Topic 850 (in this checklist).
b. The amount and terms (including commitment fees and the conditions under
which commitments may be withdrawn) of unused commitments for long-term
financing arrangements that would be disclosed under this rule if used shall be
disclosed in the notes to the financial statements if significant.
23 Indebtedness to related parties—noncurrent.
24 Other liabilities. State separately, in the balance sheet or in a note thereto, any item
not properly classified in one of the preceding liability captions which is in excess of
5 percent of total liabilities.
25 Commitments and contingent liabilities.
26 Deferred credits. State separately in the balance sheet amounts for (a) deferred
income taxes, (b) deferred tax credits, and (c) material items of deferred income.
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> Current Liabilities Other Than Income Taxes
27 SEC-2003 AICPA National Conference on Current SEC Developments. If an
enterprise structures an arrangement in which another party, typically a financial
institution or one of its affiliates, pays its accounts payable in return for a promise to
pay the other party at a future date, the liability should be recorded as a borrowing
on which interest is recognized, not as accounts payable.
4
Subtopic 210-20: Balance Sheet--Offsetting
Note: On December 16, 2011, the FASB issued ASU No. 2011-11, Disclosures about
Offsetting Assets and Liabilities. For more information, see the pending content later in
this section.
Presentation
>Right of Setoff
210-20-45-1. A right of setoff exists when all of the following conditions are met:
a. Each of two parties owes the other determinable amounts.
b. The reporting party has the right to set off the amount owed with the amount
owed by the other party.
c. The reporting party intends to set off.
d. The right of setoff is enforceable at law.
210-20-45-2. A debtor having a valid right of setoff may offset the related asset and
liability and report the net amount.
> Offsetting Securities Against Taxes Payable
210-20-45-6. The offset of cash or other assets against the tax liability or other amounts
owing to governmental bodies shall not be acceptable except in the circumstances
described in paragraph 210-20-45-7.
> Assurance that Right of Setoff Is Enforceable in a Bankruptcy
210-20-45-8. State laws about the right of setoff may provide results different from
those normally provided by contract or as a matter of common law. Similarly, the
U.S. Bankruptcy Code imposes restrictions on or prohibitions against the right of
setoff in bankruptcy under certain circumstances. Legal constraints should be
considered to determine whether the right of setoff is enforceable.
210-20-45-9. The phrase enforceable at law encompasses the idea that the right of setoff
should be upheld in bankruptcy. The nature of support required for an assertion in
financial statements that a right of setoff is enforceable at law is subject to a costbenefit constraint and depends on facts and circumstances. All of the information
that is available, either supporting or questioning enforceability, should be
considered. Offsetting is appropriate only if the available evidence, both positive
and negative, indicates that there is reasonable assurance that the right of setoff
would be upheld in bankruptcy.
Pending Content
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Note: On December 16, 2011 the FASB issued ASU No. 2011-11, Disclosures about
Offsetting Assets and Liabilities, in conjunction with the IASB’s issuance of
amendments to Disclosures—Offsetting Financial Assets and Financial Liabilities
(Amendments to IFRS 7). While the Boards retained the existing offsetting
models under U.S. GAAP and IFRS, the new standards require disclosures to
allow investors to better compare financial statements prepared under U.S. GAAP
with financial statements prepared under IFRS. The new standards are effective
for annual periods beginning on or after January 1, 2013, and interim
periods within those annual periods. Retrospective application is required.
An ASU to amend the scope of ASU No. 2011-11 to clarify that the disclosure
requirements of the ASU are limited to derivatives, repurchase and reverse
purchase agreements, and securities borrowing and lending agreements that are
either offset in the statement of financial position or subject to master netting
arrangements or similar agreements is expected in early 2013.
Disclosure
General
> Offsetting of Derivatives, Financial Assets, and Financial Liabilities
210-20-50-1. The disclosure requirements in paragraphs 210-20-50-2 through 50-5
apply to both of the following:
a.
Recognized financial instruments and derivative instruments that are offset
in accordance with either Section 210-20-45 or Section 815-10-45.
b.
Recognized financial instruments and derivative instruments that are
subject to an enforceable master netting arrangement or similar agreement,
irrespective of whether they are offset in accordance with either Section
210-20-45 or Section 815-10-45.
210-20-50-2. An entity shall disclose information to enable users of its financial
statements to evaluate the effect or potential effect of netting arrangements on its
financial position. This includes the effect or potential effect of rights of setoff
associated with an entity’s recognized assets and recognized liabilities that are in
the scope of the preceding paragraph.
210-20-50-3. To meet the objective in the preceding paragraph, an entity shall disclose
at the end of the reporting period the following quantitative information
separately for assets and liabilities that are within the scope of paragraph 210-2050-1:
a.
The gross amounts of those recognized assets and those recognized
liabilities
b.
The amounts offset in accordance with the guidance in Sections 210-20-45
and 815-10-45 to determine the net amounts presented in the statement of
financial position
c.
The net amounts presented in the statement of financial position
d.
The amounts subject to an enforceable master netting arrangement or
similar agreement not otherwise included in (b):
1.
The amounts related to recognized financial instruments and other
derivative instruments that either:
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i.
Management makes an accounting policy election not to offset.
ii.
Do not meet some or all of the guidance in either Section 21020-45 or Section 815-10-45.
2.
The amounts related to financial collateral (including cash
collateral).
e.
The net amount after deducting the amounts in (d) from the amounts in (c).
210-20-50-4. The information required by the preceding paragraph shall be presented in
a tabular format, separately for assets and liabilities, unless another format is
more appropriate. The total amount disclosed in accordance with paragraph 21020-50-3(d) for an instrument shall not exceed the amount disclosed in accordance
with paragraph 210-20-50-3(c) for that instrument.
210-20-50-5. An entity shall provide a description of the rights of setoff associated with
an entity’s recognized assets and recognized liabilities subject to an enforceable
master netting arrangement or similar agreement disclosed in accordance with
paragraph 210-20-50-3(d), including the nature of those rights.
210-20-50-6. If the information required by paragraphs 210-20-50-1 through 50-5 is
disclosed in more than a single note to the financial statements, an entity shall
cross-reference between those notes.
5
Subtopic 215-10: Statement of Shareholder Equity—Overall—SEC Guidance
> Changes in Each Caption of Other Stockholders' Equity
1 Regulation S-X Rule 3-04. The information in items (a) – (c) below may be
presented in the balance sheet, as a separate statement, or in the footnotes:
a. Present an analysis of the changes in each caption of stockholders’ equity and
noncontrolling interests presented in the balance sheet that reconciles the
beginning balance to the ending balance for each period that an income
statement is required with all significant reconciling items described by
appropriate captions with contributions from and distribution to owners shown
separately.
b. State separately the adjustments to the balance at the beginning of the earliest
period presented for items which were retroactively applied to periods prior to
that period.
c. State the amount of dividends per share and in the aggregate for each class of
shares.
6
Subtopic 220-10: Comprehensive Income—Overall, prior to adoption of ASU 2011-05 and ASU
2011-12 (Note: An entity that has no items of other comprehensive income in any period
presented is not required to report comprehensive income.)
Note: For entities with a December 31st year-end, this section is not applicable because
ASU 2011-05 and ASU 2011-12 would be effective. See Section 7 below.
Note: The content in this Subtopic has not been updated for ASU No. 2011-05,
Presentation of Comprehensive Income. This ASU eliminates the option in U.S.
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GAAP to present other comprehensive income in the statement of changes in
equity.
ASU No. 2011-12, Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items Out of Accumulated Other
Comprehensive Income in Accounting Standards Update No. 2011-05, defers the
effective date of the requirement to present separate line items on the income
statement for reclassification adjustments of items out of accumulated other
comprehensive income into net income. ASU 2011-12 does not change the other
requirements of ASU 2011-05. Entities are still required to present
reclassification adjustments within other comprehensive income either on the face
of the statement that reports other comprehensive income or in the notes to the
financial statements. The requirement to present comprehensive income in either a
single continuous statement or two consecutive statements remains for both
annual and interim reporting. The deferral is intended to be temporary until the
Board reconsiders the operational concerns and needs of financial statement users.
A final ASU on presentation and disclosure of reclassification adjustments is
expected in early 2013.
For a public entity, these ASUs are effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011. For a
nonpublic entity, the ASUs are effective for fiscal years ending after
December 15, 2012, and interim and annual periods thereafter. Early
adoption is permitted.
See the next section for entities that have adopted ASU 2011-05 and ASU 201112.
Presentation
> Reporting Comprehensive Income
220-10-45-4. This Subtopic does not require that an entity use the terms comprehensive
income or other comprehensive income in its financial statements, even though
those terms are used throughout this Subtopic.
220-10-45-5. All components of comprehensive income shall be reported in the
financial statements in the period in which they are recognized. A total amount for
comprehensive income shall be displayed in the financial statement where the
components of other comprehensive income are reported. Paragraph 810-10-501A(a) (in this checklist) states that, if an entity has an outstanding noncontrolling
interest (minority interest), amounts for both comprehensive income attributable
to the parent and comprehensive income attributable to the noncontrolling interest
in a less-than-wholly-owned subsidiary are reported on the face of the financial
statement in which comprehensive income is presented in addition to presenting
consolidated comprehensive income.
H
>> Alternative Formats for Reporting Comprehensive Income
220-10-45-8. An entity shall display comprehensive income and its components in a
financial statement that is displayed with the same prominence as other financial
statements that constitute a full set of financial statements. This Subtopic requires
that an entity display net income as a component of comprehensive income.
Examples 1 through 2 (paragraphs 220-10-55-4 through 55-27 ) provide
illustrations of the components of other comprehensive income and total
HH
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comprehensive income being reported below the total for net income in a
statement that reports results of operations, in a separate statement of
comprehensive income that begins with net income, and in a statement of changes
in equity.
220-10-45-9. Although this Subtopic does not require a specific format for displaying
comprehensive income and its components, an entity is encouraged to display the
components of other comprehensive income and total comprehensive income
below the total for net income in a statement that reports results of operations or
in a separate statement of comprehensive income that begins with net income.
220-10-45-10. Displaying comprehensive income in an income-statement-type format is
superior to displaying it in a statement of changes in equity.
220-10-45-11. An entity may display components of other comprehensive income either
net of related tax effects or before related tax effects with one amount shown for
the aggregate income tax expense or benefit related to the total of other
comprehensive income items.
220-10-45-12. An entity shall disclose the amount of income tax expense or benefit
allocated to each component of other comprehensive income, including
reclassification adjustments, either on the face of the statement in which those
components are displayed or in notes to the financial statements.
>> Reporting Other Comprehensive Income in the Equity Section of a Statement
of Financial Position
220-10-45-14. The total of other comprehensive income for a period shall be transferred
to a component of equity that is displayed separately from retained earnings and
additional paid-in capital in a statement of financial position at the end of an
accounting period. A descriptive title such as accumulated other comprehensive
income shall be used for that component of equity.
An entity shall disclose accumulated balances for each classification in that
separate component of equity on the face of a statement of financial position, in a
statement of changes in equity, or in notes to the financial statements. The
classifications shall correspond to classifications used elsewhere in the same set of
financial statements for components of other comprehensive income.
> Reclassification Adjustments
220-10-45-17. An entity may display reclassification adjustments (See ASC paragraphs
220-10-45-15 and 45-16) on the face of the financial statement in which
comprehensive income is reported, or it may disclose reclassification adjustments
in the notes to the financial statements. Therefore, for all classifications of other
comprehensive income, an entity may use either a gross display on the face of the
financial statement or a net display on the face of the financial statement and
disclose the gross change in the notes to the financial statements. If displayed
gross, reclassification adjustments are reported separately from other changes in
the respective balance; thus, the total change is reported as two amounts. If
displayed net, reclassification adjustments are combined with other changes in the
balance; thus, the total change is reported as a single amount. Gross and net
displays are illustrated in Example 1 (see paragraph 220-10-55-4). An illustration
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of the calculation of reclassification adjustments for available-for-sale securities is
included in Example 2 (see paragraph 220-10-55-18 ).
HHH
7
Subtopic 220-10: Comprehensive Income—Overall, after adoption of ASU 2011-05 and ASU
2011-12 (Note: An entity that has no items of other comprehensive income in any period
presented is not required to report comprehensive income.)
Note: This section is applicable for an entity with a December 31st year-end.
Note: The content in this Subtopic has been updated for ASU No. 2011-05,
Presentation of Comprehensive Income. Under this ASU, an entity may present the
components of net income and comprehensive income in either one or two consecutive
financial statements. The ASU eliminates the option in U.S. GAAP to present other
comprehensive income in the statement of changes in equity.
ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05, defers the effective date of the requirement
to present separate line items on the income statement for reclassification adjustments of
items out of accumulated other comprehensive income into net income. ASU 2011-12
does not change the other requirements of ASU 2011-05. Entities are still required to
present reclassification adjustments within other comprehensive income either on the
face of the statement that reports other comprehensive income or in the notes to the
financial statements. The requirement to present comprehensive income in either a
single continuous statement or two consecutive statements remains for both annual and
interim reporting. The deferral is intended to be temporary until the Board reconsiders
the operational concerns and needs of financial statement users. A final ASU on
presentation and disclosure of reclassification adjustments is expected in early 2013.
An entity should apply the ASUs retrospectively. For a public entity, the ASUs are
effective for fiscal years, and interim periods within those years, beginning after
December 15, 2011. For a nonpublic entity, the ASUs are effective for fiscal years
ending after December 15, 2012, and interim and annual periods thereafter. Early
adoption is permitted.
Note: Although there are no specific transition disclosures, we would expect entities to
disclose that they have changed their presentation of comprehensive income.
The following guidance applies for entities that have adopted ASU 2011-05 and ASU
2011-12.
Presentation
> Reporting Comprehensive Income
220-10-45-1. This Subtopic requires an entity to report comprehensive income either in
a single continuous financial statement or in two separate but consecutive
financial statements.
220-10-45-1A. An entity reporting comprehensive income in a single continuous
financial statement shall present its components in two sections, net income and
other comprehensive income. If applicable, an entity shall present the following in
that financial statement:
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a.
A total amount for net income together with the components that make up
net income.
b.
A total amount for other comprehensive income together with the
components that make up other comprehensive income. As indicated in
paragraph 220-10-15-3, an entity that has no items of other comprehensive
income in any period presented is not required to report comprehensive
income.
c.
Total comprehensive income.
220-10-45-1B. An entity reporting comprehensive income in two separate but
consecutive statements shall present the following:
a.
Components of and the total for net income in the statement of net income
b.
Components of and the total for other comprehensive income as well as a
total for comprehensive income in the statement of other comprehensive
income, which shall be presented immediately after the statement of net
income. A reporting entity shall begin the second statement with net
income.
220-10-45-1C. An e ntity s hall pr esent, e ither in a s ingle c ontinuous s tatement o f
comprehensive i ncome o r i n a st atement o f n et income an d st atement o f o ther
comprehensive i ncome, al l i tems t hat m eet the d efinition o f co mprehensive
income for the period in which those items are recognized. Components included
in o ther co mprehensive income sh all b e cl assified based o n their nature. F or
related guidance, see paragraphs 220-10-45-10A through 45-10B.
220-10-45-4. This Subtopic does not require that an entity use the terms comprehensive
income or other comprehensive income in its financial statements, even though
those terms are used throughout this Subtopic.
220-10-45-5. Paragraph 810-10-50-1A(a) states that, if an entity has an outstanding
noncontrolling interest, amounts for both net income and comprehensive income
attributable to the parent and net income and comprehensive income attributable
to t he n oncontrolling i nterest i n a l ess-than-wholly-owned subsidiary shall b e
reported i n t he f inancial statement(s) i n w hich ne t i ncome a nd c omprehensive
income a re pr esented i n addition t o pr esenting c onsolidated ne t i ncome a nd
comprehensive income. For more guidance, see paragraph 810-10-50-1A(c).
>>Items within Other Comprehensive Income
220-10-45-10A. Items of other comprehensive income include the following:
a.
Foreign currency translation adjustments (see paragraph 830-30-45-12)
b.
Gains and losses on foreign currency transactions that are designated as,
and are effective as, economic hedges of a net investment in a foreign
entity, commencing as of the designation date (see paragraph 830-20-353(a))
c.
Gains and losses on intra-entity foreign currency transactions that are of a
long-term-investment nature (that is, settlement is not planned or
anticipated in the foreseeable future), when the entities to the transaction are
consolidated, combined, or accounted for by the equity method in the
reporting entity's financial statements (see paragraph 830-20-35-3(b))
d.
Gains and losses (effective portion) on derivative instruments that are
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1(c))
e.
Unrealized holding gains and losses on available-for-sale securities (see
paragraph 320-10-45-1)
f.
Unrealized holding gains and losses that result from a debt security being
transferred into the available-for-sale category from the held-to-maturity
category (see paragraph 320-10-35-10(c))
g.
Amounts recognized in other comprehensive income for debt securities
classified as available-for-sale and held-to-maturity related to an other-thantemporary impairment recognized in accordance with Section 320-10-35 if
a portion of the impairment was not recognized in earnings
h.
Subsequent decreases (if not an other-than-temporary impairment) or
increases in the fair value of available-for-sale securities previously written
down as impaired (see paragraph 320-10-35-18)
i.
Gains or losses associated with pension or other postretirement benefits
(that are not recognized immediately as a component of net periodic benefit
cost) (see paragraph 715-20-50-1(j))
j.
Prior service costs or credits associated with pension or other postretirement
benefits (see paragraph 715-20-50-1(j))
k.
Transition assets or obligations associated with pension or other
postretirement benefits (that are not recognized immediately as a
component of net periodic benefit cost) (see paragraph 715-20-50-1(j)).
Additional classifications or additional items within current classifications may
result from future accounting standards.
220-10-45-10B. None of the following items qualify as an item of comprehensive
income:
a. Changes in equity during a period resulting from investments by owners and
distributions to owners
b. Items required to be reported as direct adjustments to paid-in capital, retained
earnings, or other nonincome equity accounts such as the following types of
transactions:
1. A reduction of shareholders’ equity related to employee stock
ownership plans
2. Taxes not payable in cash (for tax benefits that are required to be
credited directly to equity, e.g., see paragraphs 113-115 of SFAS 130)
3. Net cash settlement resulting from a change in value of a contract that
gives the entity a choice of net cash settlement or settlement in its own
shares.
>Presentation of Income Tax Effects
220-10-45-11. An entity shall present components of other comprehensive income in the
statement in which other comprehensive income is reported either net of related
tax effects or before related tax effects with one amount shown for the aggregate
income tax expense or benefit related to the total of other comprehensive income
items.
220-10-45-12. An entity shall present the amount of income tax expense or benefit
allocated to each component of other comprehensive income, including
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reclassification adjustments, in the statement in which those components are
presented or disclose it in the notes to the financial statements. Example 1 (see
paragraphs 220-10-55-7 through 55-8B) illustrates the alternative formats for
disclosing the tax effects related to the components of other comprehensive
income.
> Reporting Accumulated Other Comprehensive Income
220-10-45-14. The total of other comprehensive income for a period shall be transferred
to a component of equity that is presented separately from retained earnings and
additional paid-in capital in a statement of financial position at the end of an
accounting period. A descriptive title such as accumulated other comprehensive
income shall be used for that component of equity.
220-10-45-14A. An entity shall present, on the face of the financial statements or as a
separate disclosure in the notes, the changes in the accumulated balances for each
component of other comprehensive income included in that separate component
of equity, as required in paragraph 220-10-45-14. The presentation of changes in
accumulated balances shall correspond to the components of other comprehensive
income in the statement in which other comprehensive income for the period is
presented. Paragraph 220-10-55-12 illustrates the disclosure of accumulated
balances for components of other comprehensive income as a separate disclosure
in the notes to financial statements.
> Reclassification Adjustments
220-10-45-17. An entity may present reclassification adjustments out of accumulated
other comprehensive income on the face of the statement in which the
components of other comprehensive income are presented, or it may disclose
those reclassification adjustments in the notes to the financial statements.
Therefore, for all classifications of other comprehensive income, an entity may
use either a gross display on the face of the financial statement or a net display on
the face of the financial statement and disclose the gross change in the notes to the
financial statements. If displayed gross, reclassification adjustments are reported
separately from other changes in the respective balance; thus, the total change is
reported as two amounts. If displayed net, reclassification adjustments are
combined with other changes in the other comprehensive income balance; thus,
the total change is reported as a single amount. Gross and net displays are
illustrated in Example 1 (see paragraph 220-10-55-4). Cases A and B (see
paragraphs 220-10-55-21 through 55-26) illustrate the calculation of
reclassification adjustments for available-for-sale equity and debt securities.
8
Subtopic 225-10: Income Statement--Overall
Presentation
225-10-45-1. Net income shall reflect all items of profit and loss recognized during the
period with the sole exception of error corrections as addressed in Topic 250.
However, the requirement that net income be presented as one amount does not
apply to the following entities that have developed income statements with
formats different from those of the typical commercial entity:
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a. Investment companies
b. Insurance entities
c. Certain not-for-profit entities (NFPs).
KPMG and Other Guidance
1. KARG Q&A 49.13. Insurance recoveries to the extent of costs and losses may be
reported as a separate line item, reducing total operating expenses.
2. KARG 49.276; KARG 99.081. Insurance recoveries in excess of the costs and
losses for the accounting period (the gain) and recoveries for business interruption
(and similar) insurance may be presented as a gross amount on a separate line item
between total operating expenses and operating income.
3. TPA 1200.04. When an entity incurs a net loss, the term “statement of operations”
should be used, rather than “statement of income”.
9
Subtopic 225-10: Income Statement—Overall—SEC Guidance
1
S-X, Rule 5-03(b)(1). Include net sales and gross revenues and state separately:
a.
b.
c.
d.
e.
f.
2
Net sales of tangible products.
Operating revenues of public utilities or others.
Income from rentals.
Service revenue.
Other.
If excise taxes comprise 1 percent or more of net sales and gross revenues,
state the amount on the face of the statement.
S-X, Rule 5-03(b)(2). Costs and expenses applicable to each category of sales and
revenues.
a. Cost of tangible goods sold.
b. Operating expenses of public utilities or others.
c. Expenses applicable to rental income.
d. Cost of services.
e. Other.
3
S-X, Rule 5-03(b)(3). Other operating costs and expenses.
4
S-X, Rule 5-03(b)(4). Selling, general, and administrative expenses.
5
S-X, Rule 5-03(b)(5). Provision for doubtful accounts and notes.
6
S-X, Rule 5-03(b)(6). Other general expenses.
7
S-X, Rule 5-03(b)(7). Nonoperating income: Dividends, interest on securities,
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profits on securities (net of losses) and miscellaneous other income. (details may be
shown in a footnote)
8
S-X, Rule 5-03(b)(8). Interest and amortization of debt discount and expense
9
S-X, Rule 5-03(b)(9). Nonoperating expenses: loss on securities (net of profits) and
miscellaneous income deductions. (details may be shown in a footnote).
10 S-X, Rule 5-03(b)(10). Income or loss before income tax expense.
11 S-X, Rule 5-03(b)(11). Income tax expense.
12 S-X, Rule 5-03(b)(12). Equity in earnings of unconsolidated subsidiaries and 50
percent-or-less-owned persons.
13 S-X, Rule 5-03(b)(13). Income or from continuing operations.
14 S-X, Rule 5-03(b)(14). Discontinued operations
15 S-X, Rule 5-03(b)(15). Income or loss before extraordinary items and cumulative
effects of changes in accounting principles.
16 S-X, Rule 5-03(b)(16). Extraordinary items, less applicable taxes.
17 S-X, Rule 5-03(b)(17). Cumulative effects of changes in accounting principles.
18 S-X, Rule 5-03(b)(18). Net income or loss.
19 S-X, Rule 5-03(b)(19). Net income attributable to the noncontrolling interest.
20 S-X, Rule 5-03(b)(20). Net income attributable to the controlling interest.
21 S-X, Rule 5-03(b)(21). Earnings per share data.
22 S-X, Rule 5-03(b). Disclosure in the financial statement or notes thereto, as
appropriate:
Interest income, including interest income on all securities within the scope of ASC
Subtopic 325-40, including those classified as held-to-maturity, available for sale
and trading securities.
23 S-X, Rule 5-03(b). Items less than 10 percent of the total of all items of a class may
be combined.
24 SAB Topic 4-F. Equity of partnership distinguished between amounts attributable to
each ownership class.
25 SAB Topic 11-B. Depreciation, depletion, and amortization should not be
positioned in the income statement in a manner that presents income before
depreciation.
26 SAB Topic 6-B. Income or loss applicable to common stock should be reported on
the face of the income statement when it is materially different in quantitative terms
from reported net income or loss or when it is indicative of significant trends or
other qualitative considerations.
27 SAB Topic 11-A. Revenues representing operating subsidies from governmental
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entities should be reported in a separate line item in the income statements either
under a revenue caption or as credit in the costs and expenses section.
28 SAB Topic 5.H. In periods prior to the adoption of Statement 160, for companies
that had an accounting policy of recognizing in the income statement gains or losses
arising from issuances by a subsidiary of its own stock, those gains and losses
should be presented as a separate line item in the consolidated income statement
without regard for materiality and clearly be designated as nonoperating income.
10 Subtopic 225-20: Income Statement—Extraordinary and Unusual Items
Presentation
> Extraordinary Items
> > Criteria for Presentation as Extraordinary Items
225-20-45-2. Extraordinary items are events and transactions that are distinguished by
their unusual nature and by the infrequency of their occurrence. Thus, both of the
following criteria shall be met to classify an event or transaction as an
extraordinary item:
a. Unusual nature. The underlying event or transaction should possess a high
degree of abnormality and be of a type clearly unrelated to, or only
incidentally related to, the ordinary and typical activities of the entity, taking
into account the environment in which the entity operates (see paragraph 22520-55-1).
b. Infrequency of occurrence. The underlying event or transaction should be of a
type that would not reasonably be expected to recur in the foreseeable future,
taking into account the environment in which the entity operates (see
paragraph 225-20-55-2).
225-20-45-4. Certain gains and losses shall not be reported as extraordinary items
(except as indicated in the following paragraph) because they are usual in nature
or may be expected to recur as a consequence of customary and continuing
business activities. Examples include all of the following:
a. Write-down or write-off of receivables, inventories, equipment leased to
others, deferred research and development costs, or other intangible assets
b. Gains or losses from exchange or translation of foreign currencies, including
those relating to major devaluations and revaluations
c. Gains or losses on disposal of a component of an entity
d. Other gains or losses from sale or abandonment of property, plant, or
equipment used in the business
e. Effects of a strike, including those against competitors and major suppliers
f. Adjustment of accruals on long-term contracts.
225-20-45-5. In rare situations, an event or transaction may occur that clearly meets
both criteria specified in paragraph 225-20-45-2 and thus gives rise to an
extraordinary gain or loss that includes one or more of the gains or losses
enumerated in the preceding paragraph. In these circumstances, gains or losses
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such as those in (a) and (d) of the preceding paragraph shall be included in the
extraordinary item if they are a direct result of a major casualty (such as an
earthquake), an expropriation, or a prohibition under a newly enacted law or
regulation that clearly meets both criteria specified in paragraph 225-20-45-2.
However, any portion of such losses which would have resulted from a valuation
of assets on a going concern basis shall not be included in the extraordinary items.
> > > Criteria Exceptions
225-20-45-8. As indicated in paragraph 225-20-15-2, the net effect of discontinuing the
application of regulatory operations accounting addressed in Section 980-20-40
shall be recognized as an extraordinary item regardless of whether the criteria in
paragraph 225-20-45-2 (in this checklist) are met.
> > Presentation of Extraordinary Items
225-20-45-9. Extraordinary items shall be segregated from the results of ordinary
operations and shown separately in the income statement, with disclosure of the
nature and amounts thereof.
225-20-45-10. In the absence of discontinued operations (see paragraphs 205-20-45-1
through 45-5, which address the reporting of discontinued operations), the
following main captions shall appear in an income statement if extraordinary
items are reported:
a. Income before extraordinary item
b. Extraordinary items (less applicable income taxes of $__) (Note__)
c. Net Income
225-20-45-11. The caption extraordinary items shall be used to identify separately the
effects of events and transactions, other than the disposal of a component of an
entity, that meet the criteria for classification as extraordinary as discussed in
paragraphs 225-20-45-1 through 45-6. The nature of an extraordinary event or
transaction and the principal items entering into the determination of an
extraordinary gain or loss should be described.
225-20-45-12. Earnings per share (EPS) data for extraordinary items shall be presented
either on the face of the income statement or in the related notes, as prescribed by
Section 260-10-45.
> > Adjustment of Amounts Reported in Prior Periods
225-20-45-13 and 50-2. Circumstances attendant to extraordinary items frequently
require estimates, for example, of associated costs and occasionally of associated
revenue, based on judgment and evaluation of the facts known at the time of first
accounting for the event. Each adjustment in the current period of an element of
an extraordinary item that was reported in a prior period shall be classified
separately in the current period in the same manner as the original item and shall
be separately disclosed as to year of origin, nature, and amount.
> Presentation of Unusual or Infrequently Occurring Items
225-20-45-16. A material event or transaction that is unusual in nature or occurs
infrequently but not both, and therefore does not meet both criteria for
classification as an extraordinary item, shall be reported as a separate component
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of income from continuing operations. The nature and financial effects of each
event or transaction shall be disclosed on the face of the income statement or,
alternatively, in notes to financial statements. Gains or losses of a similar nature
that are not individually material shall be aggregated. Such items shall not be
reported on the face of the income statement net of income taxes or in any other
manner that may imply that they are extraordinary items. Similarly, the EPS
effects of those items shall not be presented on the face of the income statement.
KPMG and Other Guidance
> Natural Disasters
TPA 5400.05, ASC paragraph 225-20-45-2 (in this checklist). A natural disaster that is
reasonably expected to re-occur would not be classified as an extraordinary event. For
example, a h urricane in an area that is susceptible to hurricanes is not an extraordinary
event.
a. Entities should provide additional disclosures to enable financial statement
users to evaluate the financial effects of a natural disaster and related events.
Additional disclosures may include:
11
1
The nature and amount of losses recognized as a result of the natural
disaster and the amounts of any related insurance recoveries.
2
A description of contingencies from the event that have not yet been
recognized in the financial statements but that are reasonably expected to
impact the entity’s financial statements (for example, future losses and costs
and probable future insurance recoveries).
3
The amount of exposure to credit loss and how that risk was evaluated.
4
The potential loss of customer base and the related revenue recognition.
5
Major disruptions in supply chain that affect inventory.
6
Additional information regarding significant estimates and uncertainties
related to the natural disaster that may impact the financial statements.
Subtopic 225-30: Income Statement—Business Interruption Insurance
Disclosure
225-30-50-1. The following information shall be disclosed in the notes to financial
statements in the period(s) in which business interruption insurance recoveries are
recognized:
a. The nature of the event resulting in business interruption losses
b. The aggregate amount of business interruption insurance recoveries
recognized during the period and the line item(s) in the statement of
operations in which those recoveries are classified (including amounts
reported as an extraordinary item pursuant to Subtopic 225-20).
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12
Subtopic 230-10: Statement of Cash Flows—Overall
Note: On O ctober 22, 2 012, t he F ASB issued A SU No. 2012 -05, Statement of Cash
Flows (Topic 230): Not-for-Profit-Entities: Classification of the Sale of Donated
Financial Assets in the Statement of Cash Flows. For more information, see the pending
content later in this section.
Presentation
> Form and Content
230-10-15-3. A business entity or NFP that provides a set of financial statements that
reports both financial position and results of operations shall also provide a
statement of cash flows for each period for which results of operations are
provided.
> > Cash and Cash Equivalents
230-10-45-4. A statement of cash flows shall explain the change during the period in
cash and cash equivalents.
> > Gross and Net Cash Flows
230-10-45-9. Providing that the original maturity of the asset or liability is three months
or less, cash receipts and payments pertaining to any of the following qualify for
net reporting:
a. Investments (other than cash equivalents)
b. Loans receivable
c. Debt.
For purposes of this paragraph, amounts due on demand are considered to have
maturities of three months or less. For convenience, credit card receivables of
financial services operations—generally, receivables resulting from cardholder
charges that may, at the cardholder’s option, be paid in full when first billed,
usually within one month, without incurring interest charges and that do not stem
from the entity’s sale of goods or services—also are considered to be loans with
original maturities of three months or less.
> Classification
> > Cash Flows from Investing Activities
230-10-45-11. Cash flows from purchases, sales, and maturities of available-for-sale
securities shall be classified as cash flows from investing activities and reported
gross in the statement of cash flows.
230-10-45-12. All of the following are cash inflows from investing activities:
a. Receipts from collections or sales of loans made by the entity and of other
entities’ debt instruments (other than cash equivalents and certain debt
instruments that are acquired specifically for resale as discussed in paragraph
230-10-45-21 in this checklist) that were purchased by the entity
b. Receipts from sales of equity instruments of other entities (other than certain
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equity instruments carried in a trading account as described in paragraph 23010-45-19 in this checklist) and from returns of investment in those
instruments
c. Receipts from sales of property, plant, and equipment and other productive
assets
d. [not used]
e. Receipts from sales of loans that were not specifically acquired for resale.
That is, if loans were acquired as investments, cash receipts from sales of
those loans shall be classified as investing cash inflows regardless of a change
in the purpose for holding those loans.
For purposes of this paragraph, receipts from disposing of loans, debt or equity
instruments, or property, plant, and equipment include directly related proceeds of
insurance settlements, such as the proceeds of insurance on a building that is
damaged or destroyed.
230-10-45-13. All of the following are cash outflows for investing activities:
a. Disbursements for loans made by the entity and payments to acquire debt
instruments of other entities (other than cash equivalents and certain debt
instruments that are acquired specifically for resale as discussed in paragraph
230-10-45-21)
b. Payments to acquire equity instruments of other entities (other than certain
equity instruments carried in a trading account as described in paragraphs
230-10-45-18 through 45-19)
c. Payments at the time of purchase or soon before or after purchase to acquire
property, plant, and equipment and other productive assets, including interest
capitalized as part of the cost of those assets. Generally, only advance
payments, the down payment, or other amounts paid at the time of purchase or
soon before or after purchase of property, plant, and equipment and other
productive assets are investing cash outflows. However, incurring directly
related debt to the seller is a financing transaction (see paragraphs 230-10-4514 through 45-15 in this checklist), and subsequent payments of principal on
that debt thus are financing cash outflows.
> > Cash Flows from Financing Activities
230-10-45-14. All of the following are cash inflows from financing activities:
a. Proceeds from issuing equity instruments
b. Proceeds from issuing bonds, mortgages, notes, and from other short- or longterm borrowing
c. Receipts from contributions and investment income that by donor stipulation
are restricted for the purposes of acquiring, constructing, or improving
property, plant, equipment, or other long-lived assets or establishing or
increasing a permanent endowment or term endowment
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d. Proceeds received from derivative instruments that include financing elements
at inception, whether the proceeds were received at inception or over the term
of the derivative instrument, other than a financing element inherently
included in an at-the-market derivative instrument with no prepayments
e. Cash retained as a result of the tax deductibility of increases in the value of
equity instruments issued under share-based payment arrangements that are
not included in the cost of goods or services that is recognizable for financial
reporting purposes. For this purpose, excess tax benefits shall be determined
on an individual award (or portion thereof) basis.
230-10-45-15. All of the following are cash outflows for financing activities:
a. Payments of dividends or other distributions to owners, including outlays to
reacquire the entity’s equity instruments.
b. Repayments of amounts borrowed.
c. Other principal payments to creditors who have extended long-term credit.
See paragraph 230-10-45-13(c), which indicates that most principal payments
on seller-financed debt directly related to a purchase of property, plant, and
equipment or other productive assets are financing cash outflows.
d. Distributions to counterparties of derivative instruments that include financing
elements at inception, other than a financing element inherently included in an
at-the-market derivative instrument with no prepayments. The distributions
may be either at inception or over the term of the derivative instrument.
e. Payments for debt issue costs.
> > Cash Flows from Operating Activities
230-10-45-16. All of the following are cash inflows from operating activities:
a. Cash receipts from sales of goods or services, including receipts from
collection or sale of accounts and both short- and long-term notes receivable
from customers arising from those sales. The term goods includes certain
loans and other debt and equity instruments of other entities that are acquired
specifically for resale, as discussed in paragraph 230-10-45-21.
b. Cash receipts from returns on loans, other debt instruments of other entities,
and equity securities—interest and dividends.
c. All other cash receipts that do not stem from transactions defined as investing
or financing activities, such as amounts received to settle lawsuits; proceeds
of insurance settlements except for those that are directly related to investing
or financing activities, such as from destruction of a building; and refunds
from suppliers.
230-10-45-17. All of the following are cash outflows for operating activities:
a. Cash payments to acquire materials for manufacture or goods for resale,
including principal payments on accounts and both short- and long-term notes
payable to suppliers for those materials or goods. The term goods includes
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certain loans and other debt and equity instruments of other entities that are
acquired specifically for resale, as discussed in paragraph 230-10-45-21.
b. Cash payments to other suppliers and employees for other goods or services.
c. Cash payments to governments for taxes, duties, fines, and other fees or
penalties and the cash that would have been paid for income taxes if increases
in the value of equity instruments issued under share-based payment
arrangements that are not included in the cost of goods or services
recognizable for financial reporting purposes also had not been deductible in
determining taxable income. (This is the same amount reported as a financing
cash inflow pursuant to paragraph 230-10-45-14(e).)
d. Cash payments to lenders and other creditors for interest.
e. Cash payment made to settle an asset retirement obligation.
f.
All other cash payments that do not stem from transactions defined as
investing or financing activities, such as payments to settle lawsuits, cash
contributions to charities, and cash refunds to customers.
> > Acquisitions and Sales of Certain Securities and Loans
230-10-45-19. Cash receipts and cash payments resulting from purchases and sales of
securities classified as trading securities as discussed in Topic 320 shall be
classified pursuant to this Topic based on the nature and purpose for which the
securities were acquired.
230-10-45-20. Cash receipts and cash payments resulting from purchases and sales of
other securities and other assets shall be classified as operating cash flows if those
assets are acquired specifically for resale and are carried at market value in a
trading account.
230-10-45-21. Some loans are similar to securities in a trading account in that they are
originated or purchased specifically for resale and are held for short periods of
time. Cash receipts and cash payments resulting from acquisitions and sales of
loans also shall be classified as operating cash flows if those loans are acquired
specifically for resale and are carried at fair value or at the lower of cost or fair
value. For example, mortgage loans held for sale are required to be reported at the
lower of cost or fair value in accordance with Topic 948.
> > More than One Class of Cash Flows
230-10-45-22. Certain cash receipts and payments may have aspects of more than one
class of cash flows. For example, a cash payment may pertain to an item that
could be considered either inventory or a productive asset. If so, the appropriate
classification shall depend on the activity that is likely to be the predominant
source of cash flows for the item.
> > Reporting Operating, Investing, and Financing Activities
230-10-45-24. A statement of cash flows for a period shall report net cash provided or
used by operating, investing, and financing activities and the net effect of those
flows on cash and cash equivalents during the period in a manner that reconciles
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beginning and ending cash and cash equivalents.
Separate disclosure of cash flows pertaining to extraordinary items or
discontinued operations reflected in those categories is not required. An entity that
nevertheless chooses to report separately operating cash flows of discontinued
operations shall do so consistently for all periods affected, which may include
periods long after sale or liquidation of the operation.
230-10-45-25. In reporting cash flows from operating activities, entities are encouraged
to report major classes of gross cash receipts and gross cash payments and their
arithmetic sum—the net cash flow from operating activities (the direct method).
(Paragraphs 230-10-55-1 through 55-4 and paragraph 230-10-55-21, respectively,
discuss and illustrate a method by which those major classes of gross operating
cash receipts and payments generally may be determined indirectly.) Entities that
do so shall, at a minimum, separately report the following classes of operating
cash receipts and payments:
a. Cash collected from customers, including lessees, licensees, and the like
b. Interest and dividends received. Interest and dividends that are donor
restricted for long-term purposes as included in the list of financing activities
and paragraph 230-10-45-14(c) are not part of operating cash receipts.
c. Other operating cash receipts, if any
d. Cash paid to employees and other suppliers of goods or services, including
suppliers of insurance, advertising, and the like
e. Interest paid
f.
Income taxes paid and separately, the cash that would have been paid for
income taxes if increases in the value of equity instruments issued under
share-based payment arrangements that are not included as a cost of goods or
services recognizable for accounting purposes also had not been deductible in
determining taxable income (see subparagraph 230-10-45-14(e) in this
checklist)
g. Other operating cash payments, if any.
Entities are encouraged to provide further breakdowns of operating cash receipts
and payments that they consider meaningful and feasible.
230-10-45-26. Except for those items that qualify for net reporting (see paragraph 23010-45-9), investing cash inflows and outflows and financing cash inflows and
outflows should be reported separately.
> > Cash Receipts and Payments Related to Hedging Activities
230-10-45-27. Generally, each cash receipt or payment is to be classified according to
its nature without regard to whether it stems from an item intended as a hedge of
another item.
> Reconciliation of Net Income and Net Cash Flow from Operating Activities
230-10-45-28. Entities that choose not to provide information about major classes of
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operating cash receipts and payments by the direct method as encouraged in
paragraph 230-10-45-25 (in this checklist) shall determine and report the same
amount for net cash flow from operating activities indirectly by adjusting net
income of a business entity or change in net assets of a not-for-profit entity (NFP)
to reconcile it to net cash flow from operating activities (the indirect or
reconciliation method).
230-10-45-29. The reconciliation of net income of a business entity or change in net
assets of an NFP to net cash flow from operating activities described in paragraph
230-10-45-28 (in this checklist) shall be provided regardless of whether the direct
or indirect method of reporting net cash flow from operating activities is used.
That reconciliation shall separately report all major classes of reconciling items.
230-10-45-30. If the direct method of reporting net cash flow from operating activities is
used, the reconciliation of net income of a business entity or change in net assets
of an NFP to net cash flow from operating activities shall be provided in a
separate schedule.
230-10-45-31. If the indirect method is used, the reconciliation may be either reported
within the statement of cash flows or provided in a separate schedule, with the
statement of cash flows reporting only the net cash flow from operating activities.
230-10-45-32. If the reconciliation is presented in the statement of cash flows, all
adjustments to net income of a business entity or change in net assets of an NFP
to determine net cash flow from operating activities shall be clearly identified as
reconciling items.
> Foreign Currency
830-230-45-1. A statement of cash flows of an entity with foreign currency transactions
or foreign operations shall report the reporting currency equivalent of foreign
currency cash flows using the exchange rates in effect at the time of the cash
flows. An appropriately weighted average exchange rate for the period may be
used for translation if the result is substantially the same as if the rates at the dates
of the cash flows were used. (That is, paragraph 830-30-45-3 applies to cash
receipts and cash payments.) The statement of cash flows shall report the effect of
exchange rate changes on cash balances held in foreign currencies as a separate
part of the reconciliation of the change in cash and cash equivalents during the
period outside of operating, investing, and financing activities. See Example 1
(paragraph 830-230-55-1) for an illustration of this guidance.
Disclosure
> Cash Equivalents Policy
230-10-50-1. An entity shall disclose its policy for determining which items are treated
as cash equivalents. Any change to that policy is a change in accounting principle
that shall be effected by restating financial statements for earlier years presented
for comparative purposes.
> Interest and Income Taxes Paid
230-10-50-2. If the indirect method is used, amounts of interest paid (net of amounts
capitalized) and income taxes paid during the period shall be disclosed.
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> Noncash Investing and Financing Activities
230-10-50-3. Information about all investing and financing activities of an entity during
a period that affect recognized assets or liabilities but that do not result in cash
receipts or cash payments in the period shall be disclosed. Those disclosures may
be either narrative or summarized in a schedule, and they shall clearly relate the
cash and noncash aspects of transactions involving similar items.
230-10-50-5. Some transactions are part cash and part noncash; only the cash portion
shall be reported in the statement of cash flows.
230-10-50-6. If there are only a few such noncash transactions, it may be convenient to
include them on the same page as the statement of cash flows. Otherwise, the
transactions may be reported elsewhere in the financial statements, clearly
referenced to the statement of cash flows.
SEC Guidance
1
SEC Staff Speech – If an entity that chooses to present separately cash flows from
discontinued operations, the presentation must either:
a. Combine cash flows from discontinued operations with cash flows from
continuing operations within each category
b. Identify cash flows from discontinued operations within each category, or
c. Present cash flows from discontinued operations separately with disclosure of
operating, investing, and financing activities.
2
SEC-Current Accounting and Disclosure Issues in the Division of Corporation
Finance December 1, 2005. Contributions to pension plans are reported as
operating cash outflows. Payments made to the Pension Benefit Guaranty
Corporation (the classification of these payments does not change in the event
registrants reorganize in bankruptcy) are similarly classified as operating cash
outflows.
3
SEC Staff Speech – 2006 AICPA National Conference. Restricted cash is
typically classified as an investing activity. However, classification as an
operating or financing activity may be appropriate when the purpose of the
restricted cash is directly related to the operations of the entity.
KPMG and Other Guidance
1
CKI 230-10-45-16. Cash flows relating to customer-related receivables (which
include any receivables for sales of inventory made and services provided to
customers, including notes receivables, “floor plan” notes, financing receivables for
customer-related sales, and lease receivables arising from sales-type lease
transactions) are classified as operating activities. Ensure line item descriptions in
the statement of cash flows are consistent with those on the balance sheet and in the
footnotes detailing receivables.
2
Cash flows resulting from acquisitions (including both purchases and originations)
and sales of loans that are acquired specifically for resale and are carried at market
value or at the lower of cost or market value are classified as operating cash flows.
Cash flows resulting from acquisitions (including both purchases and originations)
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and sales of loans that were not specifically acquired with the intent of resale are
classified as investing cash flows. Disclosure of how management determines at the
date of purchase or origination whether it intends to sell a loan or hold it for the
foreseeable future is encouraged.
3
Principal payments related to retained interests from securitizations of loans are
classified as operating cash flows when the retained interests are classified as
trading, and investing cash flows when the retained interests are classified as either
available-for-sale or held-to-maturity.
4
TPA 5600.17. Cash payments for leasehold improvements should be classified as an
investing activity by a lessee in an operating lease.
5
TPA 5600.17. Cash allowances received from the landlord by a lessee in an
operating lease should be classified as an operating activity.
6
Subtotals are not presented within operating, investing, or financing sections of the
statement.
7
CKI 230-10-45-15. The cash outflow upon repurchase or redemption of a zerocoupon bond is comprised of two components – an interest component and a
principal component. Generally, the different components of those payments should
be separately classified in the statement of cash flows according to the nature of
each component. That is, the component representing payment of the imputed
interest would be classified as an operating cash flow and the component
representing repayment of the principal would be classified as a financing cash flow.
8
KARG 99.083. Insurance recoveries for property, plant and equipment should be
included in investing activities, even if the proceeds are not used to replace the
damaged property and equipment. In addition, those proceeds generally should not
be netted against the disbursements to repair or replace insured property and
equipment. Judgment may be required in classifying cash flows from insurance
recoveries in situations in which recoveries for both property damage and business
interruption were negotiated with a single insurer.
9
KARG 99.083. Insurance recoveries for business interruption and for minor repairs
and maintenance of property and equipment should be included in operating
activities.
10 CKI 230-10-45-13. Cash payments that increase the cash surrender value of
officers’ life insurance should be classified as investing outflows. Any amount paid
in excess of the increase in the cash surrender value should be included in operating
activities. If the increase in the cash surrender value is greater than the premium
paid, the premium paid should be classified as an investing outflow, and the
remainder of the increase in cash surrender value should be classified as a
reconciling item on the reconciliation of net income to net cash provided by
operating activities.
11 Changes in cash overdraft should be classified as financing activity.
a. Disclose accounting policy for reporting changes in a “book overdraft” in which
the bank has not advanced cash to the company to cover outstanding checks
(CKI 230-10-45-4).
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12 FSP SOP 94-6-1, paragraph 12. Noncash interest income (for example, on negative
amortizing loans) should be included in the reconciliation of net income to net cash
flows from operating activities.
13 Distributions from equity method investees that constitute a “return on” investment
are classified as cash flows from operations.
14 CKI 230-10-45-6; KARG 109.045. Auction rate notes and variable rate demand
notes generally are not cash equivalents. Such instruments are subject to Subtopic
320-10 or other literature applicable to financial instruments.
> Business Combinations
15 Transaction costs incurred in connection with business combinations that are
expensed as incurred in accordance with FASB ASC Topic 805, Business
Combinations, should be classified as an operating activity in the cash flow
statement.
16 Contingent Consideration:
a. The portion of the payment of the liability-classified contingent consideration
arrangement that is included as part of the initial measurement of the fair value
of the consideration transferred should be classified as cash flows from
financing activities in the statement of cash flows.
b. The portion of the payment of the liability-classified contingent consideration
arrangement recognized in earnings in the income statement should be classified
as cash flows from operating activities (i.e., both (1) accretion expense and (2)
changes in the amount or timing of payment).
> Noncontrolling Interests
17 The cash flows from purchases and sales of a noncontrolling interest by a parent
company while retaining control of a subsidiary should be presented as cash flows
from financing activities in the statement of cash flows as these transaction
represent equity transactions among owners.
> Reconciling Net Income to Cash Flow from Operating Activities After Adoption
of Statement 160
18 For a statement of cash flows prepared using the indirect method, ASC Topic 230
requires a reconciliation of net income (loss) to net cash flows from operating
activities. ASC paragraph 810-10-45-19 redefines net income (loss) such that net
income (loss) is at the consolidated amounts, which include the amounts attributable
to the owners of the parent and the noncontrolling interest, with separate
presentation for net income (loss) attributable to the controlling and noncontrolling
interests. Net income as defined in ASC Subtopic 810-10 is the starting point in
applying the indirect method in the statement of cash flows (i.e., consolidated net
income (loss) inclusive of both the controlling and noncontrolling interests).
Pending Content
Note: On October 22, 2012, the FASB issued ASU No. 2012-05, Statement of Cash
Flows (Topic 230): Not-for-Profit-Entities: Classification of the Sale of Donated
Financial Assets in the Statement of Cash Flows. This ASU requires a not-for-profit
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entity to classify as operating activities in its statement of cash flows cash receipts
from the sale of donated financial assets that were directed for sale by the NFP on
receipt and that were converted to cash in the near immediate term. The ASU
applies specifically to the sale of donated financial assets that are not restricted for
long-term purposes. The ASU is effective for annual and interim periods
beginning after June 15, 2013. The ASU may be applied prospectively to cash
receipts on or after the date of adoption. Retrospective application and early
adoption are permitted.
The transition disclosures in paragraphs 250-10-50-1 through 50-3 (in this checklist)
are required.
> Other Presentation Matters
230-10-45-12. All of the following are cash inflows from investing activities:
a. Receipts from collections or sales of loans made by the entity and of other
entities’ debt instruments (other than cash equivalents, certain debt
instruments that are acquired specifically for resale as discussed in paragraph
230-10-45-21 (in this checklist), and certain donated debt instruments
received by not-for-profit entities (NFPs) as discussed in paragraph 230-1045-21A (in this checklist))
b. Receipts from sales of equity instruments of other entities (other than certain
equity instruments carried in a trading account as described in paragraph 23010-45-19 (in this checklist) and certain donated equity instruments received
by NFPs as discussed in paragraph 230-10-45-21A (in this checklist)) and
from returns of investment in those instruments
c. Receipts from sales of property, plant, and equipment and other productive
assets
d. Subparagraph not used
e. Receipts from sales of loans that were not specifically acquired for resale.
That is, if loans were acquired as investments, cash receipts from sales of
those loans shall be classified as investing cash inflows regardless of a change
in the purpose for holding those loans.
230-10-45-21A. Cash receipts resulting from the sale of donated financial assets (for
example, donated debt or equity instruments) by NFPs that upon receipt were
directed without any NFP-imposed limitations for sale and were converted nearly
immediately into cash shall be classified as operating cash flows. If, however, the
donor restricted the use of the contributed resource to a long-term purpose of the
nature of those described in paragraph 230-10-45-14(c) (in this checklist), then those
cash receipts meeting all the conditions in this paragraph shall be classified as a
financial activity.
13
Subtopic 235-10: Notes to Financial Statements—Overall
Disclosure
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> Accounting Policy Disclosure
235-10-50-1. Information about the accounting policies adopted by an entity is essential
for financial statement users. When financial statements that are issued or are
available to be issued (as discussed in Section 855-10-25) purport to present fairly
financial position, cash flows, and results of operations in accordance with
generally accepted accounting principles (GAAP), a description of all significant
accounting policies of the entity shall be included as an integral part of the
financial statements. In circumstances where it may be appropriate to issue one or
more of the basic financial statements without the others, purporting to present
fairly the information given in accordance with GAAP, statements so presented
also shall include disclosure of the pertinent accounting policies.
> What to Disclose
235-10-50-3. Disclosure of accounting policies shall identify and describe the
accounting principles followed by the entity and the methods of applying those
principles that materially affect the determination of financial position, cash
flows, or results of operations. In general, the disclosure shall encompass
important judgments as to appropriateness of principles relating to recognition of
revenue and allocation of asset costs to current and future periods; in particular, it
shall encompass those accounting principles and methods that involve any of the
following:
a. A selection from existing acceptable alternatives
b. Principles and methods peculiar to the industry in which the entity operates,
even if such principles and methods are predominantly followed in that
industry
c. Unusual or innovative applications of GAAP.
> Examples of Disclosures
235-10-50-4. Examples of disclosures by an entity commonly required with respect to
accounting policies would include, among others, those relating to the following:
a. Basis of consolidation
b. Depreciation methods
c. Amortization of intangibles
d. Inventory pricing
e. Accounting for recognition of profit on long-term construction-type contracts
f.
Recognition of revenue from franchising and leasing operations.
> Avoid Duplicate Details of Disclosures
235-10-50-5. Financial statement disclosure of accounting policies shall not duplicate
details (for example, composition of inventories or of plant assets) presented
elsewhere as part of the financial statements. In some cases, the disclosure of
accounting policies shall refer to related details presented elsewhere as part of the
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financial statements; for example, changes in accounting policies during the
period shall be described with cross-reference to the disclosure required by Topic
250, Accounting Changes and Error Corrections.
> Format
235-10-50-6. This Subtopic recognizes the need for flexibility in matters of format
(including the location) of disclosure of accounting policies provided that the
entity identifies and describes its significant accounting policies as an integral part
of its financial statements in accordance with the provisions of this Subtopic.
Disclosure is preferred in a separate summary of significant accounting policies
preceding the notes to financial statements, or as the initial note, under the same
or a similar title.
SEC Guidance
Note: Except for SEC item 1 below, other SEC Requirements from Rule 4-08 of
Regulation S-X, Required General Disclosures, are included in the individual
Subtopics.
1
S-X, Rule 4-08(m). If the aggregate carrying amount (or market value, if higher than
the carrying amount for a repurchase agreement) of a repurchase or reverse
repurchase agreement exceeds 10 percent of total assets, or if the amount at risk with
any counterparty or group of related counterparties exceeds 10 percent of
stockholders’ equity, provide disclosures required by S-X Rule 4-08(m).
> Disclosures from General Schedules
2
14
Regulation S-X Rule 12-09. See paragraph 235-10-S99-4 for disclosure format and
for the requirements for the schedule of valuation and qualifying accounts.
Going Concern
When there is substantial doubt about the entity’s ability to continue as a going concern
for a reasonable time, disclose the following: (AU 341, ¶10)
a. Pertinent conditions and events giving rise to the assessment of substantial
doubt about the entity’s ability to continue as a going concern for a reasonable
period of time, such as:
1. Whether operations for the current or prior years did not generate sufficient
cash to cover current obligations.
2. Whether waivers were obtained from creditors relating to the company’s
default under the provisions of debt agreements.
3. Other pertinent conditions
b. Possible effects of such conditions and events, such as:
1. Whether there is a possible need to obtain additional financing (debt or
equity) or to liquidate certain holdings to offset future cash flow
deficiencies.
2. Approximate amount, if determinable, of future fixed annual obligations
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not expected to be repaid from operations.
3. Appropriate parent company information when parent is dependent upon
remittances from subsidiaries to satisfy its obligations.
c. Management’s evaluation of the significance of those conditions and events and
any mitigating factors.
d. Possible discontinuance of operations.
e. Management’s plans (including relevant prospective financial information) and
whether resolution of the situation is dependent on realization of management’s
plans.
f. Information about the recoverability or classification of recorded asset amounts
or the amounts or classification of liabilities.
Note: Financial statements for entities that are subject to the provisions of Regulation SX (together with the Financial Reporting Releases) “must contain appropriate and
prominent disclosure of the registrant’s financial difficulties and viable plans to
overcome those difficulties” when the related auditors’ report includes a going
concern explanatory paragraph. Further, the requirements of Item 303 of
Regulation S-K, Management’s Discussion and Analysis, “are intended to and
should elicit detailed cash flow discussions” when the related auditors’ report
includes a going concern explanatory paragraph. In responding to these
requirements, “any registrant with such pressing financial problems should
include a reasonably detailed discussion of its ability or inability to generate
sufficient cash to support its operations during the twelve month period following
the date of the financial statements being reported upon.” Refer to SEC —
Financial Reporting Release 607.02.
When a financial statement preparer concludes that substantial doubt regarding
the entity’s ability to continue as a going concern for a reasonable period of time
is alleviated because of management’s plans, the preparer should consider
whether disclosure in the financial statements of the principal conditions and
events that initially caused the belief that there was substantial doubt, the possible
effects of such conditions and events, and any mitigating factors, including
management’s plans for future actions, would be helpful to the users of the
financial statements.
15 Subtopic 250-10: Accounting Changes and Error Corrections—Overall
Presentation
> Accounting Changes
250-10-45-15. If a public entity that regularly reports interim information makes an
accounting change during the fourth quarter of its fiscal year and does not report
the data specified by paragraph 270-10-50-1 in a separate fourth-quarter report or
in its annual report, that entity shall include disclosure of the effects of the
accounting change on interim-period results, as required by paragraph 250-10-501 (in this checklist), in a note to the annual financial statements for the fiscal year
in which the change is made.
Disclosure
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> > Changes in Accounting Principle
250-10-50-1. An entity shall disclose all of the following in the fiscal period in which a
change in accounting principle is made:
a. The nature of and reason for the change in accounting principle, including an
explanation of why the newly adopted accounting principle is preferable.
b. The method of applying the change, including all of the following:
1
A description of the prior-period information that has been retrospectively
adjusted, if any.
2
The effect of the change on income from continuing operations, net
income (or other appropriate captions of changes in the applicable net
assets or performance indicator), any other affected financial statement
line item, and any affected per-share amounts for the current period and
any prior periods retrospectively adjusted. Presentation of the effect on
financial statement subtotals and totals other than income from continuing
operations and net income (or other appropriate captions of changes in the
applicable net assets or performance indicator) is not required.
3
The cumulative effect of the change on retained earnings or other
components of equity or net assets in the statement of financial position as
of the beginning of the earliest period presented.
4
If retrospective application to all prior periods is impracticable, disclosure
of the reasons therefore, and a description of the alternative method used
to report the change (see paragraphs 250-10-45-5 through 45-7).
c. If indirect effects of a change in accounting principle are recognized both of
the following shall be disclosed:
1. A description of the indirect effects of a change in accounting principle,
including the amounts that have been recognized in the current period,
and the related per-share amounts, if applicable.
2. Unless impracticable, the amount of the total recognized indirect effects
of the accounting change and the related per-share amounts, if applicable,
that are attributable to each prior period presented. Compliance with this
disclosure requirement is practicable unless an entity cannot comply with
it after making every reasonable effort to do so.
Financial statements of subsequent periods need not repeat the disclosures
required by this paragraph. If a change in accounting principle has no material
effect in the period of change but is reasonably certain to have a material effect in
later periods, the disclosures required by (a) shall be provided whenever the
financial statements of the period of change are presented.
Note: Paragraphs 250-10-50-2 and 50-3 are omitted because they apply to interim
periods only.
> > Change in Accounting Estimate
250-10-50-4. The effect on income from continuing operations, net income (or other
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appropriate captions of changes in the applicable net assets or performance
indicator), and any related per-share amounts of the current period shall be
disclosed for a change in estimate that affects several future periods, such as a
change in service lives of depreciable assets. Disclosure of those effects is not
necessary for estimates made each period in the ordinary course of accounting for
items such as uncollectible accounts or inventory obsolescence; however,
disclosure is required if the effect of a change in the estimate is material.
When an entity effects a change in estimate by changing an accounting principle,
the disclosures in paragraph 250-10-50-1 (in this checklist) are also required.
If a change in estimate does not have a material effect in the period of change but
is reasonably certain to have a material effect in later periods, a description of that
change in estimate shall be disclosed whenever the financial statements of the
period of change are presented.
> >> Change in Estimate Used in Valuation Technique
250-10-50-5. The disclosure provisions of this Subtopic for a change in accounting
estimate are not required for revisions resulting from a change in a valuation
technique used to measure fair value or its application when the resulting
measurement is fair value in accordance with Topic 820.
> > Change in Reporting Entity
250-10-50-6. When there has been a change in the reporting entity, the financial
statements of the period of the change shall describe the nature of the change and
the reason for it. In addition, the effect of the change on income before
extraordinary items, net income (or other appropriate captions of changes in the
applicable net assets or performance indicator), other comprehensive income, and
any related per-share amounts shall be disclosed for all periods presented.
Financial statements of subsequent periods need not repeat the disclosures
required by this paragraph. If a change in reporting entity does not have a material
effect in the period of change but is reasonably certain to have a material effect in
later periods, the nature of and reason for the change shall be disclosed whenever
the financial statements of the period of change are presented. (Sections 805-1050, 805-20-50, 805-30-50 (in this checklist), and 805-740-50 describe the manner
of reporting and the disclosures required for a business combination.)
> Correction of an Error in Previously Issued Financial Statements
250-10-50-7. When financial statements are restated to correct an error, the entity shall
disclose that its previously issued financial statements have been restated, along
with a description of the nature of the error. The entity also shall disclose both of
the following:
a. The effect of the correction on each financial statement line item and any pershare amounts affected for each prior period presented
b. The cumulative effect of the change on retained earnings or other appropriate
components of equity or net assets in the statement of financial position, as of
the beginning of the earliest period presented.
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250-10-50-8. When prior period adjustments are recorded, the resulting effects (both
gross and net of applicable income tax) on the net income of prior periods shall be
disclosed in the annual report for the year in which the adjustments are made and
in interim reports issued during that year subsequent to the date of recording the
adjustments.
250-10-50-9. When financial statements for a single period only are presented, this
disclosure shall indicate the effects of such restatement on the balance of retained
earnings at the beginning of the period and on the net income of the immediately
preceding period. When financial statements for more than one period are
presented, which is ordinarily the preferable procedure, the disclosure shall
include the effects for each of the periods included in the statements. (See Section
205-10-45 and paragraph 205-10-50-1 in this checklist.) Such disclosures shall
include the amounts of income tax applicable to the prior period adjustments.
Disclosure of restatements in annual reports issued subsequent to the first such
post-revision disclosure would ordinarily not be required.
250-10-50-10. Financial statements of subsequent periods shall not repeat the
disclosures required by paragraph 250-10-50-8 (in this checklist). See paragraph
250-10-50-2.
SEC Guidance
> Disclosure of the Impact that Recently Issued Accounting Standards Will Have
on the Financial Statements of the Registrant when Adopted in a Future Period
1
SAB Topic 11.M (SAB 74). Disclose the following regarding the impact of
accounting standards issued, but not yet adopted, in notes to financial statements and
in management’s discussion and analysis (MD&A) if new standard will be adopted
by retroactive restatement; otherwise disclose in MD&A:
a. A brief description of the standard and its anticipated adoption date, and the
method by which the standard will be adopted,
b. The impact that the standard will have on the financial statements to the extent
reasonably estimable or a statement that the impact is not known, and
c. Any other effects that are reasonably likely to occur (e.g., changes in business
practices, changes in availability or cost of capital, violations of debt covenants,
etc.).
d. Recently issued pronouncements for which SAB 74 disclosures may be required
include:
1
ASU 2010-26, Financial Services—Insurance (Topic 944), Accounting for
Costs Associated with Acquiring or Renewing Insurance Contracts (EITF
09-G)
2
ASU 2010-28, Intangibles—Goodwill and Other (Topic 350): When to
Perform Step 2 of the Goodwill Impairment Test for Reporting Units with
Zero or Negative Carrying Amounts (EITF 10-A)
3
ASU 2011-02, Receivables (Topic 310): A Creditor’s Determination of
Whether a Restructuring Is a Troubled Debt Restructuring
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4
ASU 2011-03, Transfer and Servicing (Topic 860): Reconsideration of
Effective Control for Repurchase Agreements
5
ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S.GAAP and IFRSs
6
ASU 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income, as amended by ASU 2011-12, Comprehensive
Income (Topic 220): Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items Out of Accumulated Other
Comprehensive Income in Accounting Standards Update No. 2011-05
7
ASU 2011-06, Other Expenses (Topic 720): Fees Paid to the Federal
Government by Health Insurers (EITF 09-H)
8
ASU 2011-07, Health Care Entities (Topic 954): Presentation and
Disclosure of Patient Service Revenue, Provision for Bad Debts, and the
Allowance for Doubtful Accounts for Certain Health Care Entities (EITF
10-H)
9
ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing
Goodwill for Impairment
10 ASU 2011-09, Compensation – Retirement Benefits – Multiemployer Plans
(Subtopic 715-80): Disclosures about an Employer’s Participation in a
Multiemployer Plan
11 ASU 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition
of in Substance Real Estate–a Scope Clarification
12 ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting
Assets and Liabilities
13 ASU 2012-01, Health Care Entities (Topic 954): Continuing Care
Retirement Communities – Refundable Advance Fees
14 ASU 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing
Indefinite-Lived Intangible Assets for Impairment
15 ASU 2012-04, Technical Corrections and Improvements
16 ASU 2012-05, Statement of Cash Flows (Topic 230): Not-for-ProfitEntities: Classification of the Sale of Donated Financial Assets in the
Statement of Cash Flows (EITF 12-A)
17 ASU 2012-06, Business Combinations (Topic 805): Subsequent Accounting
for an Indemnification Asset Recognized at the Acquisition Date as a Result
of a Government-Assisted Acquisition of a Financial Institution (EITF 12C)
18 ASU 2012-07, Entertainment – Films (Topic 926): Accounting for Fair
Value Information That Arises after the Measurement Date and Its
Inclusion in the Impairment Analysis of Unamortized Film Costs (EITF 12©2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of
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E)
2
SEC Staff Speech. When preparing the SAB 74 disclosures, a registrant should
focus on the actual effect adoption will have on historical financial statements (i.e.,
will historical financial statements presented in the filing materially change). An
example would be retrospective application of a new accounting standard that would
materially affect the presentation of the financial statements.
> Retrospective Accounting Changes
3
Regulation S-X Rule 3-03(c). If a period or periods reported on include operations
of a business prior to the date of acquisition, or for other reasons differ from reports
previously issued for any period, the statements shall be reconciled as to sales or
revenues and net income in the statement or in a note thereto with the amounts
previously reported, provided, however, that such reconciliations need not be made
(1) if they have been made in filings with the Commission in prior years or (2) the
financial statements which are being retroactively adjusted have not previously been
filed with the Commission or otherwise made public.
KPMG and Other Guidance
1
Columns consisting of financial information related to the correction of a material
error should be labeled “As Restated.”
2
When prior periods have been adjusted to reflect the retrospective application of a
new accounting principle, the use of column headings labeled “As Adjusted” is not
required but is considered a best practice.
3
June 23, 2009 meeting of CAQ SEC Regulation Committee. Once a registrant files
interim financial statements that reflect the retrospective application of a new
accounting principle, any subsequent amendment to previously issued financial
statements to correct an error should also reflect that retrospective accounting
change.
4
Describe and quantify the effect on income before extraordinary items, net income,
and related per share amounts of the current period for a change in estimate (for
example, relating to collateralized mortgage obligations (CMOs) / real estate
mortgage investment conduits (REMICs)) that affects several future periods such as
(not all-inclusive):
a. Average tranche life.
b. Cash flow projections.
c. Reinvestment rate of return.
16 Subtopic 255-10: Changing Prices—Overall
Disclosure
255-10-50-1. A business entity that prepares its financial statements in U.S. dollars
and in accordance with U.S. generally accepted accounting principles (GAAP)
is encouraged, but not required, to disclose supplementary information on the
effects of changing prices. Entities are not discouraged from experimenting with
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other forms of disclosure. [Examples of such disclosures are provided in 25510-50-2 through 255-10-50-55.]
17 Topic 260-10: Earnings per Share—Overall (required for public entities only)
Scope
> Entities
260-10-15-2 The guidance in the Earnings per Share Topic requires presentation of
earnings per share (EPS) by all entities that have issued common stock or
potential common stock (that is, securities such as options, warrants, convertible
securities, or contingent stock agreements) if those securities trade in a public
market either on a stock exchange (domestic or foreign) or in the over-thecounter market, including securities quoted only locally or regionally. This
Topic also requires presentation of EPS by an entity that has made a filing or is
in the process of filing with a regulatory agency in preparation for the sale of
those securities in a public market.
260-10-15-3 The guidance in this Topic does not require presentation of EPS for
investment companies that comply with the requirements of Topic 946 or in
statements of wholly owned subsidiaries. Any entity that is not required to
present EPS in its financial statements that chooses to present EPS in its
financial statements shall do so in accordance with the provisions of this Topic.
Presentation
> Required EPS Presentation on the Face of the Income Statement
260-10-45-2. Entities with simple capital structures, that is, those with only common
stock outstanding, shall present basic per-share amounts for income from
continuing operations and for net income on the face of the income statement.
All other entities shall present basic and diluted per-share amounts for income
from continuing operations and for net income on the face of the income
statement with equal prominence.
260-10-45-3. An entity that reports a discontinued operation or an extraordinary item
in a period shall present basic and diluted per-share amounts for those line items
either on the face of the income statement or in the notes to the financial
statements. An entity that does not report a discontinued operation but reports
an extraordinary item in the period shall use that line item (for example, income
before extraordinary items) whenever the line item income from continuing
operations is referenced by the guidance in this Subtopic.
260-10-45-7. EPS data shall be presented for all periods for which an income
statement or summary of earnings is presented. If diluted EPS data are reported
for at least one period, they shall be reported for all periods presented, even if
they are the same amounts as basic EPS. If basic and diluted EPS are the same
amount, dual presentation can be accomplished in one line on the income
statement.
> Special Issues Affecting Basic and Diluted EPS
>> Convertible Securities and the If-Converted Method
>>> Contingently Convertible Instruments
260-10-45-44. Contingently convertible instruments shall be included in diluted EPS
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(if dilutive) regardless of whether the market price trigger has been met.
> > Participating Securities and the Two-Class Method
260-10-45-60. The two-class method is an earnings allocation formula that treats a
participating security as having rights to earnings that otherwise would have
been available to common shareholders but does not require the presentation of
basic and diluted EPS for securities other than common stock. The presentation
of basic and diluted EPS for a participating security other than common stock is
not precluded.
260-10-45-60A. All securities that meet the definition of a participating security,
irrespective of whether the securities are convertible, nonconvertible, or
potential common stock securities, shall be included in the computation of basic
EPS using the two-class method.
260-10-45-61. Fully vested stock-based compensation subject to the provisions of
Topic 718, including fully vested options and fully vested stock, that contain a
right to receive dividends declared on the common stock of the issuer, are
subject to the guidance in paragraph 260-10-45-60A (in this checklist).
260-10-45-61A. Unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of EPS
pursuant to the two-class method under the requirements of paragraph 260-1045-60A (in this checklist).
Disclosure
260-10-50-1. For each period for which an income statement is presented, an entity
shall disclose all of the following:
a. A reconciliation of the numerators and the denominators of the basic and
diluted per-share computations for income from continuing operations. The
reconciliation shall include the individual income and share amount effects
of all securities that affect earnings per share (EPS). Example 2 (see
paragraph 260-10-55-51) illustrates that disclosure. An entity is encouraged
to refer to pertinent information about securities included in the EPS
computations that is provided elsewhere in the financial statements as
prescribed by Subtopic 505-10.
b. The effect that has been given to preferred dividends in arriving at income
available to common stockholders in computing basic EPS.
c. Securities (including those issuable pursuant to contingent stock
agreements) that could potentially dilute basic EPS in the future that were
not included in the computation of diluted EPS because to do so would have
been antidilutive for the period(s) presented. Full disclosure of the terms
and conditions of these securities is required even if a security is not
included in diluted EPS in the current period.
260-10-50-2. For the latest period for which an income statement is presented, an
entity shall provide a description of any transaction that occurs after the end of
the most recent period but before the financial statements are issued or are
available to be issued (as discussed in Section 855-10-25) that would have
changed materially the number of common shares or potential common shares
outstanding at the end of the period if the transaction had occurred before the
end of the period. (e.g., issuance or acquisition of common shares; the issuance
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of warrants, options, or convertible securities; the resolution of a contingency
pursuant to a contingent stock agreement; and the conversion or exercise of
potential common shares outstanding at the end of the period into common
shares)
260-10-55-12. Presentation for the effect of stock dividends or stock splits is as
follows:
a. If the number of common shares outstanding increases as a result of a stock
dividend or stock split (see Subtopic 505-20) or decreases as a result of a
reverse stock split, the computations of basic and diluted EPS shall be
adjusted retroactively for all periods presented to reflect that change in
capital structure.
b. If changes in common stock resulting from stock dividends, stock splits, or
reverse stock splits occur after the close of the period but before the
financial statements are issued or are available to be issued (as discussed in
Section 855-10-25), the per-share computations for those and any priorperiod financial statements presented shall be based on the new number of
shares.
c. If per-share computations reflect such changes in the number of shares, that
fact shall be disclosed.
260-10-55-13. A rights issue whose exercise price at issuance is less than the fair
value of the stock contains a bonus element that is somewhat similar to a stock
dividend. If a rights issue contains a bonus element and the rights issue is
offered to all existing stockholders, basic and diluted EPS shall be adjusted
retroactively for the bonus element for all periods presented. If the ability to
exercise the rights issue is contingent on some event other than the passage of
time, the provisions of this paragraph shall not be applicable until that
contingency is resolved.
260-10-55-14. The number of common shares used in computing basic and diluted
EPS for all periods prior to the rights issue shall be the number of common
shares outstanding immediately prior to the issue multiplied by the following
factor: (fair value per share immediately prior to the exercise of the
rights)/(theoretical ex-rights fair value per share). Theoretical ex-rights fair
value per share shall be computed by adding the aggregate fair value of the
shares immediately prior to the exercise of the rights to the proceeds expected
from the exercise of the rights and dividing by the number of shares outstanding
after the exercise of the rights. Example 5 (see paragraph 260-10-55-60)
illustrates that provision. If the rights themselves are to be publicly traded
separately from the shares prior to the exercise date, fair value for the purposes
of this computation shall be established at the close of the last day on which the
shares are traded together with the rights.
SEC Guidance
> Effect of Preferred Stock Dividends and Accretion of Carrying Amount of
Preferred Stock on Earnings Per Share
1 SAB Topic 6.B. Income or loss applicable to common stock should be reported on
the face of the income statement when it is materially different in quantitative
terms from reported net income or loss or when it is indicative of significant
trends or other qualitative considerations.
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> Nominal Issuances and Initial Public Offerings
2 SAB Topic 4.D. The SEC staff believes that nominal issuances are
recapitalizations in substance. In computing basic EPS for the periods covered by
income statements included in the registration statement and in subsequent filings
with the SEC, nominal issuances of common stock should be reflected in a
manner similar to a stock split or stock dividend for which retroactive treatment is
required by paragraph 260-10-55-12.
18 Subtopic 270-10: Interim Reporting—Overall (4th Quarter) (required for public entities only)
Disclosure
> Disclosure of Summarized Interim Financial Data by Publicly Traded Companies
270-10-50-2. If interim financial data and disclosures are not separately reported for the
fourth quarter, users of the interim financial information often make inferences
about that quarter by subtracting data based on the third quarter interim report from
the annual results. In the absence of a separate fourth quarter report or disclosure of
the results (as outlined in the Interim Accounting Disclosure Checklist) for that
quarter in the annual report, disclose the following in the annual report in a note to
the annual financial statements:
a. disposals of components of an entity
b. extraordinary, unusual, or infrequently occurring items recognized in the fourth
quarter
c. the aggregate effect of year-end adjustments that are material to the results of
that quarter (see paragraphs 270-10-05-2 and 270-10-45-10)
19 Subtopic 272-10: Limited Liability Companies—Overall
Note: See ASC paragraphs 272-10-45-1 through 45-7 for presentation guidance.
Disclosure
272-10-50-1. If the limited liability company does not report the equity of each class of
its members separately within the equity section, it shall disclose those amounts in
the notes to financial statements (see paragraph 272-10-50-3 in this checklist). If
the limited liability company maintains separate accounts for components of
members’ equity (for example, undistributed earnings, earnings available for
withdrawal, or unallocated capital), disclosure of those components, either on the
face of the statement of financial position or in the notes to financial statements, is
permitted.
272-10-50-2. As indicated in paragraph 272-10-45-6, if comparative financial statements
are presented, amounts shown for comparative purposes shall be comparable with
those shown for the most recent period, or any exceptions to comparability shall be
disclosed in the notes to financial statements.
272-10-50-3. Both of the following disclosures shall be made in the financial statements
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of a limited liability company:
a. A description of any limitation of its members’ liability
b. The different classes of members’ interests and the respective rights,
preferences, and privileges of each class.
If the limited liability company has a finite life, the date it will cease to exist shall
be disclosed.
272-10-50-4. Section 740-10-50 requires specific disclosures relating to accounting for
income taxes. Limited liability companies shall make the relevant disclosures
under that Section.
KPMG and Other Guidance
1
PB 14, ¶16. For limited liability companies formed by combining entities under
common control or conversion from another type of entity, in the year of formation
disclose the assets and liabilities previously held by a predecessor entity or entities, if
applicable.
2
PB 14, ¶16. For limited liability companies formed by combining entities under
common control disclose the following items required by paragraph 805-50-50-3:
a. Name and brief description of the entity included in the reporting entity as a
result of the net asset transfer or exchange of equity interests.
b. Method of accounting for the transfer of net assets or exchange of equity
interests.
20 Subtopic 275-10: Risks and Uncertainties—Overall
Disclosure
> Nature of Operations
275-10-50-2. Financial statements shall include a description of the major products or
services the reporting entity sells or provides and its principal markets, including
the locations of those markets. If the entity operates in more than one business,
the disclosure shall also indicate the relative importance of its operations in each
business and the basis for this determination—for example, assets, revenues, or
earnings. Not-for-profit entities’ (NFPs’) disclosures should briefly describe the
principal services performed by the entity and the revenue sources for the entity’s
services. Disclosures about the nature of operations need not be quantified;
relative importance could be conveyed by use of terms such as predominately,
about equally, or major and other.
275-10-50-3. See Examples 1 through 2 (paragraphs 275-10-55-2 through 55-5) for
illustrations of disclosure requirements for nature of operations.
> Use of Estimates in the Preparation of Financial Statements
275-10-50-4. Financial statements shall include an explanation that the preparation of
financial statements in conformity with generally accepted accounting principles
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(GAAP) requires the use of management’s estimates.
275-10-50-5. See Example 3 (paragraph 275-10-55-6) for an illustration of the
disclosure requirements of the pervasiveness of estimates in the preparation of
financial statements.
> Certain Significant Estimates
275-10-50-6. This Subtopic requires discussion of estimates when, based on known
information available before the financial statements are issued or are available to
be issued (as discussed in Section 855-10-25), it is reasonably possible that the
estimate will change in the near term and the effect of the change will be material.
The estimate of the effect of a change in a condition, situation, or set of
circumstances that existed at the date of the financial statements shall be disclosed
and the evaluation shall be based on known information available before the
financial statements are issued or are available to be issued (as discussed in
Section 855-10-25).
275-10-50-7. Various Topics require disclosures about uncertainties addressed by those
Topics. In particular, Subtopic 450-20 specifies disclosures to be made about
contingencies that exist at the date of the financial statements. In addition to
disclosures required by Topic 450 and other accounting Topics, this Subtopic
requires disclosures regarding estimates used in the determination of the carrying
amounts of assets or liabilities or in disclosure of gain or loss contingencies, as
described below.
275-10-50-8. Disclosure regarding an estimate shall be made when known information
available before the financial statements are issued or are available to be issued
(as discussed in Section 855-10-25) indicates that both of the following criteria
are met:
a. It is at least reasonably possible that the estimate of the effect on the financial
statements of a condition, situation, or set of circumstances that existed at the
date of the financial statements will change in the near term due to one or
more future confirming events. (The term reasonably possible as used in this
Subtopic is consistent with its use in Subtopic 450-20 to mean that the chance
of a future transaction or event occurring is more than remote but less than
likely.)
b. The effect of the change would be material to the financial statements.
275-10-50-9. The disclosure shall indicate the nature of the uncertainty and include an
indication that it is at least reasonably possible that a change in the estimate will
occur in the near term.
If the estimate involves a loss contingency covered by Subtopic 450-20, the
disclosure also shall include an estimate of the possible loss or range of loss, or
state that such an estimate cannot be made.
Disclosure of the factors that cause the estimate to be sensitive to change is
encouraged but not required.
The words reasonably possible need not be used in the disclosures required by
this Subtopic.
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275-10-50-10. Many entities use risk-reduction techniques to mitigate losses or the
uncertainty that may result from future events. If the entity determines that the
criteria in paragraph 275-10-50-8 (in this checklist) are not met as a result of riskreduction techniques, the disclosures described in paragraph 275-10-50-9 and
disclosure of the risk-reduction techniques are encouraged but not required.
275-10-50-12. If a loss contingency meets the criteria for disclosure under both Topic
450 and paragraph 275-10-50-8 (in this checklist), this Subtopic requires
disclosure that it is at least reasonably possible that future events confirming the
fact of the loss or the change in the estimated amount of the loss will occur in the
near term.
275-10-50-13. The requirements of paragraph 275-10-50-8 (in this checklist) are
applicable to long-lived assets whose value may become impaired in the near term
(see Subtopic 360-10).
275-10-50-14. Whether an estimate meets the criteria for disclosure under this Subtopic
does not depend on the amount that has been reported in the financial statements,
but rather on the materiality of the effect that using a different estimate would
have had on the financial statements.
275-10-50-15. The following are examples of assets and liabilities and related revenues
and expenses, and of disclosure of gain or loss contingencies included in financial
statements that, based on facts and circumstances existing at the date of the
financial statements, may be based on estimates that are particularly sensitive to
change in the near term:
a. Inventory subject to rapid technological obsolescence
b. Specialized equipment subject to technological obsolescence
c. Valuation allowances for deferred tax assets based on future taxable income
d. Capitalized motion picture film production costs
e. Capitalized computer software costs
f.
Deferred policy acquisition costs of insurance entities
g. Valuation allowances for commercial and real estate loans
h. Environmental remediation-related obligations
i.
Litigation-related obligations
j.
Contingent liabilities for obligations of other entities
k. Amounts reported for long-term obligations, such as amounts reported for
pensions and postemployment benefits
l.
Estimated net proceeds recoverable, the provisions for expected loss to be
incurred, or both, on disposition of a business or assets
m. Amounts reported for long-term contracts.
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The above list is not intended to be all-inclusive. See Section 275-10-60 for links to
illustrations of the disclosure requirements that are contained in other Topics.
> > Estimated Useful Life of an Intangible Asset
275-10-50-15A. In determining whether disclosure about an estimate of the useful life
of an intangible asset is required under paragraph 275-10-50-8 (in this checklist),
the criterion in item (b) of that paragraph shall be considered met if the effect of
either of the following would be material to the financial statements, either
individually or in aggregate by major intangible asset class:
a. A change in the useful life of an intangible
b. A change in the expected likelihood of renewal or extension of an intangible
asset.
> Current Vulnerability Due to Certain Concentrations
275-10-50-16. Vulnerability from concentrations arises because an entity is exposed to
risk of loss greater than it would have had it mitigated its risk through
diversification. Such risks of loss manifest themselves differently, depending on
the nature of the concentration, and vary in significance. Financial statements
shall disclose the concentrations described in paragraph 275-10-50-18 (in this
checklist) if, based on information known to management before the financial
statements are issued or are available to be issued (as discussed in Section 855-1025), all of the following criteria are met:
a. The concentration exists at the date of the financial statements.
b. The concentration makes the entity vulnerable to the risk of a near-term
severe impact.
c. It is at least reasonably possible that the events that could cause the severe
impact will occur in the near term.
275-10-50-17. This Subtopic requires disclosure of certain defined concentrations
known to management rather than a wider range of concentrations based on
information of which management is reasonably expected to have knowledge.
275-10-50-18. Concentrations, including known group concentrations, described below
require disclosure if they meet the criteria of paragraph 275-10-50-16 (in this
checklist). (Group concentrations exist if a number of counterparties or items that
have similar economic characteristics collectively expose the reporting entity to a
particular kind of risk.) Some concentrations may fall into more than one of the
following categories:
a. Concentrations in the volume of business transacted with a particular
customer, supplier, lender, grantor, or contributor. For purposes of this
Subtopic, it is always considered at least reasonably possible that any
customer, grantor, or contributor will be lost in the near term.
b. Concentrations in revenue from particular products, services, or fund-raising
events.
c. Concentrations in the available sources of supply of materials, labor, or
services, or of licenses or other rights used in the entity’s operations.
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d. Concentrations in the market or geographic area in which an entity conducts
its operations. For purposes of this Subtopic, it is always considered at least
reasonably possible that operations located outside an entity’s home country
will be disrupted in the near term.
275-10-50-19. Concentrations of financial instruments, and other concentrations not
described in the preceding paragraph, are not addressed in this Subtopic.
However, these other concentrations may be required to be disclosed pursuant to
other Topics, such as Subtopic 825-10.
275-10-50-20. Disclosure of concentrations meeting the criteria of paragraph 275-1050-16 (in this checklist) shall include information that is adequate to inform users
of the general nature of the risk associated with the concentration. For those
concentrations of labor (see paragraph 275-10-50-18(c) in this checklist) subject
to collective bargaining agreements and concentrations of operations located
outside of the entity’s home country (see paragraph 275-10-50-18(d) in this
checklist) that meet the criteria in paragraph 275-10-50-16, the following specific
disclosures are required:
(1) For labor subject to collective bargaining agreements, disclosure shall include
both the percentage of the labor force covered by a collective bargaining
agreement and the percentage of the labor force covered by a collective
bargaining agreement that will expire within one year.
(2) For operations located outside the entity’s home country, disclosure shall
include the carrying amounts of net assets and the geographic areas in which
they are located.
This Subtopic does not, however, prohibit entities from also stating in disclosures
of concentrations related to customers, grantors, or contributors or operations
located outside the entity’s home country that the entity does not expect that the
business relationship will be lost or does not expect that the foreign operations
will be disrupted if such is the case.
275-10-50-21. Adequate information about some concentrations may already be
presented in other parts of the financial statements. For example, adequate
information about assets or operations located outside the entity’s home country
may be included in disclosures made to comply with Subtopic 280-10. In
accordance with the guidance in this Subtopic, such information need not be
repeated.
275-10-50-22. See Examples 2 and 4 through 8 (paragraphs 275-10-55-4 and 275-1055-8 through 55-19) for illustrations of the disclosure requirements for current
vulnerability due to certain concentrations.
21 Subtopic 280-10: Segment Reporting—Overall (required for public entities only)
Disclosure
> Operating Segments
> > Disclosure Requirements
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280-10-50-20. A public entity shall disclose all of the following for each period for
which an income statement is presented. However, reconciliations of balance
sheet amounts for reportable segments to consolidated balance sheet amounts are
required only for each year for which a balance sheet is presented. Previously
reported information for prior periods shall be restated as described in paragraphs
280-10-50-34 through 50-35 (in this checklist).
> > > General Information
280-10-50-21. A public entity shall disclose the following general information (see
Example 3, Case A [paragraph 280-10-55-47]):
a. Factors used to identify the public entity’s reportable segments, including the
basis of organization (for example, whether management has chosen to
organize the public entity around differences in products and services,
geographic areas, regulatory environments, or a combination of factors and
whether operating segments have been aggregated)
b. Types of products and services from which each reportable segment derives
its revenues.
> > > Information About Profit or Loss and Assets
280-10-50-22. A public entity shall report a measure of profit or loss and total assets for
each reportable segment. A public entity also shall disclose all of the following
about each reportable segment if the specified amounts are included in the
measure of segment profit or loss reviewed by the chief operating decision maker
or are otherwise regularly provided to the chief operating decision maker, even if
not included in that measure of segment profit or loss (see Example 3, Case B
[paragraph 280-10-55-48]):
a. Revenues from external customers
b. Revenues from transactions with other operating segments of the same public
entity
c. Interest revenue
d. Interest expense
e. Depreciation, depletion, and amortization expense
f.
Unusual items as described in paragraph 225-20-45-16 (in this checklist)
g. Equity in the net income of investees accounted for by the equity method
h. Income tax expense or benefit
i.
Extraordinary items
j.
Significant noncash items other than depreciation, depletion, and amortization
expense.
A public entity shall report interest revenue separately from interest expense for
each reportable segment unless a majority of the segment’s revenues are from
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interest and the chief operating decision maker relies primarily on net interest
revenue to assess the performance of the segment and make decisions about
resources to be allocated to the segment. In that situation, a public entity may
report that segment’s interest revenue net of its interest expense and disclose that
it has done so.
280-10-50-24. If a segment is primarily a financial operation, interest revenue probably
constitutes most of segment revenues and interest expense will constitute most of
the difference between reported segment revenues and reported segment profit or
loss. If the segment has no financial operations or only immaterial financial
operations, no information about interest is required.
280-10-50-25. A public entity shall disclose both of the following about each reportable
segment if the specified amounts are included in the determination of segment
assets reviewed by the chief operating decision maker or are otherwise regularly
provided to the chief operating decision maker, even if not included in the
determination of segment assets:
a. The amount of investment in equity method investees
b. Total expenditures for additions to long-lived assets other than any of the
following (see Example 3, Case B, paragraph 280-10-55-48): (1) Financial
Instruments, (2) Long-term customer relationships of a financial institution,
(3) Mortgage and other servicing rights, (4) Deferred policy acquisition costs,
(5) Deferred tax assets.
280-10-50-26. If no asset information is provided for a reportable segment, that fact and
the reason therefore shall be disclosed.
> > > > Measurement
280-10-50-29. A public entity shall provide an explanation of the measurements of
segment profit or loss and segment assets for each reportable segment. At a
minimum, a public entity shall disclose all of the following (see Example 3, Cases
A through C, paragraphs 280-10-55-47 through 55-49):
a. The basis of accounting for any transactions between reportable segments.
b. The nature of any differences between the measurements of the reportable
segments’ profits or losses and the public entity’s consolidated income before
income taxes, extraordinary items, and discontinued operations (if not
apparent from the reconciliations described in paragraphs 280-10-50-30
through 50-31 in this checklist). Those differences could include accounting
policies and policies for allocation of centrally incurred costs that are
necessary for an understanding of the reported segment information.
c. The nature of any differences between the measurements of the reportable
segments’ assets and the public entity’s consolidated assets (if not apparent
from the reconciliations described in paragraphs 280-10-50-30 through 50-31
in this checklist). Those differences could include accounting policies and
policies for allocation of jointly used assets that are necessary for an
understanding of the reported segment information.
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d. The nature of any changes from prior periods in the measurement methods
used to determine reported segment profit or loss and the effect, if any, of
those changes on the measure of segment profit or loss.
e. The nature and effect of any asymmetrical allocations to segments. For
example, a public entity might allocate depreciation expense to a segment
without allocating the related depreciable assets to that segment.
> > > Reconciliations
280-10-50-30. A public entity shall provide reconciliations of all of the following (see
Example 3, Case C [paragraphs 280-10-55-49 through 55-50]):
a. The total of the reportable segments’ revenues to the public entity’s
consolidated revenues.
b. The total of the reportable segments’ measures of profit or loss to the public
entity’s consolidated income before income taxes, extraordinary items, and
discontinued operations. However, if a public entity allocates items such as
income taxes and extraordinary items to segments, the public entity may
choose to reconcile the total of the segments’ measures of profit or loss to
consolidated income after those items.
c. The total of the reportable segments’ assets to the public entity’s consolidated
assets.
d. The total of the reportable segments’ amounts for every other significant item
of information disclosed to the corresponding consolidated amount. For
example, a public entity may choose to disclose liabilities for its reportable
segments, in which case the public entity would reconcile the total of
reportable segments’ liabilities for each segment to the public entity’s
consolidated liabilities if the segment liabilities are significant.
280-10-50-31. All significant reconciling items shall be separately identified and
described. For example, the amount of each significant adjustment to reconcile
accounting methods used in determining segment profit or loss to the public
entity’s consolidated amounts shall be separately identified and described.
> > > Restatement of Previously Reported Information
280-10-50-34. If a public entity changes the structure of its internal organization in a
manner that causes the composition of its reportable segments to change, the
corresponding information for earlier periods, including interim periods, shall be
restated unless it is impracticable to do so. Following a change in the composition
of its reportable segments, a public entity shall disclose whether it has restated the
corresponding items of segment information for earlier periods.
280-10-50-35. If a public entity has changed the structure of its internal organization in
a manner that causes the composition of its reportable segments to change and if
segment information for earlier periods, including interim periods, is not restated
to reflect the change, the public entity shall disclose in the year in which the
change occurs segment information for the current period under both the old basis
and the new basis of segmentation unless it is impracticable to do so.
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280-10-50-36. Although restatement is not required to reflect a change in measurement
of segment profit and loss, it is preferable to show all segment information on a
comparable basis to the extent it is practicable to do so.
> > > Entity-Wide Information
280-10-50-38. Information required by paragraphs 280-10-50-40 through 50-42 (in this
checklist) need be provided only if it is not provided as part of the reportable
operating segment information required by this Subtopic.
> > > Information About Products and Services
280-10-50-40. A public entity shall report the revenues from external customers for
each product and service or each group of similar products and services unless it
is impracticable to do so. The amounts of revenues reported shall be based on the
financial information used to produce the public entity’s general-purpose financial
statements. If providing the information is impracticable, that fact shall be
disclosed.
> > > Information About Geographic Areas
280-10-50-41. A public entity shall report the following geographic information unless
it is impracticable to do so (see Example 3, Case D [paragraph 280-10-55-51]):
a. Revenues from external customers attributed to the public entity’s country of
domicile and attributed to all foreign countries in total from which the public
entity derives revenues. If revenues from external customers attributed to an
individual foreign country are material, those revenues shall be disclosed
separately. A public entity shall disclose the basis for attributing revenues
from external customers to individual countries.
b. Long-lived assets other than financial instruments, long-term customer
relationships of a financial institution, mortgage and other servicing rights,
deferred policy acquisition costs, and deferred tax assets located in the public
entity’s country of domicile and located in all foreign countries in total in
which the public entity holds assets. If assets in an individual foreign country
are material, those assets shall be disclosed separately.
The amounts reported shall be based on the financial information that is used to
produce the general-purpose financial statements. If providing the geographic
information is impracticable, that fact shall be disclosed. A public entity may wish
to provide, in addition to the information required by the preceding paragraph,
subtotals of geographic information about groups of countries.
> > > Information About Major Customers
280-10-50-42. A public entity shall provide information about the extent of its reliance
on its major customers. If revenues from transactions with a single external
customer amount to 10 percent or more of a public entity’s revenues, the public
entity shall disclose that fact, the total amount of revenues from each such
customer, and the identity of the segment or segments reporting the revenues. The
public entity need not disclose the identity of a major customer or the amount of
revenues that each segment reports from that customer. For purposes of this
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Subtopic, a group of entities known to a reporting public entity to be under
common control shall be considered as a single customer, and the federal
government, a state government, a local government (for example, a county or
municipality), or a foreign government each shall be considered as a single
customer (see Example 3, Case E [paragraph 280-10-55-52]).
SEC Guidance
> Segment Disclosures
1
Regulation S-X Rule 3-03(e). Disclosures regarding segments required by generally
accepted accounting principles shall be provided for each year for which an audited
statement of income is provided. To the extent that the segment information
presented pursuant to this instruction complies with the provisions of Item 101 of
Regulation S-K, the disclosures may be combined by cross referencing to or from
the financial statements.
2
2005 SEC Staff Speech. If an entity changes the structure of its internal organization
after fiscal year end, or if management intends to make a change, the new segment
structure should not be presented in the financial statements until operating results
of the new structure are reported. Similarly, disclosures based on historical
reportable segments should be presented until financial statements for the new
structure are presented.
22 Subtopic 310-10: Receivables—Overall
Note: The content in this Subtopic has been updated for ASU 2010-20, Disclosures
about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses. ASU 2010-20 significantly increases disclosures about credit quality of
financing receivables and the allowance for credit losses, and requires disclosures
to be made at a greater level of disaggregation. Disclosures of information as of
period-end are effective for public companies in interim and annual periods
ending on or after December 15, 2010, while disclosures about activity
occurring throughout the period are effective for interim and annual periods
beginning on or after December 15, 2010. The ASU will be effective for
nonpublic companies in fiscal years ending on or after December 15, 2011.
The amendments in this ASU encourage, but do not require, retrospective
comparative disclosures (see Example 2 in ASU 2010-20).
Note: On April 4, 2011, the FASB issued ASU No. 2011-02, A Creditor’s
Determination of Whether a Restructuring Is a Troubled Debt Restructuring. For
more information, see the pending content later in this section.
Note: For entities w ith a D ecember 3 1st year-end, t he pe nding c ontent be low is
applicable because ASU 2011-02 would be effective. See below.
Presentation
> Loans or Trade Receivables
310-10-45-2. Loans or trade receivables may be presented on the balance sheet as
aggregate amounts. However, such receivables held for sale shall be a separate
balance sheet category. Major categories of loans or trade receivables shall be
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presented separately either in the balance sheet or in the notes to the financial
statements.
> Foreclosed or Repossessed Assets
310-10-45-3. Foreclosed and repossessed assets shall be classified as a separate balance
sheet amount or included in other assets on the balance sheet with separate
disclosures in the notes to financial statements. Certain returned or repossessed
assets, such as inventory, shall not be classified separately if the assets
subsequently are to be utilized by the entity in operations.
> Bad-Debt Expense
310-10-45-6. The observable market price of an impaired loan or the fair value of the
collateral of an impaired collateral-dependent loan may change from one
reporting period to the next. Changes in observable market prices or the fair value
of the collateral shall be reported as bad-debt expense or a reduction in bad-debt
expense.
> Unearned Discounts
310-10-45-8. Unearned discounts (other than cash or quantity discounts and similar
items), finance charges, and interest included in the face amount of receivables
shall be shown as a deduction from the related receivables.
> Receivables from Officers, Employees, or Affiliates
310-10-45-13. As indicated in paragraph 850-10-50-2, notes or accounts receivable due
from officers, employees, or affiliated companies shall be shown separately and
not included under a general heading such as notes receivable or accounts
receivable.
> Note Received as an Equity Contribution
310-10-45-14. For guidance on a note received as a contribution to an entity’s equity,
see paragraph 505-10-45-2. Reporting the note as an asset is generally not
appropriate, except in very limited circumstances when there is substantial
evidence of ability and intent to pay within a reasonably short period of time.
Disclosure
> Loans and Trade Receivables
310-10-50-1A. The guidance in paragraphs 310-10-50-2 through 50-4A applies only to
the following financing receivables:
a. Loans
b. Trade receivables
310-10-50-2. The summary of significant accounting policies shall include the
following:
a. The basis for accounting for loans and trade receivables
b. The method used in determining the lower of cost or fair value of
nonmortgage loans held for sale (that is, aggregate or individual asset basis)
c. The classification and method of accounting for interest-only strips, loans,
other receivables, or retained interests in securitizations that can be
contractually prepaid or otherwise settled in a way that the holder would not
recover substantially all of its recorded investment
d. The method for recognizing interest income on loan and trade receivables,
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including a statement about the entity’s policy for treatment of related fees
and costs, including the method of amortizing net deferred fees or costs.
310-10-50-3. If major categories of loans or trade receivables are not presented
separately in the balance sheet, they shall be presented in the notes to the financial
statements.
310-10-50-4. The allowance for credit losses (also referred to as the allowance for
doubtful accounts) and, as applicable, any unearned income, any unamortized
premiums and discounts, and any net unamortized deferred fees and costs, shall
be disclosed in the financial statements.
310-10-50-4A. Except for credit card receivables, an entity shall disclose its policy for
charging off uncollectible trade accounts receivable that have both of the
following characteristics:
a. They have contractual maturity of one year or less
b. They arose from the sale of goods or services.
> Assets Serving as Collateral
310-10-50-5. For required disclosures of the carrying amount of loans, trade receivables,
securities and financial instruments that serve as collateral for borrowings, see
paragraph 860-30-50-1A (in this checklist).
> Nonaccrual and Past Due Financing Receivables
310-10-50-5A. The guidance in paragraphs 310-10-50-6 through 50-8 does not apply to
loans acquired with deteriorated credit quality (accounted for under Subtopic 31030).
310-10-50-5B. The guidance in paragraphs 310-10-50-6 through 50-7A shall be
provided by class of financing receivable except for the following financing
receivables:
a. Receivables measured at fair value with changes in fair value reported in
earnings
b. Receivables measured at lower of cost or fair value
c. Trade accounts receivable, except for credit card receivables, that have both
of the following characteristics:
1. They have a contractual maturity of one year or less
2. They arose from the sale of goods or services
d. Participant loans in defined contribution pension plans.
310-10-50-6. An entity’s summary of significant accounting policies for financing
receivables shall include all of the following:
a. The policy for placing financing receivables, if applicable, on nonaccrual
status (or discontinuing accrual of interest)
b. The policy for recording payments received on nonaccrual financing
receivables, if applicable
c. The policy for resuming accrual of interest
d. [not used]
e. The policy for determining past due or delinquency status.
310-10-50-7. An entity shall provide both of the following disclosures related to
nonaccrual and past due financing receivables as of each balance sheet date.
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a. The recorded investment in financing receivables on nonaccrual status
b. The recorded investment in financing receivables past due 90 days or more
and still accruing.
310-10-50-7A. An entity shall provide an analysis of the age of the recorded investment
in financing receivables at the end of the reporting periods that are past due, as
determined by the entity’s policy.
310-10-50-7B. The guidance in paragraph 310-10-80-7A does not apply to the
following receivables:
a. Receivables measured at fair value with changes in fair value reported in
earnings
b. Receivables measured at lower of cost or fair value
c. Except for credit card receivables, trade receivables that have both of the
following characteristics:
1. They have a contractual maturity of one year or less
2. They arose from the sale of goods or services.
d. Participant loans in defined contribution pension plans.
> Accounting Policies for Off-Balance-Sheet Credit Exposures
310-10-50-9. In addition to disclosures required by Subtopic 450-20, an entity shall
disclose a description of the accounting policies and methodology the entity used
to estimate liability for off-balance-sheet credit exposures and related charges for
those credit exposures. Such a description shall identify the factors that influenced
management’s judgment (for example, historical losses and existing economic
conditions) and a discussion of risk elements relevant to particular categories of
financial instruments.
310-10-50-10. Off-balance-sheet credit exposures refers to credit exposures on offbalance-sheet loan commitments, standby letters of credit, financial guarantees,
and other similar instruments, except for instruments within the scope of Topic
815.
> Allowance for Credit Losses Related to Financing Receivables
310-10-50-11A. The guidance in paragraph 310-10-50-11B does not apply to the
following financing receivables:
a. Financing receivables listed in paragraph 310-10-50-7B
b. Lessor’s net investments in leveraged leases.
310-10-50-11B. An entity shall disclose all of the following by portfolio segment:
a. A description of the entity’s accounting policies and methodology used to
estimate the allowance for credit losses, including all of the following:
1 A description of the factors that influenced management’s judgment,
including both of the following:
i.
Historical losses
ii.
Existing economic conditions.
2 A discussion of risk characteristics relevant to each portfolio segment
3 Identification of any changes to the entity’s accounting policies or
methodology from the prior period and the entity’s rationale for the
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change.
b. A description of the policy for charging off uncollectible financing
receivables
c. The activity in the allowance for credit losses for each period, including all of
the following:
1 The balance in the allowance at the beginning and end of each period
2 Current period provision
3 Direct write-downs charged against the allowance
4 Recoveries of amounts previously charged off.
d. The quantitative effect of changes identified in item (a)(3) on item (c)(2)
e. The amount of any significant purchases of financing receivables during each
reporting period
f. The amount of any significant sales of financing receivables or
reclassifications of financing receivables to held for sale during each reporting
period
g. The balance in the allowance for credit losses at the end of each period
disaggregated on the basis of the entity’s impairment method
h. The recorded investment in financing receivables at the end of each period
related to each balance in the allowance for credit losses, disaggregated on the
basis of the entity’s impairment methodology in the same manner as the
disclosure in item (g).
310-10-50-11C. To disaggregate the information required by items (g) and (h) in the
preceding paragraph on the basis of the impairment methodology, an entity shall
separately disclose the following amounts:
a. Amounts collectively evaluated for impairment (determined under Subtopic
450-20)
b. Amounts individually evaluated for impairment (determined under Section
310-10-35)
c. Amounts related to loans acquired with deteriorated credit quality (determined
under Subtopic 310-30).
310-10-50-14. Asset valuation allowances required by paragraph 210-10-45-13 shall
have an appropriate disclosure.
> Impaired Loans
310-10-50-14A. For each class of financing receivable, an entity shall disclose both of
the following for loans that meet the definition of an impaired loan in paragraphs
310-10-35-16 through 35-17 (individually evaluated for impairment):
a. The accounting for impaired loans
b. The amount of impaired loans.
310-10-50-15. An entity shall disclose all of the following information about loans that
meet the definition of an impaired loan in paragraphs 310-10-35-16 through 35-17
by class of financing receivable:
a. As of the date of each statement of financial position presented:
1 [not used]
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2
3
[not used]
The recorded investment in impaired loans and both of the following:
i.
The amount of that recorded investment for which there is a
related allowance for credit losses determined in accordance
with Section 310-10-35 and the amount of that allowance
ii.
The amount of that recorded investment for which there is no
related allowance for credit losses determined in accordance
with Section 310-10-35.
4 The total unpaid principal balance of the impaired loans.
b. The entity’s policy for recognizing interest income on impaired loans,
including how cash receipts are recorded
c. For each period for which results of operations are presented:
1. The average recorded investment in the impaired loans
2. The related amount of interest income recognized during the time
within that period that the loans were impaired
3. The amount of interest income recognized using a cash-basis method
of accounting during the time within that period that the loans were
impaired, if practicable.
d. The entity’s policy for determining which loans the entity assesses for
impairment under Section 310-10-35
e. The factors considered in determining that the loan is impaired.
310-10-50-16. Those disclosures shall be provided for impaired loans that have been
charged off partially. Those disclosures cannot be provided for loans that have
been charged off fully because both the recorded investment and the allowance
for credit losses will equal zero.
310-10-50-18. Information about loans meeting the scope of Subtopic 310-30, Loans
and Debt Securities Acquired with Deteriorated Credit Quality, shall be included
in the disclosures required by paragraph 310-10-50-15(a) through (b) (in this
checklist) as noted above if there has been an other-than-temporary decline in the
fair value of a loan below amortized cost (see paragraphs 320-10-35-18 through
35-34) or if it is probable that a loan has been impaired (see 450-20-25-2(a)), as
discussed in paragraphs 310-30-35-8(a) and 310-30-35-10(a).
310-10-50-19. Paragraphs 310-10-45-5 through 45-6 explains that a creditor that
measures impairment based on the present value of expected future cash flows is
permitted to report the entire change in present value as bad-debt expense but may
also report the change in present value attributable to the passage of time as
interest income. Creditors that choose the latter alternative shall disclose the
amount of interest income that represents the change in present value attributable
to the passage of time.
> Loss Contingencies
310-10-50-21. Paragraph 450-20-50-3 provides disclosure guidance for circumstances
in which no accrual is made for a loss contingency because one or both of the
conditions in paragraph 450-20-25-2 (probable and reasonable estimated) are not
met, or if an exposure to loss exists in excess of the amount accrued pursuant to
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the provisions of paragraph 450-20-25-2. The disclosures required by paragraphs
450-20-50-3 through 50-6 do not apply to loss contingencies arising from an
entity’s estimation of its allowance for credit losses.
> Risks and Uncertainties
310-10-50-25. Certain loan products have contractual terms that expose entities to risks
and uncertainties that fall into one or more categories, as discussed in paragraph
275-10-50-1. See Section 275-10-50 for disclosure guidance related to those loan
products.
> Fair Value Disclosures
310-10-50-26. Section 825-10-50 provides guidance on the required disclosure of fair
values of certain assets and liabilities. Paragraph 825-10-50-14 explains that, for
trade receivables and payables, no disclosure is required under that Topic when
the carrying amount approximates fair value.
> Credit Quality Information
310-10-50-27. The guidance in paragraphs 310-10-50-28 through 50-30 does not apply
to the financing receivables listed below:
a. Receivables measured at fair value with changes in fair value reported in
earnings
b. Receivables measured at lower of cost or fair value
c. Except for credit card receivables, trade accounts receivable that have both of
the following characteristics:
1. They have a contractual maturity of one year or less
2. They arose from the sale of goods or services.
d. Participant loans in defined contribution pension plans.
310-10-50-28. An entity shall provide information that enables financial statement users
to do both of the following:
a. Understand how and to what extent management monitors the credit quality
of its financing receivables in an ongoing manner
b. Assess the quantitative and qualitative risks arising from the credit quality of
its financing receivables.
310-10-50-29. To meet the objective in the preceding paragraph, an entity shall provide
quantitative and qualitative information by class about the credit quality of its
financing receivables, including all of the following:
a. A description of the credit quality indicator
b. The recorded investment in financing receivables by credit quality indicator
c. For each credit quality indicator, the date or range of dates in which the
information was updated for that credit quality indicator.
310-10-50-30. If an entity discloses internal risk ratings, then the entity shall provide
qualitative information on how those internal risk ratings relate to the likelihood
of loss.
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Pending Content
Note: This pending content is applicable for an entity with a December 31st year-end.
Note: On April 4, 2011, the FASB issued ASU No. 2011-02, A Creditor’s
Determination of Whether a Restructuring Is a Troubled Debt Restructuring,
which amends guidance for evaluating whether the restructuring of a receivable
by a creditor is a troubled debt restructuring (TDR). ASU 2011-02 is effective for
a public entity for interim and annual periods beginning on or after June 15,
2011. Retrospective application is required for restructurings occurring on or after
the beginning of the fiscal year of adoption for purposes of identifying and
disclosing TDRs. However, an entity should apply prospectively changes in the
method used to calculate impairment on receivables. At the same time it adopts
ASU 2011-02, a public entity will be required to disclose the activity-based
information about TDRs that was previously deferred by ASU No. 2011-01,
Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings
in Update No. 2010-20. A nonpublic entity is required to adopt the ASU for
annual periods ending after December 15, 2012. Early adoption is permitted.
> Modifications
310-10-50-31. Except as noted in the following paragraph, the guidance in paragraphs
310-10-50-33 through 50-34 applies only to a creditor’s troubled debt
restructurings of financing receivables. For purposes of this disclosure guidance, a
creditor’s modification of a lease receivable that meets the definition of a troubled
debt restructuring is subject to this disclosure guidance.
310-10-50-32. This guidance does not apply to troubled debt restructurings of either of
the following:
a. Financing receivables listed in paragraph 310-10-50-7B
b. Loans acquired with deteriorated credit quality (determined under Subtopic
310-30) that are accounted for within a pool.
310-10-50-33. For each period for which a statement of income is presented, an entity
shall disclose the following about troubled debt restructurings of financing
receivables that occurred during the period:
a. By class of financing receivable, qualitative and quantitative information,
including both of the following:
1. How the financing receivables were modified
2. The financial assets of the modifications.
b. By portfolio segment, qualitative information about how such modifications
are factored into the determination of the allowance for credit losses.
310-10-50-34. For each period for which a statement of income is presented, an entity
shall disclose the following for financing receivables modified as troubled debt
restructurings within the previous 12 months and for which there was a payment
default during the period:
a. By class of financing receivable, qualitative and quantitative information
about those defaulted financing receivables, including both of the following:
1. The types of financing receivables that defaulted.
2. The amount of financing receivables that defaulted.
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b. By portfolio segment, qualitative information about how such defaults are
factored into the determination of the allowance for credit losses.
> Imputed Interest
835-30-45-2 The description of a note with imputed interest shall include the effective
interest rate. The face amount shall also be disclosed in the financial statements or
in the notes to the statements.
SEC Guidance
1 Regulation S-X Rule 12-09. List by major classes, all valuation and qualifying
accounts and reserves not included in specific schedules. Identify each such class of
valuation and qualifying accounts and reserves by descriptive title. Group (a) those
valuation and qualifying accounts which are deducted in the balance sheet from the
assets to which they apply and (b) those reserves which support the balance sheet
caption. Reserves Valuation and qualifying accounts and reserves as to which the
additions, deductions, and balances were not individually significant may be
grouped in one total and in such case the information called for under columns C
and D need not be given.
2
3
August 2009, Dear CFO letter. Letter issued to certain financial institutions
expressing views about a number of disclosures related to provisions and allowances
for loan losses that should be considered in preparing Management’s Discussion and
Analysis (MD&A). Those suggested MD&A disclosure items include information
about higher-risk loans, changes in practices for determining the allowance for loan
losses, and declines in collateral value. The SEC’s letter also contained a reminder
that, while the determination of allowances for loan losses requires management to
apply judgment, it is not appropriate to delay recognition of credit losses that can be
estimated based on current information and events. The letter states that the SEC
will take appropriate action if it believes that a financial institution’s financial
statements are inconsistent with GAAP.
Registrants accounting for loans and receivables that it intends to sell under Section
310-10-35 should consider the need for the following additional clarifying
disclosures (SEC-Current Accounting and Disclosure Issues in the Division of
Corporation Finance, November 30, 2006):
a.
Identify the amount of loans/receivables held for sale.
b.
Explain how it determines which loans/receivables are initially accounted
for as held for sale or are later transferred to the held for sale classification.
c.
Describe the method it uses to determine the lower of cost or fair value for
loans/receivables held for sale.
d.
Reconcile the changes in loans/receivables held for sale balances to the
amounts presented in the consolidated statement of cash flows.
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KPMG and Other Guidance
1 If operating cycle is longer than a year, disclose estimate of amounts realizable
within one year.
2 If amounts of installment receivables that will be collected after one year are
material to an understanding of liquidity, a schedule of annual amounts due should
be furnished.
3 In the typical situation where an insured entity is not released from being the
primary obligor of the liability, insurance receivables and the related liabilities
should be presented gross on the balance sheet. Receivables for insurance recoveries
should not be netted against the related liabilities or otherwise grouped to offset
impairment losses unless the right of setoff exists under Subtopic 210-20. (ASC
Section 210-20-45) (KARG 49.281, 99.079, 99.4, 99.5).
23 Acquisition, Development, and Construction (ADC) Arrangements Subsection of Subtopic 31010: Receivables—Overall
Presentation
310-10-45-15. Acquisition, development, and construction arrangements accounted for
as investments in real estate or joint ventures shall be combined and reported in
the balance sheet separately from those acquisition, development, and
construction arrangements accounted for as loans.
SEC Guidance
1 See SAB Topic 1.I for SEC Staff views on disclosures and separate financial
statement requirements related to acquisition, development, and construction
arrangements.
24 Subtopic 310-20: Receivables—Nonrefundable Fees and Other Costs
Presentation
> Balance Sheet Classification
310-20-45-1 The unamortized balance of loan origination, commitment, and other fees
and costs and purchase premiums and discounts that is being recognized as an
adjustment of yield pursuant to this Subtopic shall be reported on the entity’s
balance sheet as part of the loan balance to which it relates.
310-20-45-2. Commitment fees that meet the criteria of paragraph 310-20-35-3 shall be
classified as deferred income in the financial statements.
> Income Statement Classification
310-20-45-3. Amounts of loan origination, commitment, and other fees and costs
recognized as an adjustment of yield shall be reported as part of interest income.
Amortization of other fees, such as commitment fees that are being amortized on
a straight-line basis over the commitment period or included in income when the
commitment expires, shall be reported as service fee income.
Disclosure
> Net Fees and Costs
310-20-50-1. The summary of significant accounting policies shall include the method
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for recognizing interest income on loan and trade receivables, including a
statement about the entity’s policy for treatment of related fees and costs,
including the method of amortizing net deferred fees or costs.
310-20-50-2. Entities that anticipate prepayments in applying the interest method shall
disclose that policy and the significant assumptions underlying the prepayment
estimates.
310-20-50-3. The unamortized net fees and costs shall be reported as a part of each loan
category. Additional disclosures such as unamortized net fees and costs may be
included in the footnotes to the financial statements if the lender believes that
such information is useful to the users of financial statements.
310-20-50-4. With respect to credit card fees and costs for both purchased and
originated credit cards, an entity shall disclose its accounting policy, the net
amount capitalized at the balance sheet date, and the amortization period(s).
25 Subtopic 310-30: Receivables—Loans and Debt Securities Acquired with Deteriorated Credit
Quality
Presentation
> Accretable Yield
310-30-45-1. The amount of accretable yield shall not be displayed in the balance sheet.
The loan’s contractually required payments receivable in excess of the amount of
its cash flows expected at acquisition (nonaccretable difference) shall not be
displayed in the balance sheet or recognized as an adjustment of yield, a loss
accrual, or a valuation allowance for credit risk.
Disclosure
> Footnote Disclosures for Loans
310-30-50-1. The notes to financial statements shall describe how prepayments are
considered in the determination of contractual cash flows and cash flows expected
to be collected.
310-30-50-2. In addition to disclosures required by other generally accepted accounting
principles (GAAP), for each balance sheet presented, an investor shall disclose the
following information about loans within the scope of this Subtopic:
a. Separately for both those loans that are accounted for as debt securities and
those loans that are not accounted for as debt securities, all of the following:
1 The outstanding balance and related carrying amount at the beginning and
end of the period. For loans that have a net carrying amount, the
outstanding balance is the undiscounted sum of all amounts, including
amounts deemed principal, interest, fees, penalties, and other under the
loan, owed to the investor at the reporting date, whether or not currently
due and whether or not any such amounts have been written or charged
off by the investor. Amounts forgiven in a debt restructuring but
contingently payable to the investor shall be included in the forgiven
contract balance, but amounts irrevocably forgiven in a debt restructuring
shall not be included. Amounts payable to the investor in cash, in kind,
and by any other means shall be included. Amounts legally discharged
shall not be included. The outstanding balance does not include amounts
that would be accrued under the contract as interest, fees, penalties, and
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other after the reporting date.
2 The amount of accretable yield at the beginning and end of the period,
reconciled for additions, accretion, disposals of loans, and
reclassifications to or from nonaccretable difference during the period
3 For loans acquired during the period, the contractually required payments
receivable, cash flows expected to be collected, and fair value at the
acquisition date
4 For those loans within the scope of this Subtopic for which the income
recognition model in this Subtopic is not applied in accordance with
paragraph 310-30-35-3, the carrying amount at the acquisition date for
loans acquired during the period and the carrying amount of all loans at
the end of the period.
b. Further, for those loans that are not accounted for as debt securities, both of the
following:
1 The amount of both of the following:
a. Any expense recognized pursuant to paragraph 310-30-35-10(a)
b. Any reductions of the allowance recognized pursuant to paragraph
310-30-35-10(b)(1) for each period for which an income statement is
presented.
2 The amount of the allowance for uncollectible accounts at the beginning
and end of the period.
26 Subtopic 310-40: Receivables—Troubled Debt Restructurings by Creditors
Disclosure
> Creditor Disclosure of Troubled Debt Restructurings
310-40-50-1. As of the date of each balance sheet presented, a creditor shall disclose,
either in the body of the financial statements or in the accompanying notes, the
amount of commitments, if any, to lend additional funds to debtors owing
receivables whose terms have been modified in troubled debt restructurings.
310-40-50-2. Information about an impaired loan that has been restructured in a
troubled debt restructuring involving a modification of terms need not be included
in the disclosures required by paragraphs 310-10-50-15(a) and 310-10-50-15(c)
(in this checklist) in years after the restructuring if both of the following
conditions exist:
a. The restructuring agreement specifies an interest rate equal to or greater than
the rate that the creditor was willing to accept at the time of the restructuring
for a new loan with comparable risk.
b. The loan is not impaired based on the terms specified by the restructuring
agreement.
310-40-50-3. That exception shall be applied consistently for paragraph 310-10-50-15
(in this checklist) to all loans restructured in a troubled debt restructuring that
meet the criteria in the preceding paragraph.
> Loan Restructured Into Two (or More) Loan Agreements
310-40-50-5. When a loan is restructured in a troubled debt restructuring into two (or
more) loan agreements, the restructured loans shall be considered separately when
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assessing the applicability of the disclosures in paragraphs 310-10-50-15 (in this
checklist), in years after the restructuring because they are legally distinct from
the original loan. The creditor would continue to base its measure of loan
impairment on the contractual terms specified by the original loan agreement in
accordance with paragraphs 310-10-35-20 through 35-26 and 310-10-35-37.
SEC Guidance
> Impaired Loans Restructured in a Troubled Debt Restructuring
1 SEC Observer Comment: Applicability of the Disclosures Required by Topic 310
when a Loan is Restructured in a Troubled Debt Restructuring into Two or More
Loans. With respect to paragraph 310-40-50-5 noted above, the SEC staff is
concerned that disclosures of impaired loans after loans are restructured in troubled
debt restructurings into multiple loan structures might, in some circumstances, imply
that the quality of the loan portfolio had improved solely as a result of the troubled
debt restructurings. Accordingly, the SEC staff believes that registrants should make
clear to the users of the financial statements the impact of the multiple loan
structures on the impaired loan disclosures.
27 Subtopic 320-10: Investments—Debt and Equity Securities—Overall
Note: Concerns that certain highly leveraged European governments could default on
their debt obligations have resulted in significant price declines and price
volatility in sovereign debt securities, currency exchange rates, and securities
issued by the financial institutions (primarily European banks) that lend to these
governments. Reporting entities should consider related accounting and disclosure
issues including:
• Fair v alue est imates r elated t o E uropean s overeign d ebt se curities w ith
significantly reduced liquidity;
• Other-than-temporary i mpairment i ssues r elated to European so vereign an d
financial institution debt securities;
• Loan l oss provisioning considerations r elated t o di rect loans t o European
governments, financial i nstitutions that l end to those g overnments o r t o
corporate clients with significant operations in affected regions;
• Counterparty c redit exposure through derivative activities or currency swaps
with financial institutions with significant European sovereign exposure; and
• Risk a nd unc ertainties di sclosures r elated t o v aluation, c oncentrations, a nd
related issues.
Note: For debt securities that are held by a not-for-profit entity that reports a
performance indicator, throughout this Subtopic the term earnings shall be
replaced with performance indicator, and the term other comprehensive income
shall be replaced with outside the performance indicator.
Presentation
> Balance Sheet Classification
320-10-45-1. An entity shall report its investments in available-for-sale securities and
trading securities separately from similar assets that are subsequently measured
using another measurement attribute on the face of the statement of financial
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position. To accomplish that, an entity shall do either of the following:
a. Present the aggregate of those fair value and non-fair-value amounts in the
same line item and parenthetically disclose the amount of fair value included
in the aggregate amount
b. Present two separate line items to display the fair value and non-fair-value
carrying amounts.
320-10-45-2. An entity that presents a classified statement of financial position shall
report individual held-to-maturity securities, individual available-for-sale
securities, and individual trading securities as either current or noncurrent, as
appropriate, under the guidance of Section 210-10-45.
> Presentation of Deferred Tax Assets Relating to Losses on Available-for-Sale
Securities
320-10-45-3. An entity that recognizes a deferred tax asset relating only to a net
unrealized loss on available-for-sale securities may at the same time conclude that
it is more likely than not that some or all of that deferred tax asset will not be
realized. In that circumstance, the entity shall report the offsetting entry to the
valuation allowance in the component of other comprehensive income classified
as unrealized gains and losses on certain investments in debt securities and equity
securities because the valuation allowance is directly related to the unrealized
holding loss on the available-for-sale securities. The entity shall also report the
offsetting entry to the valuation allowance in the component of other
comprehensive income classified as unrealized gains and losses on certain
investments in debt and equity securities if the entity concludes on the need for a
valuation allowance in a later interim period of the same fiscal year in which the
deferred tax asset is initially recognized. (See paragraphs 320-10-45-4 through 456 for additional guidance on changes in valuation allowances in subsequent
periods.) Also see KPMG’s Accounting for Income Taxes.
> Income Statement Classification
320-10-45-7. This Subtopic does not specify the income statement classification of
gains and losses for transfers involving trading securities. However, gains and
losses that have accumulated before the transfer shall be classified consistently
with realized gains and losses for the category from which the security is being
transferred, not the category into which the security is being transferred.
320-10-45-8A. In periods in which an entity determines that a security’s decline in fair
value below its amortized cost basis is other than temporary, the entity shall
present the total other-than-temporary impairment in the statement of earnings
with an offset for the amount of the total other-than-temporary impairment that is
recognized in other comprehensive income, in accordance with paragraph 320-1035-34D, if any. Example 2A (see paragraph 320-10-55-21A) illustrates the
application of this guidance.
> Other Comprehensive Income
320-10-45-9. Subsequent increases in the fair value of available-for-sale securities shall
be included in other comprehensive income pursuant to paragraphs 320-10-35©2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of
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1(b) and 320-10-45-8; subsequent decreases in fair value, if not an other-thantemporary impairment, also shall be included in other comprehensive income.
>> Other-Than-Temporary Impairment
320-10-45-9A. An entity shall separately present, in the financial statement in which the
components of accumulated other comprehensive income are reported, amounts
recognized therein related to held-to-maturity and available-for-sale debt
securities for which a portion of an other-than-temporary impairment has been
recognized in earnings.
> Cash Flow Presentation
320-10-45-11. Cash flows from purchases, sales, and maturities of available-for-sale
securities and held-to-maturity securities shall be classified as cash flows from
investing activities and reported gross for each security classification in the
statement of cash flows. Cash flows from purchases, sales, and maturities of
trading securities shall be classified based on the nature and purpose for which the
securities were acquired.
320-10-45-12. Paragraph 230-10-45-8 permits reporting activity in cash equivalents as a
net change. However, securities that are considered cash equivalents are subject to
the accounting and disclosure requirements of this Subtopic, such as disclosure of
amortized cost and fair value by major security types.
320-10-45-13. This Subtopic does not require the presentation of individual amounts for
the three categories of investments on the face of the statement of financial
position, provided the information is presented in the notes. Thus, entities that
report certain investments in debt securities as cash equivalents in accordance
with the provisions of Topic 230 can continue that practice, provided that the
notes reconcile the reporting classifications used in the statement of financial
position.
Disclosure
> General
320-10-50-1B. Major security types shall be based on the nature and risks of the
security. In determining whether disclosure for a particular security type is
necessary and whether it is necessary to further separate a particular security type
into greater detail, an entity shall consider all of the following:
a. (Shared) activity or business sector
b. Vintage
c. Geographic concentration
d. Credit quality
e. Economic characteristic.
> Securities Classified as Available for Sale
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320-10-50-2. For securities classified as available for sale, all reporting entities shall
disclose all of the following by major security type as of each date for which a
statement of financial position is presented:
a. Aggregate cost basis
aa. Aggregate fair value
aaa. Total other-than-temporary impairment recognized in accumulated other
comprehensive income
b. Total gains for securities with net gains in accumulated other comprehensive
income
c. Total losses for securities with net losses in accumulated other comprehensive
income
d. Information about the contractual maturities of those securities as of the date
of the most recent statement of financial position presented.
320-10-50-3. Maturity information may be combined in appropriate groupings. In
complying with this requirement, financial institutions (see paragraph 942-32050-1) shall disclose the fair value and the net carrying amount (if different from
fair value) of debt securities on the basis of at least the following four maturity
groupings.
a. Within one year
b. After one year through five years
c. After 5 years through 10 years
d. After 10 years
Securities not due at a single maturity date, such as mortgage-backed securities,
may be disclosed separately rather than allocated over several maturity groupings;
if allocated, the basis for allocation also shall be disclosed.
320-10-50-4. Investments in mutual funds that invest only in U.S. government debt
securities may be shown separately rather than grouped with other equity
securities in the disclosures by major security type required by paragraph 942320-50-2.
> Securities Classified as Held to Maturity
320-10-50-5. For securities classified as held to maturity, all reporting entities shall
disclose all of the following by major security type as of each date for which a
statement of financial position is presented:
a. Amortized cost basis
aa. Aggregate fair value
b. Gross unrecognized holding gains
c. Gross unrecognized holding losses
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d. Net carrying amount
dd. Total other-than-temporary impairment recognized in accumulated other
comprehensive income
e. Gross gains and losses in accumulated other comprehensive income for any
derivatives that hedged the forecasted acquisition of the held-to-maturity
securities
f.
Information about the contractual maturities of those securities as of the date
of the most recent statement of financial position presented. (Maturity
information may be combined in appropriate groupings. In complying with
this requirement, financial institutions [see paragraph 942-320-50-1] shall
disclose the fair value and the net carrying amount (if different from fair
value) of debt securities on the basis of at least the following four maturity
groupings.
1. Within one year
2. After one year through five years
3. After 5 years through 10 years
4. After 10 years
Securities not due at a single maturity date, such as mortgage-backed
securities, may be disclosed separately rather than allocated over several
maturity groupings; if allocated, the basis for allocation also shall be
disclosed.).
> Impairment of Securities
320-10-50-6. For all investments in an unrealized loss position, including those that fall
within the scope of Subtopic 325-40, for which other-than-temporary impairments
have not been recognized in earnings (including investments for which a portion
of an other-than-temporary impairment has been recognized in other
comprehensive income), an entity shall disclose all of the following in its interim
and annual financial statements:
a. As of each date for which a statement of financial position is presented,
quantitative information, aggregated by category of investment—each
category of investment that the entity discloses in accordance with this
Subtopic and cost-method investments—in tabular form:
1
The aggregate related fair value of investments with unrealized losses.
2
The aggregate amount of unrealized losses (that is, the amount by which
cost exceeds fair value).
b. As of the date of the most recent statement of financial position, additional
information (in narrative form) that provides sufficient information to allow
financial statement users to understand the quantitative disclosures and the
information that the entity considered (both positive and negative) in reaching
the conclusion that the impairment or impairments are not other than
temporary. (The application of Step 2 in paragraph 320-10-35-30 shall
provide insight into the entity’s rationale for concluding that unrealized losses
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are not other-than-temporary impairments. The disclosures required may be
aggregated by investment categories, but individually significant unrealized
losses generally shall not be aggregated.) This disclosure could include all of
the following:
1
The nature of the investment(s)
2
The cause(s) of the impairment(s)
3
The number of investment positions that are in an unrealized loss position
4
The severity and duration of the impairment(s)
5
Other evidence considered by the investor in reaching its conclusion that
the investment is not other-than-temporarily impaired, including, for
example, any of the following:
a. Performance indicators of the underlying assets in the security,
including any of the following:
1. Default rates
2. Delinquency rates
3. Percentage of nonperforming assets.
b.
Loan-to-collateral-value ratios
c.
Third-party guarantees
d.
Current levels of subordination
e.
Vintage
f.
Geographic concentration
g.
Industry analyst reports
h.
Sector credit ratings
i.
Volatility of the security’s fair value
j.
Any other information that the investor considers relevant.
320-10-50-7. The disclosures in (a)(1) through (a)(2) in the preceding paragraph shall be
segregated by those investments that have been in a continuous unrealized loss
position for less than 12 months and those that have been in a continuous
unrealized loss position for 12 months or longer.
320-10-50-8. The reference point for determining how long an investment has been in a
continuous unrealized loss position is the balance sheet date of the reporting
period in which the impairment is identified. For entities that do not prepare
interim financial information, the reference point is the annual balance sheet date
of the period during which the impairment was identified. The continuous
unrealized loss position ceases upon either of the following:
a. The recognition of the total amount by which amortized cost basis exceeds
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fair value as an other-than-temporary impairment in earnings
b. The investor becoming aware of a recovery of fair value up to (or beyond) the
cost of the investment during the period.
320-10-50-8A. For interim and annual periods in which an other-than-temporary
impairment of a debt security is recognized and only the amount related to a credit
loss was recognized in earnings, an entity shall disclose by major security type,
the methodology and significant inputs used to measure the amount related to
credit loss. Examples of significant inputs include, but are not limited to, all of the
following:
a. Performance indicators of the underlying assets in the security, including all
of the following:
1
Default rates
2
Delinquency rates
3
Percentage of nonperforming assets
b. Loan-to-collateral-value ratios
c. Third-party guarantees
d. Current levels of subordination
e. Vintage
f.
Geographic concentration
g. Credit ratings.
320-10-50-8B. For each interim and annual reporting period presented, an entity shall
disclose a tabular rollforward of the amount related to credit losses recognized in
earnings in accordance with paragraph 320-10-35-34D, which shall include at a
minimum, all of the following:
a. The beginning balance of the amount related to credit losses on debt securities
held by the entity at the beginning of the period for which a portion of an
other-than-temporary impairment was recognized in other comprehensive
income
b. Additions for the amount related to the credit loss for which an other-thantemporary impairment was not previously recognized
c. Reductions for securities sold during the period (realized)
d. Reductions for securities for which the amount previously recognized in other
comprehensive income was recognized in earnings because the entity intends
to sell the security or more likely than not will be required to sell the security
before recovery of its amortized cost basis
e. If the entity does not intend to sell the security and it is not more likely than
not that the entity will be required to sell the security before recovery of its
amortized cost basis, additional increases to the amount related to the credit
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loss for which an other-than-temporary impairment was previously
recognized
f.
Reductions for increases in cash flows expected to be collected that are
recognized over the remaining life of the security (see paragraph 320-10-3535)
g. The ending balance of the amount related to credit losses on debt securities
held by the entity at the end of the period for which a portion of an other-thantemporary impairment was recognized in other comprehensive income.
> Sales, Transfers, and Related Matters that Occurred During the Period
320-10-50-9. For each period for which the results of operations are presented, an entity
shall disclose all of the following:
a. The proceeds from sales of available-for-sale securities and the gross realized
gains and gross realized losses that have been included in earnings as a result
of those sales
b. The basis on which the cost of a security sold or the amount reclassified out of
accumulated other comprehensive income into earnings was determined (that
is, specific identification, average cost, or other method used)
c. The gross gains and gross losses included in earnings from transfers of
securities from the available-for-sale category into the trading category
d. The amount of the net unrealized holding gain or loss on available-for-sale
securities for the period that has been included in accumulated other
comprehensive income and the amount of gains and losses reclassified out of
accumulated other comprehensive income into earnings for the period
e. The portion of trading gains and losses for the period that relates to trading
securities still held at the reporting date.
320-10-50-10. For any sales of or transfers from securities classified as held-tomaturity, an entity shall disclose all of the following in the notes to the financial
statements for each period for which the results of operations are presented:
a. The net carrying amount of the sold or transferred security
b. The net gain or loss in accumulated other comprehensive income for any
derivative that hedged the forecasted acquisition of the held-to-maturity
security
c. The related realized or unrealized gain or loss
d. The circumstances leading to the decision to sell or transfer the security.
(Such sales or transfers should be rare, except for sales and transfers due to
the changes in circumstances identified in paragraph 320-10-25-6(a) through
(f).)
320-10-50-11. Paragraph 320-10-25-14 sets forth the conditions under which sales of
debt securities may be considered as maturities for purposes of the disclosure
requirements under paragraph 320-10-50-10 (in this checklist).
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320-10-50-12. All sales or transfers of held-to-maturity securities are subject to the
disclosure requirements of paragraph 320-10-50-10 (in this checklist), regardless
of the treatment of remaining held-to-maturity securities.
320-10-50-14. The portion of trading gains and losses for the period related to trading
securities still held at the reporting date (required by paragraph 320-10-50-9(e) in
this checklist) is calculated as follows.
Net gains and losses recognized during the
period on trading securities
$
Less: Net gains and losses recognized during
the period on trading securities sold
during the period
Unrealized gains and losses recognized during
the reporting period on trading
securities still held at the reporting date
28
105
(80)
$
25
Subtopic 323-10: Investments—Equity Method and Joint Ventures—Overall; Subtopic
323-740: Investments—Equity Method and Joint Ventures—Income Taxes
Presentation
> The Equity Method—Overall Guidance
323-10-45-1. Under the equity method, an investment in common stock shall be shown
in the balance sheet of an investor as a single amount. Likewise, an investor’s
share of earnings or losses from its investment shall be shown in its income
statement as a single amount, except for the extraordinary items as specified in the
following paragraph.
323-10-45-2. The investor’s share of extraordinary items and its share of accounting
changes reported in the financial statements of the investee shall be classified
separately in accordance with Subtopic 225-20.
> Alternative Formats for Reporting Comprehensive Income
323-10-45-3. Regardless of how an investee chooses to display other comprehensive
income, an investor shall be permitted to combine its proportionate share of those
amounts with its own other comprehensive income items and display the
aggregate of those amounts in an income-statement-type format or in a statement
of changes in equity.
> Equity Method Investments in an Investment Company
323-10-45-4. Subtopic 946-323 (pending content with transition guidance in paragraph
946-10-65-1) (SOP 07-1) discusses the circumstances in which the specialized
accounting in paragraph 946-10-65-1 shall not be retained by a noninvestment
company equity method investor of an investment company. In those cases,
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Subtopic 810-10 applies to the investments held by the investment company
equity method investee for the purposes of the equity method investor’s financial
statements.
Disclosure
> General
323-10-50-1. Paragraph 323-10-15-3 explains that references in this Subtopic to
common stock refer to both common stock and in-substance common stock that
give the investor the ability to exercise significant influence over operating and
financial policies of an investee even though the investor holds 50% or less of the
common stock or in-substance common stock (or both common stock and insubstance common stock).
323-10-50-2. The significance of an investment to the investor’s financial position and
results of operations shall be considered in evaluating the extent of disclosures of
the financial position and results of operations of an investee. If the investor has
more than one investment in common stock, disclosures wholly or partly on a
combined basis may be appropriate.
323-10-50-3. All of the following disclosures generally shall apply to the equity method
of accounting for investments in common stock:
a. Financial statements of an investor shall disclose all of the following
parenthetically, in notes to financial statements, or in separate statements or
schedules:
1
The name of each investee and percentage of ownership of common
stock.
2
The accounting policies of the investor with respect to investments in
common stock. Disclosure shall include the names of any significant
investee entities in which the investor holds 20 percent or more of the
voting stock, but the common stock is not accounted for on the equity
method, together with the reasons why the equity method is not
considered appropriate, and the names of any significant investee
corporations in which the investor holds less than 20 percent of the voting
stock and the common stock is accounted for on the equity method,
together with the reasons why the equity method is considered
appropriate.
3
The difference, if any, between the amount at which an investment is
carried and the amount of underlying equity in net assets and the
accounting treatment of the difference.
b. For those investments in common stock for which a quoted market price is
available, the aggregate value of each identified investment based on the
quoted market price usually shall be disclosed. This disclosure is not required
for investments in common stock of subsidiaries.
c. If investments in common stock of corporate joint ventures or other
investments accounted for under the equity method are, in the aggregate,
material in relation to the financial position or results of operations of an
investor, it may be necessary for summarized information as to assets,
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liabilities, and results of operations of the investees to be presented in the
notes or in separate statements, either individually or in groups, as
appropriate.
d. Conversion of outstanding convertible securities, exercise of outstanding
options and warrants, and other contingent issuances of an investee may have
a significant effect on an investor’s share of reported earnings or losses.
Accordingly, material effects of possible conversions, exercises, or contingent
issuances shall be disclosed in notes to financial statements of an investor.
SEC Guidance
> Stock-Based Compensation Granted to Employees of an Equity Method Investee
> > Classification of Resulting Income or Expense
1
SEC Observer Comment. Investors that are SEC registrants should classify any
income or expense resulting from recognizing stock-based compensation granted to
employees of an equity method investee in the same income statement caption as the
equity in earnings (or losses) of the investee.
> Summarized Financial Information of Subsidiaries Not Consolidated and 50
Percent or Less Owned Persons
> > Annual Financial Statements
2
Regulation S-X Rule 4-08(g). Present summarized information as to assets,
liabilities, and results of operations for subsidiaries not consolidated or 50 percentor-less-owned persons accounted for by the equity method if the criteria for a
significant subsidiary are met. (Also see Regulation S-X 1-02(w))
Note: At the 2010 AICPA Conference, the SEC Staff announced changes in certain
long-standing staff interpretations of SEC rules for calculating the significance of
acquired businesses and investments accounted for under the equity method. The
new interpretations are effective immediately and may be applied retroactively. See
SEC Financial Reporting Manual Topic 2410.
In the year a consolidated subsidiary becomes an equity method investee, the
financial information should be presented for only the period of the fiscal year in
which the investee has been accounted for by the equity method (SEC-Reporting
Matters Discussed at the June 2005 AICPA SEC Regulations Committee Meeting).
> Income Taxes of Equity Method Investee
3
SAB Topic 6.I.2. If an equity method investee has an effective tax rate which differs
by more than 5% from the applicable statutory Federal income tax rate, whenever
the tax components are known and material to the investor’s (registrant’s) financial
position or results of operations, appropriate disclosure should be made. In some
instances where 50% or less owned persons are accounted for by the equity method
of accounting in the financial statements of the registrant, the registrant may not
know the rate at which the various components of income are taxed and it may not
be practicable to provide disclosure concerning such components. It should also be
noted that it is generally necessary to disclose the aggregate dollar and per-share
effect of situations where temporary tax exemptions or “tax holidays” exist, and that
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such disclosures are also applicable to 50% or less owned persons. Such disclosures
should include a brief description of the factual circumstances and give the date on
which the special tax status will terminate.
> KPMG and Other Content
1
Recognition of equity-method losses when an investor’s total investment in an
investee includes, in addition to common stock investment, other investments such
as preferred stock and loans to the investee.
29 Qualified Affordable Housing Project Investments Subsection of Subtopic 323-740:
Investments—Equity Method and Joint Ventures—Income Taxes
Presentation
323-740-45-2. Under the effective yield method, the tax credit allocated, net of the
amortization of the investment in the limited partnership, is recognized in the
income statement as a component of income taxes attributable to continuing
operations. Any other tax benefits received shall be accounted for pursuant to the
general requirements of Topic 740.
323-740-45-3. Example 1 (see paragraph 323-740-55-2) illustrates the application of
accounting guidance to a limited partnership investment in a qualified affordable
housing project using the cost, equity, and effective yield methods.
30 Subtopic 325-20: Investments—Other—Cost Method Investments
Disclosure
325-20-50-1. For cost-method investments, an investor shall disclose all of the
following additional information, if applicable, as of each date for which a
statement of financial position is presented in its annual financial statements:
a. The aggregate carrying amount of all cost-method investments
b. The aggregate carrying amount of cost-method investments that the investor
did not evaluate for impairment (see Section 325-20-35)
c. The fact that the fair value of a cost-method investment is not estimated if
there are no identified events or changes in circumstances that may have a
significant adverse effect on the fair value of the investment, and either of the
following:
1
That the investor determined, in accordance with paragraphs 825-10-5016 through 50-19, that it is not practicable to estimate the fair value of the
investment
2
That the investor is exempt from estimating fair value under Subtopic
825-10.
3
The investor is exempt from estimating interim fair values because it does
not meet the definition of a publicly traded company.
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31 Subtopic 325-30: Investments—Other—Investments in Insurance Contracts
Disclosure
> General
325-30-50-1. A policyholder shall disclose contractual restrictions on the ability to
surrender a policy.
32 Life Settlement Contract Subsection of Subtopic 325-30: Investments—Other—Investments in
Insurance Contracts
Presentation
> Statement of Financial Position
325-30-45-1. An investor shall report its investments in life settlement contracts that are
remeasured at fair value on the face of the statement of financial position
separately from those accounted for under the investment method. To accomplish
that separate reporting, an investor shall do either of the following:
a. Display separate line items on the statement of financial position for the fair
value method and investment method carrying amounts
b. Present the aggregate of those fair value method and investment method
carrying amounts and parenthetically disclose the amount of those
investments accounted for under the fair value method included in the
aggregate amount.
> Income Statement
325-30-45-2. The investor shall classify the amount recognized upon the death of the
insured on life settlement contracts in accordance with paragraph 325-30-35-9 in
earnings (or other performance indicators for entities that do not report earnings).
325-30-45-3. An investor shall report the investment income from its investments in life
settlement contracts that are remeasured at fair value on the face of the income
statement separately from the investment income from those accounted for under
the investment method. To accomplish that separate reporting, an investor shall do
either of the following:
a. Display separate line items on the income statement for the investment
income from the investments in life settlement contracts that are accounted for
under the fair value method and investment method
b. Present the aggregate of the investment income in life settlement contracts
and parenthetically disclose the investment income from those investments
accounted for under the fair value method that are included in the aggregate
amount.
325-30-45-4. An investor applying the fair value method shall account for premiums
paid and life insurance proceeds received on the same financial reporting line as
the changes in fair value are reported.
> Statement of Cash Flows
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325-30-45-5. An investor shall classify cash receipts and cash payments related to life
settlement contracts in accordance with Topic 230, based on the nature and
purpose for which the life settlements were acquired.
Disclosure
325-30-50-2. An investor shall disclose its accounting policy for life settlement
contracts including the classification of cash receipts and cash disbursements in
statement of cash flows.
325-30-50-3. The disclosure requirements in this Subsection do not eliminate disclosure
requirements included in other U.S. generally accepted accounting principles
(GAAP) pronouncements, including other disclosure requirements on the use of
fair value.
> Investment Method
325-30-50-4. An investor shall disclose all of the following for life settlement contracts
accounted for under the investment method based on the remaining life
expectancy for each of the first five succeeding years from the date of the
statement of financial position and thereafter, as well as in the aggregate:
a. The number of life settlement contracts
b. The carrying value of the life settlement contracts
c. The face value (death benefits) of the life insurance policies underlying the
contracts.
325-30-50-5. An investor shall disclose the life insurance premiums anticipated to be
paid for each of the five succeeding fiscal years to keep the life settlement
contracts in force as of the date of the most recent statement of financial position
presented.
325-30-50-6. If the investor becomes aware of new or updated information that causes it
to change its expectations on the timing of the realization of proceeds from the
investments in life settlement contracts, the investor shall disclose the nature of
the information and the related effect on the timing of the realization of proceeds
from the life settlement contracts. This includes disclosing significant changes to
the amounts disclosed in accordance with paragraph 325-30-50-4 (in this
checklist). However, an investor shall not be required to actively seek out new or
updated information to update the assumptions used in determining the remaining
life expectancy of the life settlement contracts.
> Fair Value Method
325-30-50-7. An investor shall disclose the method(s) and significant assumptions used
to estimate the fair value of investments in life settlement contracts, including any
mortality assumptions.
325-30-50-8. An investor shall disclose all of the following for life settlement contracts
accounted for under the fair value method based on remaining life expectancy for
each of the first five succeeding years from the date of the statement of financial
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position and thereafter, as well as in the aggregate:
a. The number of life settlement contracts
b. The carrying value of the life settlement contracts
c. The face value (death benefits) of the life insurance policies underlying the
contracts.
325-30-50-9. The investor shall disclose the reasons for changes in its expectation of the
timing of the realization of the investments in life settlement contracts. This
includes disclosing significant changes to the amounts disclosed in accordance
with paragraph 325-30-50-8 (in this checklist).
325-30-50-10. An investor shall disclose both of the following for each reporting period
presented in the income statement:
a. The gains or losses recognized during the period on investments sold during
the period
b. The unrealized gains or losses recognized during the period on investments
that are still held at the date of the statement of financial position.
33 Subtopic 330-10: Inventory—Overall
Disclosure
> Basis for Stating Inventories
330-10-50-1. The basis of stating inventories shall be consistently applied and shall be
disclosed in the financial statements; whenever a significant change is made
therein, there shall be disclosure of the nature of the change and, if material, the
effect on income. A change of such basis may have an important effect upon the
interpretation of the financial statements both before and after that change, and
hence, in the event of a change, a full disclosure of its nature and of its effect, if
material, upon income shall be made. See paragraph 210-10-50-1.
> Losses from Application of Lower of Cost or Market
330-10-50-2. When substantial and unusual losses result from the application of the rule
of lower of cost or market it will frequently be desirable to disclose the amount of
the loss in the income statement as a charge separately identified from the
consumed inventory costs described as cost of goods sold.
> Goods Stated Above Cost
330-10-50-3. Where goods are stated above cost this fact shall be fully disclosed.
> Stating Inventories at Sales Prices
330-10-50-4. Where such inventories are stated at sales prices, the use of such basis
shall be fully disclosed in the financial statements.
> Losses on Firm Purchase Commitments
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330-10-50-5. The amounts of net losses on firm purchase commitments accrued under
paragraph 330-10-35-17 shall be disclosed separately in the income statement.
> Disclosure of Significant Estimates
330-10-50-6. See Example 1 (paragraph 330-10-55-8) for an illustration of the
disclosure of significant estimates applicable to inventories as required by Section
275-10-50.
SEC Guidance
> LIFO Inventories
1
FR 205.02c. SEC registrants should avoid terminology such as “LIFO reserve” or
“LIFO adjustment”.
2
SAB Topic 11.F. Disclose income realized as a result of a last-in, first-out (LIFO)
liquidation. Disclosure may be made either in a footnote or parenthetically on the
face of the income statement.
> Consigned Inventory
3
SAB 104 Topic 13.A.2. Amount of any inventory consigned to others should be
reported separately as “inventory consigned to others” or other appropriate caption.
> Purchase Obligations
4
S-K, 3-03(a)(5). Disclose purchase obligations including agreements to purchase
goods and services.
KPMG and Other Guidance
> LIFO Inventories
1
For LIFO inventories (AICPA Issues Paper, Identification and Discussion of
Certain Financial Accounting and Reporting Issues Concerning LIFO Inventories,
November 30, 1984):
a. For non-SEC registrants, LIFO reserve or replacement cost of the inventory.
(See Regulation S-X Rule 5-02.6(c) above for SEC registrants.)
b. Dollar amount of inventory valued on LIFO and, separately, the dollar amount
of inventory valued on other acceptable methods, e.g., FIFO.
c. Extent to which LIFO is used for entities not fully adopting LIFO.
> > Optional Supplemental Disclosures Regarding the Effect of Using LIFO
(From AICPA Issues Paper, Identification and Discussion of Certain Financial
Accounting and Reporting Issues Concerning LIFO Inventories, November 30, 1984)
2
Supplemental non-LIFO disclosures may include the effects on the income
statement and the statement of financial position and include certain pro forma
effects of using LIFO. However, there are limitations on nature of the supplemental
non-LIFO disclosures that may be provided, with an overarching principle that when
such supplemental disclosures are provided, the disclosures should not imply that
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the non-LIFO earnings are the “real earnings” of the entity.
3
In presenting supplemental non-LIFO disclosures some entities may want to include
the effects of non-discretionary, variable expenses that would have affected the
income statement or the statement of financial position, such as a profit sharing
arrangement. In providing supplemental non-LIFO disclosures, an entity should
include changes in non-discretionary, variable expenses if it is probable that the nondiscretionary variable expenses would have been different based on the
supplemental information. Assessing probability is enhanced when such nondiscretionary, variable expenses are based on a pre-determined formula. When such
expenses are not based on a pre-determined formula but it is probable that the
variable expense would have changed based on the supplemental information, the
basis for the determination of the non-discretionary, variable expense should be
disclosed.
4
In addition to adjusting non-LIFO supplemental disclosures for the probable effects
of non-discretionary, variable expenses, the effects of income taxes also should be
considered in such disclosures. The income tax effect in such disclosures should be
computed in accordance with GAAP and should not be adjusted for any interest
costs associated with losing the tax advantages associated with using LIFO.
5
SEC FR 205.02c. In order to promote better understanding of the non-LIFO
supplemental disclosures, the SEC requires entities to:
a. State clearly that the use of LIFO results in a better matching of costs and
revenues.
b. Indicate the reason why the supplemental disclosures are provided.
c. Present essential information about the supplemental income calculation to
enable users of the financial statements to appreciate the quality of the
information presented.
6
SEC FR 205.02c. Supplemental non-LIFO disclosures, if any, should be included in
the notes to the financial statements or in MD&A. The SEC does not permit such
disclosures to be made in financial highlights, press releases, or the president’s letter
in an annual report to shareholders.
34 Topic 340-10: Deferred Costs and Other Assets—Overall — SEC Guidance
> Pre-Production Costs Related to Long-Term Supply Agreements
1
SEC Observer Comment: Accounting for Pre-Production Costs Related to LongTerm Supply Arrangements. Registrants will be expected to disclose their
accounting policy for pre-production design and development costs (paragraph 34010-25-1) as well as the aggregate amount of:
a. Assets recognized pursuant to agreements that provide for contractual
reimbursement of pre-production design and development costs
b. Assets recognized for molds, dies, and other tools that the supplier owns
c. Assets recognized for molds, dies, and other tools that the supplier does not
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own.
35 Subtopic 340-20: Deferred Costs and Other Assets—Capitalized Advertising Costs
Presentation
> Presentation of Qualifying Direct-Response Advertising Assets
340-20-45-1. If the costs of direct-response advertising meet the recognition criteria as
capitalized assets of paragraph 340-20-25-4, then they shall be reported as assets
net of accumulated amortization.
Disclosure
340-20-50-1. The notes to the financial statements shall disclose all of the following
(see Example 1, paragraph 340-20-55-1, for a sample footnote disclosure):
a. The accounting policy selected from the two alternatives in paragraph 720-3525-1 for reporting advertising, indicating whether such costs are expensed as
incurred or the first time the advertising takes place.
b. A description of the direct-response advertising reported as assets (if any), the
accounting policy for it, and the amortization period.
c. The total amount charged to advertising expense for each income statement
presented, with separate disclosure of amounts, if any, representing a writedown to net realizable value.
d. The total amount of advertising reported as assets in each balance sheet
presented.
36 Subtopic 340-30: Deferred Costs and Other Assets—Insurance Contracts that Do Not Transfer
Insurance Risks
Presentation
> Deposit Asset and Liability
340-30-45-1. Deposit assets and liabilities shall be reported on a gross basis, unless the
right of offset exists as defined in Subtopic 210-20. The accounting by the insured
and insurer are symmetrical, except as noted in paragraphs 340-30-35-6 through
35-7.
> Insurance and Reinsurance Contracts that Transfer Only Significant Timing
Risk and Insurance and Reinsurance Contracts that Transfer Neither Timing nor
Significant Underwriting Risk
340-30-45-2. Changes in the carrying amount of the deposit shall be reported as interest
income or interest expense.
> Insurance and Reinsurance Contracts that Transfer Only Significant
Underwriting Risk
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340-30-45-3. Changes in the recorded amount of the deposit, other than the unexpired
portion of the coverage provided, arising from an insurance or reinsurance
contract that transfers only significant underwriting risk shall be recorded in an
insured’s income statement as an offset against the loss recorded by the insured
that will be reimbursed under the insurance or reinsurance contract and in an
insurer’s income statement as an incurred loss.
340-30-45-4. Insurance entities shall record the reduction in the deposit related to the
unexpired portion of the coverage provided as an adjustment to incurred losses.
340-30-45-5. If the insured is an entity other than an insurance entity, the reduction in
the deposit related to the unexpired portion of the coverage provided shall be
recorded as an expense.
Disclosure
> Deposit Asset or Liability
340-30-50-1. Entities shall disclose a description of the contracts accounted for as
deposits and the separate amounts of total deposit assets and total deposit
liabilities reported in the statement of financial position.
37 Topic 350-20: Intangibles—Goodwill and Other—Goodwill
Note: ASU 2010-28, Goodwill and Other (Topic 350): When to Perform Step 2 of the
Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying
Amounts, modifies Step 1 of the goodwill impairment test for reporting units with
zero or negative carrying amounts. For those reporting units, an entity is required
to perform Step 2 of the goodwill impairment test if it is more likely than not that
a goodwill impairment exists. In determining whether it is more likely than not
that a goodwill impairment exists, an entity should consider whether there are any
adverse qualitative factors. The qualitative factors are consistent with the existing
guidance and examples in paragraph 350-20-35-30, which requires that goodwill
of a reporting unit be tested for impairment between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount.
ASU 2010-28 is effective for public entities for fiscal years, and interim
periods within those years, beginning after December 15, 2010. Early adoption
is not permitted. For nonpublic entities, the ASU is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2011. Nonpublic
entities may early adopt the ASU using the effective date for public entities.
Upon adoption of the ASU, an entity with reporting units that have carrying amounts
that are zero or negative is required to assess whether it is more likely than not
that the reporting units’ goodwill is impaired. If the entity determines that it is
more likely than not that the goodwill of one or more of its reporting units is
impaired, the entity should perform Step 2 of the goodwill impairment test for
those reporting unit(s). Any resulting goodwill impairment should be recorded
as a cumulative-effect adjustment to beginning retained earnings in the
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period of adoption.
Note: For entities with a December 31st year-end, ASU 2010-28 would be effective.
Note: On September 15, 2011, the FASB issued ASU No. 2011-08, Intangibles—
Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which permits
an entity to make a qualitative assessment of whether it is more likely than not
that a reporting unit’s fair value is less than its carrying amount before applying
the two-step goodwill impairment test. If an entity concludes that it is not more
likely than not that the fair value of a reporting unit is less than its carrying
amount, it would not need to perform the two-step impairment test for that
reporting unit. Goodwill must be tested for impairment at least annually, and
prior to the ASU, a two-step test was required to assess goodwill for impairment.
In Step 1, the fair value of a reporting unit is compared to the reporting unit’s
carrying amount. If the fair value is less than the carrying amount, Step 2 is used
to measure the amount of goodwill impairment, if any. The ASU applies to both
public and nonpublic entities and is effective for annual and interim goodwill
impairment tests performed in fiscal years beginning after December 15,
2011. Early adoption is permitted.
At the 2011 AICPA National Conference on Current SEC and PCAOB
Developments, the SEC Division of Corporate Finance Staff stated that they will
likely comment if a registrant concludes that implementation of the ASU had a
material impact on its financial statements or if a registrant uses a qualitative
assessment to avoid impairment testing on reporting units that are at risk for
impairment. Further, the Staff reminded registrants that while the ASU does not
require any new disclosures, the Staff remains vigilant in requiring transparent
MD&A disclosures, such as those identified in FRM Section 9510 for “at risk”
reporting units. Issues In-Depth 11-1
Note: For entities with a December 31st year-end, ASU 2011-08 would be effective.
Presentation
350-20-45-1. The aggregate amount of goodwill shall be presented as a separate line
item in the statement of financial position.
350-20-45-2. The aggregate amount of goodwill impairment losses shall be presented as
a separate line item in the income statement before the subtotal income from
continuing operations (or similar caption) unless a goodwill impairment loss is
associated with a discontinued operation.
350-20-45-3. A goodwill impairment loss associated with a discontinued operation shall
be included (on a net-of-tax basis) within the results of discontinued operations.
Disclosure
> Information for Each Period for Which a Statement of Financial Position Is
Presented
350-20-50-1. The changes in the carrying amount of goodwill during the period shall be
disclosed, showing separately (see Example 3 paragraph 350-20-55-24):
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a. The gross amount and accumulated impairment losses at the beginning of the
period
b. Additional goodwill recognized during the period, except goodwill included
in a disposal group that, on acquisition, meets the criteria to be classified as
held for sale in accordance with paragraph 360-10-45-9
c. Adjustments resulting from the subsequent recognition of deferred tax assets
during the period in accordance with paragraphs 805-740-25-2 through 25-4
and 805-740-45-2
d. Goodwill included in a disposal group classified as held for sale in accordance
with paragraph 360-10-45-9 and goodwill derecognized during the period
without having previously been reported in a disposal group classified as held
for sale
e. Impairment losses recognized during the period in accordance with this
Subtopic
f.
Net exchange differences arising during the period in accordance with Topic
830
g. Any other changes in the carrying amounts during the period
h. The gross amount and accumulated impairment losses at the end of the period
(accumulated goodwill impairment losses from the adoption date of Topic
350 (Statement 142)).
i.
Entities that report segment information in accordance with Topic 280 shall
provide the above information about goodwill in total and for each reportable
segment and shall disclose any significant changes in the allocation of
goodwill by reportable segment. If any portion of goodwill has not yet been
allocated to a reporting unit at the date the financial statements are issued, that
unallocated amount and the reasons for not allocating that amount shall be
disclosed.
Goodwill Impairment Loss
350-20-50-2. For each goodwill impairment loss recognized, all of the following
information shall be disclosed in the notes to the financial statements that include
the period in which the impairment loss is recognized:
a. A description of the facts and circumstances leading to the impairment
b. The amount of the impairment loss and the method of determining the fair
value of the associated reporting unit (whether based on quoted market prices,
prices of comparable businesses, a present value or other valuation technique,
or a combination thereof)
c. If a recognized impairment loss is an estimate that has not yet been finalized
(see paragraphs 350-20-35-18 through 19), that fact and the reasons therefore
and, in subsequent periods, the nature and amount of any significant
adjustments made to the initial estimate of the impairment loss
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>Modifications
350-20-50-3. The quantitative disclosures about significant unobservable inputs used in
fair value measurements categorized within Level 3 of the fair value hierarchy
required by paragraph 820-10-50-2(bbb) are not required for fair value
measurements related to the financial accounting and reporting for goodwill after
its initial recognition in a business combination.
SEC Guidance
1
S-X, Rule 10-01(b)(6). If any change to the date of the annual goodwill impairment
test is made, the registrant is required to disclose the date of and reason for the
change.
2
SEC staff speech: At the 2008 AICPA National Conference on Current SEC and
PCAOB Developments, the SEC staff discussed appropriate impairment matters for
public companies. The SEC staff also addressed the reconciliation of market
capitalization and the fair value of reporting units and the need for more robust
disclosures related to possible and actual goodwill impairment under current market
conditions.
a. Impairment charges recognized – the SEC staff discussed the significance of
disclosures of the facts and circumstances that led to the impairment.
b. Disclosures in MD&A about potential for future impairment charges (early
warning disclosures), impact of facts and circumstances leading to impairment
loss on expectations of future earnings and cash flows, and critical accounting
estimates.
3
SEC staff speech: At the 2009 AICPA Conference, the SEC staff indicated that they
have increased their focus on disclosures associated with goodwill impairment
testing. They noted a fairly wide diversity in practice as to the nature and extent of
the disclosures registrants provide.
The SEC staff discussed their expectation with respect to the types of disclosures
they expect in MD&A. For example, if a registrant has a reporting unit that is at risk
of failing step one of the goodwill impairment test, and an impairment of goodwill
allocated to that reporting unit would be material, the SEC staff would expect that
registrant to highlight the risk of impairment in its financial statements. Further, if
the fair value of a reporting unit is not “substantially in excess” of the carrying
value, the SEC staff expects registrants to provide the following disclosures:
a. The percentage by which the fair value of the reporting unit exceeded its
carrying value
b. The amount of goodwill allocated to the reporting unit
c. A discussion of the assumptions used and any uncertainty inherent in those
assumptions
d. A discussion of the potential events and circumstances that could have a
negative effect on the assumptions.
If the fair value of a reporting unit substantially exceeds its carrying value, the SEC
staff expects that this assertion would be disclosed.
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38 Subtopic 350-30: Intangibles—Goodwill and Other—General Intangibles Other Than Goodwill
Note: On July 27, 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived
Intangible Assets for Impairment. For more information, see the pending content
below.
Presentation
350-30-45-1. At a minimum, all intangible assets shall be aggregated and presented as a
separate line item in the statement of financial position. However, that
requirement does not preclude presentation of individual intangible assets or
classes of intangible assets as separate line items.
350-30-45-2. The amortization expense and impairment losses for intangible assets shall
be presented in income statement line items within continuing operations as
deemed appropriate for each entity.
350-30-45-3. Paragraphs 350-30-35-9 through 35-12 and 350-30-35-15 through 35-17
require that an intangible asset be tested for impairment when it is determined that
the asset shall no longer be amortized or shall begin to be amortized due to a
reassessment of its remaining useful life. An impairment loss resulting from that
impairment test shall not be recognized as a change in accounting principle.
Disclosure
> Disclosures in the Period of Acquisition
350-30-50-1. For intangible assets acquired either individually or as part of a group of
assets (in either an asset acquisition or business combination), all of the following
information shall be disclosed in the notes to financial statements in the period of
acquisition:
a. For intangible assets subject to amortization, all of the following:
1
The total amount assigned and the amount assigned to any major
intangible asset class
2
The amount of any significant residual value, in total and by major
intangible asset class
3
The weighted-average amortization period, in total and by major
intangible asset class.
b. For intangible assets not subject to amortization, the total amount assigned
and the amount assigned to any major intangible asset class.
c. The amount of research and development assets acquired in a transaction
other than a business combination and written off in the period and the line
item in the income statement in which the amounts written off are aggregated.
d. For intangible assets with renewal or extension terms, the weighted-average
period before the next renewal or extension (both explicit and implicit), by
major intangible asset class.
This information also shall be disclosed separately for each material business
combination or in the aggregate for individually immaterial business
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combinations that are material collectively if the aggregate fair values of
intangible assets acquired, other than goodwill, are significant.
> Disclosures for Each Period for Which a Statement of Financial Position Is
Presented
350-30-50-2. The following information shall be disclosed in the financial statements or
the notes to financial statements for each period for which a statement of financial
position is presented:
a. For intangible assets subject to amortization, all of the following:
1
The gross carrying amount and accumulated amortization, in total and by
major intangible asset class
2
The aggregate amortization expense for the period
3
The estimated aggregate amortization expense for each of the five
succeeding fiscal years.
b. For intangible assets not subject to amortization, the total carrying amount
and the carrying amount for each major intangible asset class
c. The entity’s accounting policy on the treatment of costs incurred to renew or
extend the term of a recognized intangible asset
d. For intangible assets that have been renewed or extended in the period for
which a statement of financial position is presented, both of the following:
1
For entities that capitalize renewal or extension costs, the total amount of
costs incurred in the period to renew or extend the term of a recognized
intangible asset, by major intangible asset class
2
The weighted-average period before the next renewal or extension (both
explicit and implicit), by major intangible asset class.
Example 13 (see paragraph 350-30-55-39) illustrates these disclosure
requirements.
> Disclosures Relating to Impairment Losses
350-30-50-3. For each impairment loss recognized related to an intangible asset, all of
the following information shall be disclosed in the notes to financial statements
that include the period in which the impairment loss is recognized:
a. A description of the impaired intangible asset and the facts and circumstances
leading to the impairment.
b. The amount of the impairment loss and the method for determining fair value.
c. The caption in the income statement or the statement of activities in which the
impairment loss is aggregated.
d. If applicable, the segment in which the impaired intangible asset is reported
under Topic 280.
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> Renewal or Extension of an Intangible Asset’s Legal or Contractual Life
350-30-50-4. For a recognized intangible asset, an entity shall disclose information that
enables users of financial statements to assess the extent to which the expected
future cash flows associated with the asset are affected by the entity’s intent or
ability (or both intent and ability) to renew or extend the arrangement.
> Certain Significant Estimates
350-30-50-5. For guidance on determining whether disclosures about an estimate of the
useful life of an intangible asset are required under paragraph 275-10-50-8 (in this
checklist), see paragraph 275-10-50-15A (in this checklist).
Pending Content
Note: ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment,
allows an entity to first assess qualitative factors to determine whether it is
necessary to perform the quantitative impairment test for indefinite-lived
intangible assets. An entity that elects to perform a qualitative assessment is
required to perform the quantitative impairment test for an indefinite-lived
intangible asset if it is more likely than not that the asset is impaired. The ASU,
which applies to all public, private, and not-for-profit organizations, is
effective for annual and interim impairment tests performed for fiscal years
beginning after September 15, 2012. Early adoption is permitted, including for
annual and interim impairment tests performed as of a date before July 27, 2012,
if a public entity’s financial statements for the most recent annual or interim
period have not yet been issued or, for nonpublic entities, have not yet been made
available for issuance.
>Modifications
350-30-50-3A. A nonpublic entity is not required to disclose the quantitative
information about significant unobservable inputs used in fair value
measurements categorized within Level 3 of the fair value hierarchy required by
paragraph 820-10-50-2(bbb) that relate to the financial accounting and reporting
for an indefinite-lived intangible asset after its initial recognition.
39 Subtopic 360-10: Property, Plant, and Equipment—Overall
Disclosure
360-10-50-1. Because of the significant effects on financial position and results of
operations of the depreciation method or methods used, all of the following
disclosures shall be made in the financial statements or in notes thereto:
a. Depreciation expense for the period.
b. Balances of major classes of depreciable assets, by nature or function, at the
balance sheet date.
c. Accumulated depreciation, either by major classes of depreciable assets or in
total, at the balance sheet date.
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d. A general description of the method or methods used in computing
depreciation with respect to major classes of depreciable assets.
40 Impairment or Disposal of Long-Lived Assets Subsection of Subtopic 360-10: Property, Plant,
and Equipment—Overall
Presentation
> Impairment of Long-Lived Assets Classified as Held and Used
> > Presentation of Impairment Loss for Long-Lived Assets to Be Held and Used
360-10-45-4. An impairment loss recognized for a long-lived asset (asset group) to be
held and used shall be included in income from continuing operations before
income taxes in the income statement of a business entity. If a subtotal such as
income from operations is presented, it shall include the amount of that loss.
> > Presentation of Disposal Gains or Losses in Continuing Operations
360-10-45-5. A gain or loss recognized on the sale of a long-lived asset (disposal group)
that is not a component of an entity shall be included in income from continuing
operations before income taxes in the income statement of a business entity. If a
subtotal such as income from operations is presented, it shall include the amounts
of those gains or losses.
> > Changes to a Plan of Sale
360-10-45-6. If circumstances arise that previously were considered unlikely and, as a
result, an entity decides not to sell a long-lived asset (disposal group) previously
classified as held for sale, the asset (disposal group) shall be reclassified as held
and used.
360-10-45-7. Any required adjustment to the carrying amount of a long-lived asset that
is reclassified as held and used shall be included in income from continuing
operations in the period of the subsequent decision not to sell. That adjustment
shall be reported in the same income statement caption used to report a loss, if
any, recognized in accordance with paragraph 360-10-45-5 (in this checklist). If a
component of an entity is reclassified as held and used, the results of operations of
the component previously reported in discontinued operations in accordance with
paragraph 205-20-45-3 (in this checklist) shall be reclassified and included in
income from continuing operations for all periods presented.
Disclosure
360-10-50-2. All of the following information shall be disclosed in the notes to financial
statements that include the period in which an impairment loss is recognized:
a. A description of the impaired long-lived asset (asset group) and the facts and
circumstances leading to the impairment
b. If not separately presented on the face of the statement, the amount of the
impairment loss and the caption in the income statement or the statement of
activities that includes that loss
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c. The method or methods for determining fair value (whether based on a quoted
market price, prices for similar assets, or another valuation technique)
d. If applicable, the segment in which the impaired long-lived asset (asset group)
is reported under Topic 280.
41 Subtopic 360-20: Property, Plant, and Equipment—Real Estate Sales
Pending Content
Note: ASU No. 2011-10, Derecognition of in Substance Real Estate – a Scope
Clarification (a consensus of the FASB Emerging Issues Task Force), indicates
that a reporting entity that ceases to have a controlling financial interest in a
subsidiary that is in substance real estate as a result of default on the subsidiary’s
nonrecourse debt would apply FASB ASC Subtopic 360-20, Property, Plant, and
Equipment – Real Estate Sales, to determine whether to derecognize assets and
liabilities of that subsidiary. For a public entity, the ASU is effective
prospectively for fiscal years, and interim periods within those years,
beginning on or after June 15, 2012. For a nonpublic entity the ASU is
effective prospectively for fiscal years ending after December 15, 2013 and
interim and annual periods thereafter. Early adoption is permitted.
Although the ASU does not contain additional disclosure requirements, the
transition disclosures in paragraphs 250-10-50-1 through 50-3 (in this checklist)
are required.
42 Subtopic 205-20: Presentation of Financial Statements—Discontinued Operations
Presentation
205-20-45-1. The results of operations of a component of an entity that either has been
disposed of or is classified as held for sale under the requirements of paragraph
360-10-45-9, shall be reported in discontinued operations in accordance with
paragraph 205-20-45-3 (in this checklist) if both of the following conditions are
met:
a. The operations and cash flows of the component have been (or will be)
eliminated from the ongoing operations of the entity as a result of the disposal
transaction.
b. The entity will not have any significant continuing involvement in the
operations of the component after the disposal transaction.
205-20-45-3. In a period in which a component of an entity either has been disposed of
or is classified as held for sale, the income statement of a business entity or
statement of activities of a not-for-profit entity (NFP) for current and prior periods
shall report the results of operations of the component, including any gain or loss
recognized in accordance with paragraphs 360-10-35-40 and 360-10-40-5, in
discontinued operations. The results of operations of a component classified as
held for sale shall be reported in discontinued operations in the period(s) in which
they occur. The results of discontinued operations, less applicable income taxes
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(benefit), shall be reported as a separate component of income before
extraordinary items (if applicable). A gain or loss recognized on the disposal shall
be disclosed either on the face of the income statement or in the notes to financial
statements (see paragraph 205-20-50-1(b) in this checklist).
205-20-45-4. Adjustments to amounts previously reported in discontinued operations
that are directly related to the disposal of a component of an entity in a prior
period shall be classified separately in the current period in discontinued
operations.
> > Allocation of Interest to Discontinued Operations
205-20-45-6. Interest on debt that is to be assumed by the buyer and interest on debt that
is required to be repaid as a result of a disposal transaction shall be allocated to
discontinued operations.
> > Disposal Group Classified as Held for Sale
205-20-45-10. The assets and liabilities of a disposal group classified as held for sale
shall be presented separately in the asset and liability sections, respectively, of the
statement of financial position. Those assets and liabilities shall not be offset and
presented as a single amount. The major classes of assets and liabilities classified
as held for sale shall be separately disclosed either on the face of the statement of
financial position or in the notes to financial statements (see paragraph 205-20-501(a) in this checklist).
> > Change of Classification After Balance Sheet Date but Before Issuance of
Financial Statements
360-10-45-13. If the held for sale criteria are met after the balance sheet date but before
the financial statements are issued or are available to be issued (as discussed in
Section 855-10-25), a long-lived asset shall continue to be classified as held and
used in those financial statements when issued or when available to be issued. In
addition, information required by paragraph 205-20-50-1(a) shall be disclosed in
the notes to financial statements. If the asset (asset group) is tested for
recoverability (on a held-and-used basis) as of the balance sheet date, the
estimates of future cash flows used in that test shall consider the likelihood of
possible outcomes that existed at the balance sheet date, including the assessment
of the likelihood of the future sale of the asset. That assessment made as of the
balance sheet date shall not be revised for a decision to sell the asset after the
balance sheet date.
Disclosure
205-20-50-1. The following shall be disclosed in the notes to financial statements that
cover the period in which a long-lived asset (disposal group) either has been sold
or is classified as held for sale under the requirements of paragraph 360-10-45-9:
a. A description of the facts and circumstances leading to the expected disposal,
the expected manner and timing of that disposal, and, if not separately
presented on the face of the statement, the carrying amount(s) of the major
classes of assets and liabilities included as part of a disposal group.
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b. The gain or loss recognized in accordance with paragraphs 360-10-35-40 and
360-10-40-5 and if not separately presented on the face of the income
statement, the caption in the income statement or the statement of activities
that includes that gain or loss.
c. If applicable, amounts of revenue and pretax profit or loss reported in
discontinued operations.
d. If applicable, the segment in which the long-lived asset (disposal group) is
reported under Topic 280.
> Change to a Plan of Sale
205-20-50-3. If an entity either decides not to sell a long-lived asset (disposal group)
previously classified as held for sale or removes an individual asset or liability
from a disposal group previously classified as held for sale, a description of the
facts and circumstances leading to the decision to change the plan to sell the longlived asset (disposal group) and its effect on the results of operations for the
period and any prior periods presented shall be disclosed in the notes to financial
statements that include the period of that decision.
> Continuing Cash Flows
205-20-50-4. The following information shall be disclosed in the notes to financial
statements for each discontinued operation that generates continuing cash flows:
a. The nature of the activities that give rise to continuing cash flows.
b. The period of time continuing cash flows are expected to be generated.
c. The principal factors used to conclude that the expected continuing cash flows
are not direct cash flows of the disposed component.
> Adjustments to Previously Reported Amounts
205-20-50-5. The nature and amount of adjustments to amounts previously reported in
discontinued operations that are directly related to the disposal of a component of
an entity in a prior period shall be disclosed.
> Continuing Involvement by Ongoing Entity
205-20-50-6. For each discontinued operation in which the ongoing entity will engage
in a continuation of activities with the disposed component after its disposal and
for which the amounts presented in continuing operations after the disposal
transaction include a continuation of revenues and expenses that were intra-entity
transactions (eliminated in consolidated financial statements) before the disposal
transaction, intra-entity amounts before the disposal transaction shall be disclosed
for all periods presented. The types of continuing involvement, if any, that the
entity will have after the disposal transaction shall be disclosed. That information
shall be disclosed in the period in which operations are initially classified as
discontinued.
SEC Guidance
1
SAB Topic 5-Z. Material contingent liabilities, such as product or environmental
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liabilities or litigation that remain with an entity notwithstanding disposal of the
underlying business, should be disclosed along with the disclosure requirements of
Topic 450.
2
SAB Topic 5-Z. Changes in the carrying value of assets received as consideration in
the disposal or of residual interests in the business disposed should be classified
within continuing operations.
> Allocation of Interest to Discontinuation of Operations
3
SEC Observer Comment. The SEC staff will expect registrants electing to allocate
interest in accordance with paragraph 205-20-45-6 to clearly disclose the accounting
policy (including the method of allocation) and the amount allocated to and included
in discontinued operations for all periods presented.
43 Subtopic 405-20: Liabilities—Extinguishments of Liabilities
Disclosure
405-20-50-1. See paragraph 470-50-50-1 for a disclosure requirement for debt
considered to be extinguished by in-substance defeasance. In addition, see
paragraph 860-30-50-2 for disclosure requirements for assets that are set aside
solely for the purpose of satisfying scheduled payments of a specific obligation.
44 Subtopic 405-30: Liabilities—Insurance-Related Assessments
Disclosure
405-30-50-1. Sections 275-10-50 and 450-20-55 address disclosures related to loss
contingencies. That guidance is applicable to assessments covered by this
Subtopic.
Additionally, if amounts have been discounted, the entity shall disclose in the
financial statements the undiscounted amounts of the liability and any related
asset for premium tax offsets or policy surcharges as well as the discount rate
used.
If amounts have not been discounted, the entity shall disclose in the financial
statements the amounts of the liability, any related asset for premium tax offsets
or policy surcharges, the periods over which the assessments are expected to be
paid, and the period over which the recorded premium tax offsets or policy
surcharges are expected to be realized.
45 Subtopic 410-20: Asset Retirement and Environmental Obligations—Asset Retirement
Obligations
Presentation
410-20-45-1. Accretion expense shall be classified as an operating item in the statement
of income. An entity may use any descriptor for accretion expense so long as it
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conveys the underlying nature of the expense.
Disclosure
410-20-50-1. An entity shall disclose all of the following information about its asset
retirement obligations:
a. A general description of the asset retirement obligations and the associated
long-lived assets
b. The fair value of assets that are legally restricted for purposes of settling asset
retirement obligations
c. A reconciliation of the beginning and ending aggregate carrying amount of
asset retirement obligations showing separately the changes attributable to the
following components, whenever there is a significant change in any of these
components during the reporting period:
1
Liabilities incurred in the current period
2
Liabilities settled in the current period
3
Accretion expense
4 Revisions in estimated cash flows.
410-20-50-2. If the fair value of an asset retirement obligation cannot be reasonably
estimated, that fact and the reasons therefore shall be disclosed.
46 Subtopic 410-30 : Asset Retirement and Environmental Obligations—Environmental
Obligations
Presentation
410-30-45-2. A debtor that has a right of setoff that meets all of the conditions in
paragraph 210-20-45-1 (in this checklist) may offset the related asset and liability
and report the net amount. It would be rare, if ever, that the facts and
circumstances surrounding environmental remediation liabilities and related
receivables and potential recoveries would meet all of these conditions.
410-30-45-3. The incurrence of environmental remediation obligations is not an event
that is unusual in nature. As such, the related costs and recoveries do not meet the
criteria for classification as extraordinary.
Disclosure
> Disclosures that Are Required
410-30-50-5. Subtopic 450-20 provides the primary guidance applicable to disclosures
of environmental remediation loss contingencies.
410-30-50-6. The disclosure requirements of Subtopic 275-10 also apply to
environmental remediation liabilities. Example 1 (paragraph 410-30-55-7)
illustrates the application of those disclosure requirements.
410-30-50-7. With respect to recorded accruals for environmental remediation loss
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contingencies and assets for third-party recoveries related to environmental
remediation obligations, financial statements shall disclose if any portion of the
accrued obligation is discounted, the undiscounted amount of the obligation, and
the discount rate used in the present-value determinations.
> Disclosures that Are Encouraged but Not Required
410-30-50-8. Because environmental remediation costs have become increasingly
significant, and because the accounting for many environmental loss
contingencies often involves subjective judgments, disclosure of accrual
benchmarks for remediation obligations is useful to further users’ understanding
of the entity’s financial statements. Accordingly, entities are encouraged, but not
required, to disclose the event, situation, or set of circumstances that generally
triggers recognition of loss contingencies that arise out of the entity’s
environmental remediation-related obligations (for example, during or upon
completion of the feasibility study). Also, entities are encouraged to disclose their
policy concerning the timing of recognition of recoveries. (See Example 2
paragraph 410-30-55-14.)
410-30-50-9. Uncertainties associated with environmental remediation loss
contingencies are pervasive, and they often result in wide ranges of reasonably
possible losses with respect to such contingencies. Further, resolution of the
uncertainties and the cash-flow effects of the loss contingencies often occur over a
span of many years. Accordingly, this Subtopic encourages, but does not require,
additional specific disclosures with respect to environmental remediation loss
contingencies that would be useful to further users’ understanding of the entity’s
financial statements.
410-30-50-10. Entities also are encouraged (see paragraph 410-30-55-15 through 5516), but not required, to disclose the following:
a. The estimated time frame of disbursements for recorded amounts if
expenditures are expected to continue over the long term
b. The estimated time frame for realization of recognized probable recoveries, if
realization is not expected in the near term
c. If an estimate of the probable or reasonably possible loss or range of loss
cannot be made, the reasons why it cannot be made
d. If information about the reasonably possible loss or the recognized and
additional reasonably possible loss for an environmental remediation
obligation related to an individual site is relevant to an understanding of the
financial position, cash flows, or results of operations of the entity, the
following with respect to the site:
1
The total amount accrued for the site
2
The nature of any reasonably possible loss contingency or additional loss,
and an estimate of the possible loss or the fact that an estimate cannot be
made and the reasons why it cannot be made
3
Whether other potentially responsible parties are involved and the entity’s
estimated share of the obligation
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4
The status of regulatory proceedings
5
The estimated time frame for resolution of the contingency.
410-30-50-11. Entities also are encouraged, but not required, to disclose the estimated
time frame for resolution of the uncertainty as to the amount of the loss (see
paragraph 410-30-55-17).
410-30-50-12. Entities are encouraged but not required to disclose the amount of
environmental remediation costs recognized in the income statement in the
following detail:
a. The amount recognized for environmental remediation loss contingencies in
each period.
b. The amount of any recovery from third parties that is credited to
environmental remediation costs in each period.
c. The income statement caption in which environmental remediation costs and
credits are included.
See paragraphs 410-30-55-14 through 55-15.
> Disclosure Related to Loss Contingencies
410-30-50-13. Whether notification by regulatory authorities in relation to particular
environmental laws and regulations constitutes the assertion of a claim is a matter
of legal determination. If an entity concludes that it has no current legal obligation
to remediate a situation of probable or possible environmental impact, then in
accordance with paragraph 450-20-50-6 (in this checklist) no disclosure is
required. However, if an entity is required by existing laws and regulations to
report the release of hazardous substances and to begin a remediation study or if
assertion of a claim is deemed probable, the matter would represent a loss
contingency subject to the disclosure provisions of paragraphs 450-20-50-3
through 50-4, regardless of a lack of involvement by a regulatory agency.
410-30-50-14. Financial statements may include a contingency conclusion that
addresses the estimated total unrecognized exposure to environmental remediation
and other loss contingencies. Such contingency conclusions may state, for
example, that “management believes that the outcome of these uncertainties
should not have [or “may have”] a material adverse effect on the financial
condition, cash flows, or operating results of the entity.” Alternatively, the
disclosure may indicate that the adverse effect could be material to a particular
financial statement or to results and cash flows of a quarterly or annual reporting
period.
410-30-50-17. Entities may wish to provide a description of the general applicability
and impact of environmental laws and regulations upon their business and how
the existence of such laws and regulations may give rise to loss contingencies for
future environmental remediation. Such disclosures often acknowledge the
uncertainty of the effect of possible future changes to environmental laws and
their application, and they are frequently made on an aggregated basis,
considering the entity’s total exposures for all its environmental sites.
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SEC Guidance
> Disclosures Related to Discounting an Environmental Liability, Loss
Contingencies, and Remediation Costs
1
SAB Topic 5.Y. For environmental liabilities that have been discounted:
a. Expected aggregate undiscounted amount of the liability and related recovery.
b. Discount rate used.
c. Expected payments for each of the five succeeding years and the aggregate
amount thereafter.
d. Reconciliation of the expected aggregate undiscounted amount to amounts
recognized in the balance sheets.
2
SAB Topic 5.Y. Disclose material liabilities for site restoration, post-closure, and
monitoring commitments, or other exit costs that may occur on the sale, disposal, or
abandonment of a property. Disclosures should include:
a. Types of cost involved.
b. Total anticipated cost.
c. Total cost accrued to date.
d. Balance sheet classification of accrued amounts.
e. Range or amount of reasonably possible additional losses.
3
SAB Topic 5.Y. For assets held for sale or development, disclose how necessary
remediation expenditures are considered in the assessment of the assets’ net
realizable value.
4
SAB Topic 5.Y. Disclose the exposure for remediation of environmental damage
relating to assets or businesses previously disposed.
47 Subtopic 420-10: Exit or Disposal Cost Obligations—Overall (Restructuring)
Presentation
420-10-45-1. The cumulative effect of a change resulting from a revision to either the
timing or the amount of estimated cash flows shall be reported in the same line
item(s) in the income statement (statement of activities) used when the related
costs were recognized initially in the period of change.
420-40-45-2. Costs associated with an exit or disposal activity involving a discontinued
operation shall be included within the results of discontinued operations in
accordance with Section 205-20-45.
420-10-45-3. Costs associated with an exit or disposal activity that does not involve a
discontinued operation shall be included in income from continuing operations
before income taxes in the income statement of a business entity and in income
from continuing operations in the statement of activities of a not-for-profit entity
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(NFP). Separate presentation of exit and disposal costs in the income statement is
not prohibited. However, because neither an exit activity nor a disposal activity is
both unusual and infrequent (see paragraph 225-20-45-16 in this checklist), it is
prohibited to present exit and disposal costs in the income statement net of income
taxes or in any manner that implies they are similar to an extraordinary item, as
defined in paragraphs 225-20-45-1 through 45-8. If a subtotal such as income
from operations is presented, it shall include the amounts of those costs.
Disclosure
420-10-50-1. All of the following information shall be disclosed in notes to financial
statements that include the period in which an exit or disposal activity is initiated
and any subsequent period until the activity is completed:
a. A description of the exit or disposal activity, including the facts and
circumstances leading to the expected activity and the expected completion
date.
b. For each major type of cost associated with the activity (for example, onetime employee termination benefits, contract termination costs, and other
associated costs), both of the following shall be disclosed:
1
The total amount expected to be incurred in connection with the activity
the amount incurred in the period, and the cumulative amount incurred to
date.
2
A reconciliation of the beginning and ending liability balances showing
separately the changes during the period attributable to costs incurred and
charged to expense, costs paid or otherwise settled, and any adjustments
to the liability with an explanation of the reason(s) why.
c. The line item(s) in the income statement or the statement of activities in
which the costs in (b) are aggregated.
d. For each reportable segment, as defined in Subtopic 280-10, the total amount
of costs expected to be incurred in connection with the activity, the amount
incurred in the period, and the cumulative amount incurred to date, net of any
adjustments to the liability with an explanation of the reason(s) why .
e. If a liability for a cost associated with the activity is not recognized because
fair value cannot be reasonably estimated, that fact and the reasons why.
KPMG and Other Guidance
1
KARG 117.127. If material, the accounting policy for the classification of accretion
expense.
2
KARG 117.126. The firm believes it is not appropriate to classify the following
costs as “restructuring” in an enterprise’s income statement: (a) termination benefits
under ASC Subtopic 712-10 that meet the ASC Subtopic 710-10 criteria and are
accrued over the service period, (b) inventory write-downs (ASC paragraph 420-10S99-2), and (c) impairment charges (ASC paragraph 360-10-S99-2) that should be
reported as separate line items in the income statement, or if reported in a single
“special charge” line item, clearly disclosed in the footnotes to the financial
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statements.
48 Subtopic 420-10: Exit or Disposal Cost Obligations—Overall (Restructuring)—SEC Guidance
1
SAB Topic 5.P.3. An entity should present a charge related to a liability associated
with an exit activity as a component of income from continuing operations and
separately disclosed if material. Also, an entity that separately presents charges
related to an exit or disposal activity in its income statement should not present a
subtotal representing “income from continuing operations before exit costs” before
those charges are presented.
2
SAB Topic 5.P. The SEC staff believes that it is necessary for a public company to
present in the notes to the financial statements involuntary termination charges and
exit charges in tabular form, with the related liability balances and activity (e.g.
beginning balance, new charges, cash payments, other adjustments with
explanations, and ending balances) from balance sheet date in order to explain fully
the components and effects of significant restructuring charges.
3
SAB Topic 5.P.4. Disclosures. The staff has requested the following disclosures to
fulfill the disclosure requirements of Subtopic 420-10 including MD&A:
a. Disclose losses relating to asset impairments separately from charges based on
estimates of future cash expenditures
b. Disclose the nature and amounts of additional types of exit costs and other types
of restructuring charges (e.g., long-term asset disposals, employee terminations,
leasehold termination payments, changes in valuation of current assets such as
inventory write-downs, and adjustments for warranties and product returns) that
appear quantitatively or qualitatively material
4
Examples of common components of exit costs and other types of restructuring
charges which if material should be separately disclosed include, but are not limited
to, involuntary employee terminations and related costs, changes in valuation of
current assets such as inventory writedowns, long term asset disposals, adjustments
for warranties and product returns, leasehold termination payments, and other
facility exit costs, among others.
5
SAB Topic 5.P. If multiple exit plans have been implemented in the period, present
separate information for each individual exit plan that has a material effect on the
balance sheet, results of operations, or cash flows.
6
For material exit or involuntary employee termination costs related to an acquired
business, the staff has requested disclosure in either MD&A or the financial
statements of:
a. When the registrant began formulating exit plans for which accrual may be
necessary
b. The types and amounts of liabilities recognized for exit costs and involuntary
employee termination benefits and included in the acquisition cost allocation,
and.
c. Any unresolved contingencies or purchase price allocation issues and the types
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of additional liabilities that may result in an adjustment of the acquisition cost
allocation.
Note: The SEC staff would expect similar disclosures for employee termination benefits
whether those costs have been recognized pursuant to Subtopics 715-30, 712-10
or 420-10.
49 Subtopic 440-10: Commitments—Overall
Disclosure
440-10-50-1. Notwithstanding more explicit disclosures required elsewhere in this
Codification, all of the following situations shall be disclosed in financial
statements:
a. Unused letters of credit
b. Long-term leases (see Sections 840-10-50, 840-20-50, and 840-30-50 in this
checklist)
c. Assets pledged as security for loans
d. Pension plans (see Section 715-20-50 in this checklist)
e. The existence of cumulative preferred stock dividends in arrears
f. Commitments, including:
1 A commitment for plant acquisition
2 An obligation to reduce debts
3 An obligation to maintain working capital
4 An obligation to restrict dividends
50 Unconditional Purchase Obligations Subsection of Subtopic 440-10: Commitments—Overall
Disclosure
440-10-50-2. An unconditional purchase obligation that has all of the following
characteristics shall be disclosed in accordance with paragraph 440-10-50-4 (in
this checklist) (if not recorded on the purchaser's balance sheet) or in accordance
with paragraph 440-10-50-6 (in this checklist) (if recorded on the purchaser's
balance sheet):
a. It is noncancelable, or cancelable only in any of the following circumstances:
1 Upon the occurrence of some remote contingency
2 With the permission of the other party
3 If a replacement agreement is signed between the same parties
4 Upon payment of a penalty in an amount such that continuation of the
agreement appears reasonably assured.
b. It was negotiated as part of arranging financing for the facilities that will
provide the contracted goods or services or for costs related to those goods or
services (for example, carrying costs for contracted goods). A purchaser is not
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required to investigate whether a supplier used an unconditional purchase
obligation to help secure financing, if the purchaser would otherwise be
unaware of that fact.
c. It has a remaining term in excess of one year
> Unrecognized Commitments
440-10-50-4. A purchaser shall disclose unconditional purchase obligations that meet
the criteria of paragraph 440-10-50-2 (in this checklist) and that have not been
recognized on its balance sheet. Disclosures of similar or related unconditional
purchase obligations may be combined. The disclosures shall include all of the
following:
1 The nature and term of the obligation(s)
2 The amount of the fixed and determinable portion of the obligation(s)
as of the date of the latest balance sheet presented, in the aggregate
and, if determinable, for each of the five succeeding fiscal years
3 The nature of any variable components of the obligation(s)
4 The amounts purchased under the obligation(s) (for example, the takeor-pay or throughput contract) for each period for which an income
statement is presented.
440-10-50-5. Disclosure of the amount of imputed interest necessary to reduce the
unconditional purchase obligation(s) to present value is encouraged but not
required.
> Recognized Commitments
440-10-50-6. A purchaser shall disclose for each of the five years following the date of
the latest balance sheet presented the aggregate amount of payments for
unconditional purchase obligations that meet the criteria of paragraph 440-10-502 (in this checklist) and that have been recognized on the purchaser’s balance
sheet.
440-10-50-7. Paragraph 815-10-50-6 (in this checklist) explains that, if an unconditional
purchase obligation is subject to the requirements of both this Subtopic and
Subtopic 815-10, the entity shall comply with the disclosure requirements of each
Subtopic including paragraph 440-10-50-4 (in this checklist).
SEC Guidance
> Purchase Obligations
1 Regulation S-K Rule 3-03(a)(5). Purchase obligations, recognized and
unrecognized, for goods or services are to be included in the tabular disclosure of
contractual obligations.
51 Subtopic 450-20: Contingencies—Loss Contingencies
Note: The SEC staff expects registrants to be proactive in assessing their disclosure for
compliance with ASC Topic 450 and has warned registrants not to wait to receive
a comment letter from the Staff to provide the required disclosure. The SEC staff
has taken the following positions in their review of loss contingency disclosures:
• Registrants generally may provide loss contingency disclosures on an
aggregate basis.
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Registrants should update loss contingency disclosures as additional
information becomes available, including quantitative information as a matter
gets close to resolution.
• Registrants should disclose a quantified range of loss, state that the range of
loss is immaterial, or disclose that the range of loss cannot be estimated, as
appropriate.
• Registrants generally may disclose the amount or range of reasonably possible
losses for certain cases and indicate that it cannot estimate an amount for
others.
• Registrants should not assert that they cannot quantify information about
reasonably possible losses because they cannot be estimated with confidence
or with precision because the SEC staff does not believe that such
qualifications are consistent with the requirements of ASC 450.
• Registrants should disclose whether loss estimates are gross or net of thirdparty recoveries, the registrant’s policy for recognizing third-party recoveries,
the existence and nature of uncertainties related to those recoveries, and the
classification of recoveries in the registrant’s income statement.
• Registrants should disclose their policy for recognizing legal fees either as
incurred or on the same basis as the related loss contingencies, if material.
• The SEC staff encourages registrants to write disclosures in a manner that is
clear, using appropriate accounting terminology (i.e., remote, reasonably
possible, and probable).
Refer to Issues In-Depth 11-1 for additional discussion of recent events and SEC
comments related to loss contingencies.
Disclosure
> Accruals for Loss Contingencies
450-20-50-1. For loss contingencies that are probable and estimable, disclose the nature
and in some circumstances the amount accrued, if necessary for the financial
statements not to be misleading.
450-20-50-2. If it is at least reasonably possible that the loss estimate will change in the
near term and the change would be material to the financial statements, disclose
the following:
a. Indicate the nature of the uncertainty.
b. Include an indication that it is at least reasonably possible that a change in the
estimate will occur in the near term.
c. Estimate of the possible loss or range of loss, or state that such an estimate
cannot be made.
d. Disclosure of the factors that cause the estimate to be sensitive to change is
encouraged but not required.
> Unrecognized Contingencies
450-20-50-2A. The disclosures required by paragraphs 450-20-50-3 through 50-6 do not
apply to loss contingencies arising from an entity’s recurring estimation of its
allowance for credit losses. (See paragraph 310-10-50-21 in this checklist.)
450-20-50-3 through 50-4. The following disclosures for unrecognized loss
contingencies shall be made if there is at least a reasonable possibility that a loss
•
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or an additional loss has been incurred:
a. The nature of the contingency
b. An estimate of the possible loss or range of loss or a statement that such an
estimate cannot be made.
450-20-50-6. Disclosure is not required of a loss contingency involving an unasserted
claim or assessment if there has been no manifestation by a potential claimant of
an awareness of a possible claim or assessment unless both of the following
conditions are met:
a. It is considered probable that a claim will be asserted.
b. There is a reasonable possibility that the outcome will be unfavorable.
If both conditions are met, the disclosures of 450-20-50-4 shall be provided.
450-20-50-7. Disclosure of noninsured or underinsured risks is not required by this
Subtopic. However, disclosure in appropriate circumstances is not discouraged.
> Losses Arising After the Date of the Financial Statements
450-20-50-9. Disclosure of a loss, or a loss contingency, arising after the date of an
entity’s financial statements but before those financial statements are issued, as
described in paragraphs 450-20-25-6 through 25-7, may be necessary to keep the
financial statements from being misleading if an accrual is not required. If
disclosure is deemed necessary, the financial statements shall include both of the
following:
a. The nature of the loss or loss contingency
b. An estimate of the amount or range of loss or possible loss or a statement that
such an estimate cannot be made.
450-20-50-10. Occasionally, in the case of a loss arising after the date of the financial
statements if the amount of asset impairment or liability incurrence can be
reasonably estimated, disclosure may best be made by supplementing the
historical financial statements with pro forma financial data giving effect to the
loss as if it had occurred at the date of the financial statements. It may be desirable
to present pro forma statements, usually a balance sheet only, in columnar form
on the face of the historical financial statements.
SEC Guidance
> Policy for Accrual of Legal Costs
1 SEC Staff Announcement (formerly EITF Topic D-77): Accounting for Legal Costs
Expected to be Incurred in Connection with a Loss Contingency. Disclose the
accounting policy for legal costs expected to be incurred in connection with a loss
contingency under this Topic.
> Disclosures Related to Product and Environmental Liabilities
Note: See also Subtopic 410-30 for disclosures about environmental liabilities.
2
SAB Topic 5.Y. Consider the need to disclose the following related to product and
environmental contingent liabilities
a. Circumstances affecting the reliability and precision of loss estimates.
b. Extent to which unasserted claims are reflected in an accrual or may affect
the magnitude of the contingency.
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c. Uncertainties with respect to joint and several liabilities that may affect the
magnitude of the contingency, including disclosure of the aggregate expected
cost to remediate particular sites that are individually material for which the
likelihood of contribution by other responsible parties have not been
established.
d. Nature and terms of cost-sharing agreements.
e. Extent to which disclosed but unrecognized contingent losses are expected to
be recoverable through insurance, indemnification arrangements, or other
sources, and any material limitations of that recovery.
f.
Uncertainties regarding the legal sufficiency of insurance claims or the
solvency of carriers.
g. Time period over which accrued or presently unrecognized amounts may be
paid out.
h. Material components of the accrual and significant assumptions underlying
estimate.
i.
If there is at least a reasonable possibility that a loss exceeding amounts
already recognized may have been incurred and the amount of that additional
loss would be material, disclose the estimated additional loss or range of loss,
that is reasonably possible, or state that such an estimate cannot be made.
KPMG and Other Guidance
1. AU 317.14–.15. Disclose the potential effects of illegal acts on the entity’s
operations and on amounts presented in the financial statements.
52 Subtopic 450-30: Contingencies—Gain Contingencies
Disclosure
450-30-50-1. Adequate disclosure shall be made of a contingency that might result in a
gain, but care shall be exercised to avoid misleading implications as to the
likelihood of realization.
53 Subtopic 460-10: Guarantees—Overall
Disclosure
> Information About Each Guarantee or Group of Similar Guarantees
> > Loss Contingencies
460-10-50-2. An entity shall disclose certain loss contingencies even though the
possibility of loss may be remote. Examples include the following:
a. Guarantees of indebtedness of others, including indirect guarantees of
indebtedness of others
b. Obligations of commercial banks under standby letters of credit
c. Guarantees to repurchase receivables (or, in some cases, to repurchase the
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related property) that have been sold or otherwise assigned
d. Other agreements that in substance have the same guarantee characteristic.
460-10-50-3. The disclosure of the above loss contingencies shall include the nature and
amount of the guarantee. Consideration should be given to disclosing, if
estimable, the value of any recovery that could be expected to result, such as from
the guarantor’s right to proceed against an outside party.
> > Disclosures About a Guarantor’s Obligation
460-10-50-4. A guarantor shall disclose all of the following information about each
guarantee, or each group of similar guarantees, even if the likelihood of the
guarantor’s having to make any payments under the guarantee is remote:
a. The nature of the guarantee, including all of the following:
1 The approximate term of the guarantee
2 How the guarantee arose
3 The events or circumstances that would require the guarantor to perform
under the guarantee
4 The current status (that is, as of the date of the statement of financial
position) of the payment/performance risk of the guarantee (for example,
the current status of the payment/performance risk of a credit-risk-related
guarantee could be based on either recently issued external credit ratings
or current internal groupings used by the guarantor to manage its risk)
5 If the entity uses internal groupings for purposes of item (a)(4), how those
groupings are determined and used for managing risk.
b. All of the following information about the maximum potential amount of
future payments under the guarantee:
1 The maximum potential amount of future payments (undiscounted) that
the guarantor could be required to make under the guarantee, which shall
not be reduced by the effect of any amounts that may possibly be
recovered under recourse or collateralization provisions in the guarantee
(which are addressed under (d) and (e))
2 If the terms of the guarantee provide for no limitation to the maximum
potential future payments under the guarantee, that fact
3 If the guarantor is unable to develop an estimate of the maximum
potential amount of future payments under its guarantee, the reasons why
it cannot estimate the maximum potential amount.
c. The current carrying amount of the liability, if any, for the guarantor’s
obligations under the guarantee (including the amount, if any, recognized
under Section 450-20-30), regardless of whether the guarantee is freestanding
or embedded in another contract
d. The nature of any recourse provisions that would enable the guarantor to
recover from third parties any of the amounts paid under the guarantee
e. The nature of any assets held either as collateral or by third parties that, upon
the occurrence of any triggering event or condition under the guarantee, the
guarantor can obtain and liquidate to recover all or a portion of the amounts
paid under the guarantee
f. If estimable, the approximate extent to which the proceeds from liquidation of
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assets held either as collateral or by third parties would be expected to cover
the maximum potential amount of future payments under the guarantee.
> Effect of the Guarantee Disclosure Requirements on the Disclosure
Requirements of Other Topics
460-10-50-5. The disclosures required by this Subsection do not eliminate or affect the
following disclosure requirements:
a. The requirements in the General Subsection of Section 825-10-50 (in this
checklist) that certain entities disclose the fair value of their financial
guarantees issued
b. The requirements in paragraphs 450-20-50-3 through 50-4 that an entity
disclose a contingent loss that has a reasonable possibility of occurring
c. The requirements in the Disclosure Sections of Topic 815, which apply to
guarantees that are accounted for as derivatives
d. The requirements in Section 275-10-50 (in this checklist) that an entity
disclose information about risks and uncertainties that could significantly
affect the amounts reported in the financial statements in the near term. See
Example 1 (paragraph 460-10-55-25) for an illustration of the required
disclosure.
460-10-50-6. Some guarantees are issued to benefit entities that are related parties such
as joint ventures, equity method investees, and certain entities for which the
controlling financial interest cannot be assessed by analyzing voting interests.
In those cases, the disclosures required by this Topic are incremental to the
disclosures required by Topic 850.
54 Product Warranties Subsection of Subtopic 460-10: Guarantees—Overall
Disclosure
460-10-50-7. Paragraph 460-10-25-6 states that an inability to make a reasonable
estimate of the amount of a warranty obligation at the time of sale because of
significant uncertainty about possible claims precludes accrual. That paragraph
also addresses related implications. Paragraphs 450-20-50-4 through 50-6 (in this
checklist) provide disclosure guidance for circumstances in which no accrual is
made for a loss contingency. In those circumstances, the disclosures required by
that paragraph shall be made.
460-10-50-8. A guarantor shall disclose all of the following information for product
warranties and other guarantee contracts described in paragraph 460-10-15-9:
a. The information required to be disclosed by paragraph 460-10-50-4 (in this
checklist) except that a guarantor is not required to disclose the maximum
potential amount of future payments specified in paragraph 460-10-50-4(b)
(in this checklist)
b. The guarantor’s accounting policy and methodology used in determining its
liability for product warranties (including any liability [such as deferred
revenue] associated with extended warranties)
c. A tabular reconciliation of the changes in the guarantor’s aggregate product
warranty liability for the reporting period. That reconciliation shall include all
of the following amounts:
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1
2
3
4
5
The beginning balance of the aggregate product warranty liability
The aggregate reductions in that liability for payments made (in cash or in
kind) under the warranty
The aggregate changes in the liability for accruals related to product
warranties issued during the reporting period
The aggregate changes in the liability for accruals related to preexisting
warranties (including adjustments related to changes in estimates)
The ending balance of the aggregate product warranty liability.
55 Subtopic 470-10: Debt—Overall
Note: FASB ASC Section 470-10-45 includes guidance on classifying long-term debt as
either current or non-current in a classified balance sheet. Cross-references to the
applicable guidance are included below.
Presentation
> Classification of Debt that Includes Covenants
See guidance in paragraph 470-10-45-1.
> Subjective Acceleration Clauses
See guidance in paragraph 470-10-45-2.
> Classification of Revolving Credit Agreements Subject to Lock-Box
Arrangements and Subjective Acceleration Clauses
See guidance in paragraphs 470-10-45-3 through 45-6.
> Classification of Increasing-Rate Debt
See guidance in paragraphs 470-10-45-7 through 45-8.
> Due on Demand Loan Arrangements
See guidance in paragraphs 470-10-45-9 through 45-10.
> Callable Debt
See guidance in paragraphs 470-10-45-11 through 45-12.
> Short-Term Obligations Expected to Be Refinanced
See guidance in paragraphs 470-10-45-12A through 45-13.
> Intent and Ability to Refinance on a Long-Term Basis
See guidance in paragraphs 470-10-45-14 through 45-20.
> Transactions after the Balance Sheet Date
See guidance in paragraph 470-10-45-21.
Disclosure
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> Disclosure of Long-Term Obligations
470-10-50-1. The combined aggregate amount of maturities and sinking fund
requirements for all long-term borrowings shall be disclosed for each of the five
years following the date of the latest balance sheet presented. (See Section 50510-50 for disclosure guidance that applies to securities, including debt securities.)
See Example 3 (paragraph 470-10-55-10) for an illustration of this disclosure
requirement.
470-10-50-2. If an obligation under paragraph 470-10-45-11 (callable debt) is classified
as a long-term liability (or, in the case of an unclassified balance sheet, is included
as a long-term liability in the disclosure of debt maturities), the circumstances
shall be disclosed.
> Subjective Acceleration Clauses
470-10-50-3. As indicated in paragraph 470-10-45-2, in some situations long-term debt
subject to a subjective acceleration clause shall be reclassified. That paragraph
explains that other situations would indicate only disclosure of the existence of
such clauses. That paragraph states further that neither reclassification nor
disclosure is required if the likelihood of the acceleration of the due date is
remote, such as when the lender historically has not accelerated due dates of loans
containing similar clauses and the financial condition of the borrower is strong
and its prospects are bright.
> Short-Term Obligations Expected to Be Refinanced
470-10-50-4. If a short-term obligation is excluded from current liabilities pursuant to
the provisions of this Subtopic, the notes to financial statements shall include a
general description of the financing agreement and the terms of any new
obligation incurred or expected to be incurred or equity securities issued or
expected to be issued as a result of a refinancing.
> Summary Disclosure of Securities Outstanding
470-10-50-5. Paragraph 505-10-50-3 (in this checklist) requires that an entity explain, in
summary form within its financial statements, the pertinent rights and privileges
of various securities outstanding.
> Imputed Interest
835-30-45-2 The description of a note with imputed interest shall include the effective
interest rate. The face amount shall also be disclosed in the financial statements or
in the notes to the statements.
SEC Guidance
Note: The SEC issued an interpretive release (Release No. 33-9144) to improve
discussion of liquidity and capital resources in Management’s Discussion and
Analysis of Financial Condition and Results of Operations in order to facilitate
understanding by investors of the liquidity and funding risks facing the registrant.
The interpretive release reemphasizes existing guidance for liquidity disclosures,
leverage ratio disclosures and contractual obligations table disclosures.
1
Regulation S-X Rule 4-08(f). State significant changes in authorized or issued
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amounts of bonds, mortgages, and similar debt since the date of the latest balance
sheet being filed.
> Defaults
2
Regulation S-X Rule 4-08(c). The facts and amounts concerning any default in
principal, interest, sinking fund, or redemption provisions with respect to any issue
of securities or credit agreements, or any breach of covenant of a related indenture
or agreement, which default or breach existed at the date of the most recent balance
sheet being filed and which has not been subsequently cured, shall be stated. If a
default or breach exists but acceleration of the obligation has been waived for a
stated period of time beyond the date of the most recent balance sheet being filed,
state the amount of the obligation and the period of the waiver.
> Guarantors and Affiliates Whose Securities Collateralize an Issue Registered or
Being Registered
3
Regulation S-X Rule 3-10. The general rule is that every issuer of a registered
security that is guaranteed and every guarantor of a registered security must file the
financial statements required for a registrant by Regulation S-X. Paragraphs (b), (c),
(d), (e) and (f) of Rule 3-10 contain additional detail on exceptions to the general
rule which are not contained in this checklist. Only one of these paragraphs can
apply to a single issuer or guarantor. Paragraph (g) of Rule 3-10 is a special rule for
recently acquired issuers or guarantors that overrides each of these exceptions for a
specific issuer or guarantor. For detailed information about these requirements, see
Rule 3-10 at paragraph 470-10-S99-1.
4
Regulation S-X Rule 3-10. If one of the exceptions in paragraph (c), (d), (e), or (f)
of Rule 3-10 applies, the parent company’s financial statements usually must
include, in a footnote, condensed consolidating financial information for the same
periods, following the guidance in paragraph (i) of Rule 3-10, with a separate
column (if applicable) for:
a. The parent company
b. The subsidiary issuer
c. The guarantor subsidiaries of the parent company on a combined basis
d. Any other subsidiaries of the parent company on a combined basis
e. Consolidating adjustments
f.
5
The total consolidated amounts.
Regulation S-X Rule 3-10. If the exception in paragraph (b) of Rule 3-10 applies,
the parent company’s financial statements include a footnote stating that the issuer
in a 100% owned finance subsidiary of the parent company and the parent company
has fully and unconditionally guaranteed the securities. The footnote also must
include the narrative disclosures specified in paragraphs (i)(9) and (i)(10) of Rule 310.
> Classification of Subsidiary’s Loan Payable in Consolidated Balance Sheet when
Subsidiary’s and Parent’s Fiscal Years Differ
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6
SEC Observer Comment (from EITF 88-15): Classify as current a loan payable of a
subsidiary that is current based on the parent’s fiscal year-end when a consolidated
subsidiary has a different year-end from the parent company.
56 Subtopic 470-20: Debt—Debt with Conversion and Other Options
Presentation
> Income Statement Classification
470-20-45-1. Any expense recognized on the date of conversion of convertible debt
related to a beneficial conversion feature (see paragraph 470-20-40-1) shall not
be classified as extraordinary.
470-20-45-2. Any expense recognized on the date of a conversion of convertible debt
related to an inducement offer (see paragraph 470-20-40-16) shall not be
reported as an extraordinary item.
> Own-Share Lending Arrangements Issued in Contemplation of Convertible
Debt Issuance
470-20-45-2A. Loaned shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which time the loaned
shares would be included in the basic and diluted earnings-per-share calculation.
If dividends on the loaned shares are not reimbursed to the entity, any amounts,
including contractual (accumulated) dividends and participation rights in
undistributed earnings, attributable to the loaned shares shall be deducted in
computing income available to common shareholders, in a manner consistent
with the two-class method in paragraph 260-10-45-60.
Disclosure
> Equity
470-20-50-1. For disclosures about securities as part of equity disclosures, see Section
505-10-50.
> EPS
470-20-50-2. For disclosures about securities in relationship to earnings per share
(EPS) disclosures, see paragraph 260-10-50-1(c).
> Own-Share Lending Arrangements Issued in Contemplation of Convertible
Debt Issuance
470-20-50-2A. An entity that enters into a share-lending arrangement on its own shares
in contemplation of a convertible debt offering or other financing shall disclose
all of the following. The disclosures must be made on an annual and interim
basis in any period in which a share-lending arrangement is outstanding.
a. A description of any outstanding share-lending arrangements on an entity’s
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own stock and
b. all significant terms of the share-lending arrangement including
1
the number of shares
2
the term
3
the circumstances under which cash settlement would be required
4
any requirements for the counterparty to provide collateral
c. The entity’s reason for entering into the share-lending arrangement
d. The fair value of the outstanding loaned shares as of the balance sheet date
e. The treatment of the share-lending arrangement for the purposes of
calculating earnings per share
f.
The unamortized amount of the issuance costs associated with the sharelending arrangement at the balance sheet date
g. The classification of the issuance costs associated with the share-lending
arrangement at the balance sheet date
h. The amount of interest cost recognized relating to the amortization of the
issuance cost associated with the share-lending arrangement for the reporting
period
i.
Any amounts of dividends paid related to the loaned shares that will not be
reimbursed.
470-20-50-2B. An entity that enters into a share-lending arrangement on its own shares
in contemplation of a convertible debt offering or other financing shall also make
the disclosures required by Topic 505.
470-20-50-2C. In the period in which an entity concludes that it is probable that the
counterparty to its share-lending arrangement will default, the entity shall
disclose the amount of expense reported in the statement of earnings related to
the default. The entity shall disclose in any subsequent period any material
changes in the amount of expense as a result of changes in the fair value of the
entity’s shares or the probable recoveries. If default is probable but has not yet
occurred, the entity shall disclose the number of shares related to the sharelending arrangement that will be reflected in basic and diluted earnings per share
when the counterparty defaults.
57 Cash Conversion Subsection of Subtopic 470-20: Debt—Debt with Conversion and Other
Options
Note: For purposes of the Cash Conversion Subsection of Subtopic 470-20, the term
public entity includes subsidiaries of public entities.
Presentation
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> Balance Sheet Classification of Liability Component
470-20-45-3. The g uidance i n t he C ash C onversion S ubsections doe s no t a ffect a n
issuer’s determination of w hether t he l iability component should be c lassified as a
current liability or a long-term liability. For purposes of applying other applicable U.S.
GAAP to m ake th at d etermination, a ll terms o f the c onvertible d ebt instrument
(including t he equity c omponent) shall be considered. Additionally, t he balance sheet
classification of the liability component does not affect the measurement of that
component under paragraphs 470-20-35-12 through 35-16.
Disclosure
470-20-50-3. An entity shall provide the incremental disclosures required by the
guidance in this Section in annual financial statements for convertible debt
instruments within the scope of the Cash Conversion Subsections that were
outstanding during any of the periods presented.
470-20-50-4. As of each date for which a statement of financial position is presented,
an entity shall disclose all of the following:
a. The carrying amount of the equity component
b. For the liability component:
1
The principal amount
2
The unamortized discount
3
The net carrying amount.
470-20-50-5. As of the date of the most recent statement of financial position that is
presented, an entity shall disclose all of the following:
1
The remaining period over which any discount on the liability component
will be amortized
2
The conversion price and the number of shares on which the aggregate
consideration to be delivered upon conversion is determined
3
For a public entityonly, the amount by which the instrument’s if-converted
value exceeds its principal amount, regardless of whether the instrument is
currently convertible
4
All of the following information about derivative transactions entered into in
connection with the issuance of instruments within the scope of the Cash
Conversion Subsections regardless of whether such derivative transactions
are accounted for as assets, liabilities, or equity instruments:
1
The terms of those derivative transactions
2
How those derivative transactions relate to the instruments within the
scope of the Cash Conversion Subsections
3
The number of shares underlying the derivative transactions
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4
The reasons for entering into those derivative transactions.
470-20-50-6. For each period for which a statement of financial performance is
presented, an entity shall disclose both of the following:
a. The effective interest rate on the liability component for the period
b. The amount of interest cost recognized for the period relating to both the
contractual interest coupon and amortization of the discount on the liability
component.
58 Subtopic 470-30: Debt—Participating Mortgage Loans
Presentation
470-30-45-1. The amortization of the debt discount relating to the participation liability
shall be included in interest expense.
470-30-45-2. If the participating mortgage loan is extinguished before its due date, the
debt extinguishment gain or loss shall be reported as required by paragraph 47050-40-2, which states that a difference between the reacquisition price and the
net carrying amount of the extinguished debt shall be recognized currently in
income of the period of extinguishment as losses or gains and identified as a
separate item. Gains and losses shall not be amortized to future periods.
470-30-50-1. The borrower's financial statements shall disclose both of the following:
a. The aggregate amount of participating mortgage obligations at the balance
sheet date, with separate disclosure of the aggregate participation liabilities
and related debt discounts
b. Terms of the participations by the lender in either the appreciation in the fair
value of the mortgaged real estate project or the results of operations of the
mortgaged real estate project, or both.
59 Subtopic 470-50: Debt—Modifications and Extinguishments
Presentation
470-50-45-1. Gains and losses from extinguishment of debt that meet the criteria in
Subtopic 225-20 are not precluded from being classified as extraordinary items.
470-50-45-2. However, any charges to earnings resulting from application of
paragraph 470-50-40-21(c) shall not be classified as extraordinary.
Disclosure
470-50-50-1. If debt was considered to be extinguished by in-substance defeasance
under the provisions of FASB Statement No. 76, Extinguishment of Debt, before
the effective date of FASB Statement No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, a general
description of the transaction and the amount of debt that is considered
extinguished at the end of each period that debt remains outstanding shall be
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disclosed.
60 Subtopic 470-60: Debt—Troubled Debt Restructurings by Debtors
Presentation
470-60-45-1. All or a portion of the carrying amount of the payable at the time of the
restructuring may need to be reclassified in the balance sheet because of changes
in the terms, for example, a change in the amount of the payable due within one
year after the date of the debtor's balance sheet.
470-60-45-2. A troubled debt restructuring of a short-term obligation after the date of a
debtor's balance sheet but before that balance sheet is issued or is available to be
issued (as discussed in Section 855-10-25) may affect the classification of that
obligation in accordance with Subtopic 470-10.
Disclosure
470-60-50-1. A debtor shall disclose, either in the body of the financial statements or in
the accompanying notes, all of the following information about troubled debt
restructurings that have occurred during a period for which financial statements
are presented:
a. For each restructuring, a description of the principal changes in terms, the
major features of settlement, or both; separate restructurings within a fiscal
period for the same category of payables (for example, accounts payable or
subordinated debentures) may be grouped for disclosure purposes
b. Aggregate gain on restructuring of payables
c. Aggregate net gain or loss on transfers of assets recognized during the period
(see paragraphs 470-60-35-3 and 470-60-35-8)
d. Per-share amount of the aggregate gain on restructuring of payables.
470-60-50-2. A debtor shall disclose in financial statements for periods after a troubled
debt restructuring the extent to which amounts contingently payable are included
in the carrying amount of restructured payables pursuant to the provisions of
paragraph 470-60-35-7.
If required by paragraphs 450-20-50-1 through 50-6 and 450-20-50-9 through
50-10 (in this checklist), a debtor shall also disclose in those financial statements
total amounts that are contingently payable on restructured payables and the
conditions under which those amounts would become payable or would be
forgiven.
61 Subtopic 480-10: Distinguishing Liabilities from Equity—Overall (Statement 150 and related
interpretations)
Note: The FASB content in Subtopic 480-10 is based on FASB Statement No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. Under FASB Staff Position FAS 150-3, “Effective Date,
Disclosures, and Transition for Mandatorily Redeemable Financial Instruments
of Certain Nonpublic Entities and Certain Mandatorily Redeemable
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Noncontrolling Interests Under FASB Statement No. 150,” the following
deferrals apply:
1 The classification, measurement, and disclosure guidance in this Subtopic
applicable to mandatorily redeemable financial instruments is deferred
indefinitely for nonpublic entities that are not SEC registrants unless the
instruments are redeemable on fixed dates for amounts that are fixed or
determined by reference to specified indices. (For example, the deferral
applies to shares issued by a non-SEC registrant that are redeemable upon
death of the holder, but it does not apply to preferred shares that are
redeemable on a fixed date and have dividend payments that are either fixed
or linked to an index, such as LIBOR.) This deferral does not apply to
public entities or nonpublic entities that are SEC registrants.
2 The classification and measurement guidance in this Subtopic applicable to
shares issued by a subsidiary (i.e., noncontrolling interests) that are required
to be redeemed only upon liquidation or termination of that subsidiary is
deferred indefinitely for all entities; however, the disclosure requirements in
paragraph 480-10-50-1 through 50-3 are not deferred for public entities or
for nonpublic entities that are SEC registrants. For instruments with these
characteristics, the disclosure requirements are deferred indefinitely only for
nonpublic entities that are not SEC registrants.
3 The measurement guidance in this Subtopic applicable to shares that were
issued before November 5, 2003 by a subsidiary (i.e., noncontrolling
interests) that are required to be redeemed before liquidation or termination
of that subsidiary is deferred indefinitely for all entities. (SEC registrants
must apply the measurement guidance in EITF Topic D-98 to those
redeemable noncontrolling interests.) However, the disclosure requirements
in paragraph 480-10-50-1 through 50-3 are not deferred for public entities
or for nonpublic entities that are SEC registrants. For instruments with these
characteristics, the disclosure requirements are deferred indefinitely only for
nonpublic entities that are not SEC registrants. Instrument with these
characteristics issued on or after November 5, 2003 are not subject to this
deferral.
4 Mandatorily redeemable instruments issued by a subsidiary (i.e.,
mandatorily redeemable noncontrolling interests) that do not meet the
criteria for deferral under (2) or (3) may nevertheless meet the deferral
criteria under (1), in which case that deferral applies for non-SEC
registrants.
The requirements in this Subtopic are effective for all other instruments in the
scope of this Subtopic (Statement 150) to which the deferral in FSP FAS 150-3
does not apply. Refer to paragraph 480-10-65-1 for more details. Refer also to
tables 12.1 and 12.2 of KPMG’s FAS 150 Handbook for a summary of the
deferral guidance.
Presentation
480-10-45-1. Items within the scope of this Subtopic (Statement 150) shall be
presented as liabilities (or assets in some circumstances). Those items shall not
be presented between the liabilities section and the equity section of the
statement of financial position.
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480-10-45-2. Entities that have no equity instruments outstanding but have financial
instruments issued in the form of shares, all of which are mandatorily
redeemable financial instruments required to be classified as liabilities, shall
describe those instruments as shares subject to mandatory redemption in
statements of financial position to distinguish those instruments from other
liabilities. Similarly, payments to holders of such instruments and related
accruals shall be presented separately from payments to and interest due to other
creditors in statements of cash flows and income.
480-10-45-2A. Some entities have outstanding shares, all of which are subject to
mandatory redemption on the occurrence of events that are certain to occur. The
redemption price may be a fixed amount or may vary based on specified
conditions. If all of an entity’s shares are subject to mandatory redemption and
the entity is not subject to the deferral in paragraph 480-10-65-1, an excess of
the redemption price of the shares over the entity’s equity balance shall be
reported as an excess of liabilities over assets (a deficit), even though the
mandatorily redeemable shares are reported as a liability. If the redemption
price of the mandatorily redeemable shares is less than the book value of those
shares, the entity should report the excess of that book value over the liability
reported for the mandatorily redeemable shares as an excess of assets over
liabilities (equity).
480-10-45-2B. Depending on the settlement terms, this Subtopic requires that
mandatorily redeemable shares that are not subject to the deferral in paragraph
480-10-65-1 be measured at either the present value of the amount to be paid at
settlement or the amount of cash that would be paid under the conditions
specified in the contract if settlement occurred at the reporting date, recognizing
the resulting change in that amount as interest cost (change in redemption
amount).
480-10-45-3. Any amounts paid or to be paid to holders of the contracts discussed in
paragraph 480-10-35-3 in excess of the initial measurement amount shall be
reflected in interest cost.
> EPS
480-10-45-4. Entities that have issued mandatorily redeemable shares of common
stock or entered into forward contracts that require physical settlement by
repurchase of a fixed number of the issuer’s equity shares of common stock in
exchange for cash shall exclude the common shares that are to be redeemed or
repurchased in calculating basic and diluted earnings per share (EPS). Any
amounts, including contractual (accumulated) dividends and participation rights
in undistributed earnings, attributable to shares that are to be redeemed or
repurchased that have not been recognized as interest costs in accordance with
paragraph 480-10-35-3 shall be deducted in computing income available to
common shareholders (the numerator of the EPS calculation), consistently with
the two-class method set forth in paragraphs 260-10-45-60 through 45-7.
Disclosure
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480-10-50-1. Entities that issue financial instruments recognized under the guidance
in Section 480-10-25 shall disclose both of the following:
a. The nature and terms of the financial instruments
b. The rights and obligations embodied in those instruments, including both:
1
Settlement alternatives, if any, in the contract
2
The entity that controls the settlement alternatives.
480-10-50-2. Additionally, for all outstanding financial instruments recognized under
the guidance in Section 480-10-25 and for each settlement alternative, issuers
shall disclose all of the following:
a. The amount that would be paid, or the number of shares that would be
issued and their fair value, determined under the conditions specified in the
contract if the settlement were to occur at the reporting date
b. How changes in the fair value of the issuer's equity shares would affect
those settlement amounts (for example, "the issuer is obligated to issue an
additional X shares or pay an additional Y dollars in cash for each $1
decrease in the fair value of one share")
c. The maximum amount that the issuer could be required to pay to redeem the
instrument by physical settlement, if applicable
d. The maximum number of shares that could be required to be issued, if
applicable
e. That a contract does not limit the amount that the issuer could be required to
pay or the number of shares that the issuer could be required to issue, if
applicable
f.
For a forward contract or an option indexed to the issuer's equity shares, all
of the following:
1
The forward price or option strike price
2
The number of issuer's shares to which the contract is indexed
3
The settlement date or dates of the contract, as applicable.
480-10-50-3. Paragraph 505-10-50-3 (in this checklist) requires additional disclosures
for actual issuances and settlements that occurred during the accounting period.
480-10-50-4. Some entities have no equity instruments outstanding but have financial
instruments in the form of shares, all of which are mandatorily redeemable
financial instruments required to be classified as liabilities. Those entities shall
disclose the components of the liability that would otherwise be related to
shareholders’ interest and other comprehensive income (if any) subject to the
redemption feature (for example, par value and other paid-in amounts of
mandatorily redeemable instruments shall be disclosed separately from the
amount of retained earnings or accumulated deficit).
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62 Subtopic 480-10: Distinguishing Liabilities from Equity—Overall—SEC Guidance (ASR 268,
EITF D-98)
> Equity Instruments with Redemption Features That Are Not Solely within the
Control of the Issuer
>> Types of Instruments Required to Be Classified Outside Permanent Equity
1
ASR 268, EITF D-98, Regulation S-X Rule 5-02.27(b), preferred stock subject to
mandatory redemption requirements or whose redemption is outside the control of
the issuer. Include under this caption (outside of permanent equity, often referred
to as classification in “temporary equity”) any class of stock which has any of the
following characteristics:
a. It is redeemable at a fixed or determinable price on a fixed or determinable
date or dates, whether by operation of a sinking fund or otherwise;
b. It is redeemable at the option of the holder; or
c. It has conditions for redemption which are not solely within the control of the
issuer, such as stocks which must be redeemed out of future earnings.
2
SEC Staff Announcement (formerly EITF Topic D-98, now paragraph 480-10S99-3A). Although ASR 268 specifically describes and discusses preferred
securities, the SEC staff believes that ASR 268 also provides analogous guidance
for other redeemable equity instruments including, for example:
a. Common stocks
b. Derivative instruments
c. Noncontrolling interests
d. Securities held by an employee stock ownership plan
e. Share-based payment arrangements with employees
3
4
5
SEC Staff Announcement (formerly EITF Topic D-98). Freestanding financial
instruments that are classified as assets or liabilities pursuant to Subtopic 480-10
or other applicable GAAP (including those that contain separated derivative assets
and derivative liabilities) are not subject to ASR 268. For example, an equity
instrument subject to potential redemption under a freestanding written put option
is not subject to ASR 268 (since the put option liability is considered a separate
unit of account). However, when an embedded written put option has been
separated from a hybrid financial instrument with an equity host contract, the host
equity instrument is subject to ASR 268.
SEC Staff Announcement (formerly EITF Topic D-98). Freestanding derivative
instruments that are classified in stockholders’ equity pursuant to Subtopic 815-40
(EITF 00-19) are not subject to ASR 268.
SEC Staff Announcement (formerly EITF Topic D-98). When a hybrid financial
instrument that is not classified in its entirety as an asset or liability under
Subtopic 480-10 or other applicable GAAP contains an embedded derivative, a
registrant should consider the applicability of ASR 268 to:
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6
a. The hybrid instrument, when the embedded derivative is not separated under
Subtopic 815-15, or
b. The host contract, when the embedded derivative is separated under Subtopic
815-15.
SEC Staff Announcement (formerly EITF Topic D-98). The determination of
whether an equity instrument subject to a registration payment arrangement is
subject to ASR 268 should be made without regard to the existence of the
registration payment arrangement.
7
SEC Observer Comment (EITF 89-11). Securities held by an ESOP (whether or
not allocated) must be reported outside of permanent equity if by their terms they
can be put to the sponsor for cash. With respect to ESOP securities where the cash
obligation relates only to market value guarantee features, the SEC staff would
not object to registrants only classifying outside of permanent equity an amount
that represents the maximum cash obligation of the sponsor based on market
prices of the underlying security as of the reporting date; accordingly,
reclassifications of equity amounts would be required based on the market values
of the underlying security. Alternatively, the SEC staff would not object to
classifying the entire guaranteed value amount outside of permanent equity due to
the uncertainty of the ultimate cash obligation because of a possible market value
decline in the underlying security.
8
SAB Topic 14.E. Share-based payment awards that qualify for equity
classification under Topic 718 are subject to ASR 268 and must be classified
outside permanent equity if they have redemption features that are not solely
within the control of the issuer. The issuer should present as temporary equity at
each balance sheet date an amount that is based on the redemption amount
(intrinsic value) of the instrument, but takes into account the proportion of
consideration received in the form of employee services.
9
SEC Staff Announcement (formerly EITF Topic D-98). Equity-classified sharebased payment arrangements with employees are not subject to ASR 268 due
solely to either of the following:
a. A provision in an instrument for the direct or indirect repurchase of shares
issued to an employee exists solely to satisfy the employer's minimum
statutory tax withholding requirements
b. Net cash settlement would be assumed pursuant to paragraphs 815-40-25-11
through 25-16 solely because of an obligation to deliver registered shares.
10 SEC Staff Announcement (formerly EITF Topic D-98). Other applicable GAAP
may require a convertible debt instrument to be separated into a liability
component and an equity component. In these situations, the equity-classified
component of the convertible debt instrument should be considered redeemable if
at the balance sheet date the issuer can be required to settle the convertible debt
instrument for cash or other assets (that is, the instrument is currently redeemable
or convertible for cash or other assets). For these instruments, an assessment of
whether the convertible debt instrument will become redeemable or convertible
for cash or other assets at a future date should not be made. For example, a
convertible debt instrument that is not redeemable at the balance sheet date but
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could become redeemable by the holder of the instrument in the future based on
the passage of time or upon the occurrence of a contingent event is not considered
currently redeemable at the balance sheet date.
11 SEC Staff Announcement (formerly EITF Topic D-98). Ordinary liquidation
events, which involve the redemption and liquidation of all of an entity's equity
instruments for cash or other assets of the entity, do not result in an equity
instrument being subject to ASR 268. In other words, if the payment of cash or
other assets is required only from the distribution of net assets upon the final
liquidation or termination of an entity (which may be a less-than-wholly-owned
consolidated subsidiary), then that potential event need not be considered when
applying ASR 268.
12 SEC Staff Announcement (formerly EITF Topic D-98). As a limited exception
that should not be analogized to, an equity instrument that becomes redeemable
upon the death of the holder (at the option of the holder’s heir or estate) or upon
the disability of the holder is not subject to ASR 268 if the redemption amount
will be funded from the proceeds of an insurance policy that is currently in force
and which the registrant has the intent and ability to maintain in force. If an equity
instrument is required to be redeemed for cash or other assets upon the death of
the holder, the instrument is classified as a liability pursuant to Subtopic 480-10
even if an insurance policy would fund the redemption.
13 SEC Staff Announcement (formerly EITF Topic D-98). If the issuer has the
choice to settle the redemption amount in cash or by delivery of a variable number
of its own common shares with an equivalent value, the guidance in Subtopic 81540 (EITF 00-19) should be used to evaluate whether the issuer controls the actions
or events necessary to issue the maximum number of common shares that could
be required to be delivered under share settlement of the contract.
14 SEC Staff Announcement (formerly EITF Topic D-98). A provision that requires
approval of the board of directors cannot be presumed to be within the control of
the issuer. If the preferred security holders control a majority of the votes of the
board of directors through direct representation on the board of directors or
through other rights, the preferred security is redeemable at the option of the
holder and classification in temporary equity is required.
15 SEC Staff Announcement (formerly EITF Topic D-98). A change-in-control
provision would require a preferred security to be classified in temporary equity if
a purchaser could acquire a majority of the voting power of the outstanding
common stock without company approval, thereby triggering redemption.
16 SEC Staff Announcement (formerly EITF Topic D-98). An equity instrument may
contain provisions that allow the holder to redeem the instrument for cash or other
assets upon the occurrence of events that are not solely within the issuer's control.
Such events may include:
a. The failure to have a registration statement declared effective by the SEC by a
designated date
b. The failure to maintain compliance with debt covenants
c. The failure to achieve specified earnings targets
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d. A reduction in the issuer's credit rating.
Since these events are not solely within the control of the issuer, the equity
instrument is required to be classified in temporary equity.
>> Presentation on the Face of the Balance Sheet
17 FRR 211.04.
a. Registrants having preferred stock subject to mandatory redemption
requirements or whose redemption is outside their control outstanding are
required to present separately, in balance sheets, amounts applicable to the
following three general classes of securities:
1
Preferred stocks subject to mandatory redemption requirements or whose
redemption is outside the control of the issuer
2
Preferred stocks which are not redeemable or are redeemable solely at the
option of the issuer
3
Common stocks.
b. ASR 268. Where redeemable preferred stocks are outstanding, the
Commission will not prohibit the combining of non-redeemable preferred
stocks, common stocks, and other equity accounts under an appropriate
designated caption (e.g., “Non-Redeemable Preferred Stocks, Common
Stocks, and Other Stockholders’ Equity”) provided that any combinations be
exclusive of redeemable preferred stocks.
18 SEC Staff Announcement (formerly EITF Topic D-98). The SEC staff does not
believe it is appropriate to classify a financial instrument (or host contract) that
meets the conditions for temporary equity classification under ASR 268 as a
liability. However, a financial instrument (or host contract) that otherwise meets
the conditions for temporary equity classification may continue to be classified as
a liability provided the financial instrument (or host contract) was classified and
accounted for as a liability in fiscal quarters beginning before September 15, 2007
and has not subsequently been modified or subject to a remeasurement (new
basis) event.
19 Regulation S-X Rule 5-02.27(b):
a. State on the face of the balance sheet:
1
the title of each issue
2
the carrying amount
3
redemption amount.
b. If there is more than one issue, these amounts may be aggregated on the face
of the balance sheet and details concerning each issue may be presented in the
note required by Rule 5-02.28(c) below.
c. Show also the dollar amount of any shares subscribed but unissued, and show
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the deduction of subscriptions receivable there-from.
d. If the carrying value is different from the redemption amount, describe the
accounting treatment for such difference in the note required by Rule 502.28(c) below.
e. Also state in this note or on the face of the balance sheet, for each issue, the
number of shares authorized and the number of shares issued or outstanding,
as appropriate.
>> Disclosures about Preferred Stock (and Other Equity Instruments) Subject to
Mandatory Redemption Requirements or Whose Redemption Is Outside the
Control of the Issuer
20
Regulation S-X Rule 5-02.28(c). State in a separate note captioned "Redeemable
Preferred Stocks":
a. A general description of each issue, including its redemption features (e.g.,
sinking fund, at option of holders, out of future earnings) and the rights, if
any, of holders in the event of default, including the effect, if any, on junior
securities in the event a required dividend, sinking fund, or other redemption
payment(s) is not made;
b. The combined aggregate amount of redemption requirements for all issues
each year for the five years following the date of the latest balance sheet; and
c. The changes in each issue for each period for which an income statement is
required to be filed.
>>> Disclosure of Measurement Policy Selected for Redeemable Securities and
Application Thereof
21 SEC Staff Announcement (formerly EITF Topic D-98): Classification and
Measurement of Redeemable Securities. The SEC staff expects the following
disclosures to be provided in the notes to the financial statements:
a. A description of the accounting method used to adjust the redemption amount
of a redeemable equity instrument.
b. When a registrant elects to accrete changes in the redemption amount of a
redeemable equity instrument in accordance with paragraph 15(b), the
redemption amount of the equity instrument as if it were currently
redeemable.
c. For a redeemable equity instrument that is not adjusted to its redemption
amount, the reasons why it is not probable that the instrument will become
redeemable.
d. When charges or credits are material, a reconciliation between net income and
income available to common stockholders.
e. The amount credited to equity of the parent upon the deconsolidation of a
subsidiary.
>>> Redeemable Noncontrolling Interests
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22 SEC Staff - 2009 AICPA Conference. The SEC staff observed that ASC Topic
810 requires a reconciliation of total equity on a quarterly basis, which the SEC
staff expects to be presented in quarterly reports. However, if redeemable
noncontrolling interests exist, the requirement to reconcile total equity in ASC
Topic 810 can be inconsistent with ASR 268, which prohibits companies from
combining temporary equity and permanent equity. As a result, the SEC staff
allows two different approaches:
a. Provide a column for redeemable noncontrolling interests in the equity
reconciliation, but exclude the related amounts from any “total” column. In
that case, the reconciliation could include a row for net income or a
supplemental table identifying the allocation of net income among controlling
interests, nonredeemable noncontrolling interests, and redeemable
noncontrolling interests.
b. Exclude redeemable noncontrolling interests from the equity reconciliation,
but provide a supplemental table (e.g., in the notes to the financial statements
or the “statement of changes in equity and noncontrolling interests”)
reconciling the beginning and ending balance of redeemable noncontrolling
interests. In that case, the caption “net income” in the equity reconciliation
could note parenthetically the amounts related to redeemable noncontrolling
interests.
63 Subtopic 505-10: Equity--Overall
Presentation
> Receivables for Issuance of Equity
505-10-45-2. Presentation of a note as an asset is generally not appropriate and should
be offset against stock in the equity section. However, such notes may be
recorded as an asset if collected in cash before the financial statements are issued
or are available to be issued.
> Appropriations of Retained Earnings
505-10-45-3. Appropriation of retained earnings is permitted, provided that it is shown
within the shareholders' equity section of the balance sheet and is clearly
identified as an appropriation of retained earnings.
Disclosure
505-10-50-2. If both financial position and results of operations are presented,
disclosure of changes in the separate accounts comprising shareholders' equity
(in addition to retained earnings) and of the changes in the number of shares of
equity securities during at least the most recent annual fiscal period and any
subsequent interim period presented is required to make the financial statements
sufficiently informative. Disclosure of such changes may take the form of
separate statements or may be made in the basic financial statements or notes
thereto.
505-10-50-3. An entity shall explain, in summary form within its financial statements,
the pertinent rights and privileges of the various securities outstanding.
Examples of information that shall be disclosed are dividend and liquidation
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preferences, participation rights, call prices and dates, conversion or exercise
prices or rates and pertinent dates, sinking-fund requirements, unusual voting
rights, and significant terms of contracts to issue additional shares. An entity
shall disclose within its financial statements the number of shares issued upon
conversion, exercise, or satisfaction of required conditions during at least the
most recent annual fiscal period and any subsequent interim period presented.
> Securities with Preferences
505-10-50-4. An entity that issues preferred stock (or other senior stock) that has a
preference in involuntary liquidation considerably in excess of the par or stated
value of the shares shall disclose the liquidation preference of the stock (the
relationship between the preference in liquidation and the par or stated value of
the shares). That disclosure shall be made in the equity section of the statement
of financial position in the aggregate, either parenthetically or in short, rather
than on a per-share basis or through disclosure in the notes.
505-10-50-5. In addition, an entity shall disclose both of the following within its
financial statements (either on the face of the statement of financial position or
in the notes thereto):
a. The aggregate or per-share amounts at which preferred stock may be called
or is subject to redemption through sinking-fund operations or otherwise
b. The aggregate and per-share amounts of arrearages in cumulative preferred
dividends.
> Convertible Securities
505-10-50-6. T he s ignificant t erms of t he c onversion f eatures of a c ontingently
convertible security shall be disclosed to enable users of financial statements to
understand t he c ircumstances of t he c ontingency a nd t he pot ential i mpact of
conversion. Quantitative and qualitative terms of the contingently convertible security
include all of the following:
a. Events or changes in circumstances that would cause the contingency to be
met and any significant features necessary to understand the conversion
rights and the timing of those rights (for example, the periods in which the
contingency might be met and the securities may be converted if the
contingency is met)
b. The conversion price and the number of shares into which a security is
potentially convertible
c. Events or changes in circumstances, if any, that could adjust or change the
contingency, conversion price, or number of shares, including significant
terms of those changes
d. The manner of settlement upon conversion and any alternative settlement
methods (for example, cash, shares, or a combination).
505-10-50-7. In order to meet the disclosure requirements of the preceding paragraph,
the possible conversion prices and dates as well as other significant terms for
each convertible instrument (whether or not contingently convertible) shall be
disclosed. For example:
The Company is obligated to issue X shares and as the market price of the
common stock decreases, the Company is obligated to issue an additional X
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shares for each $1 decrease in the stock price.
505-10-50-8. Additionally, the issuer shall disclose in the footnotes to its financial
statements the terms of the transaction, including the excess of the aggregate fair
value of the instruments that the holder would receive at conversion over the
proceeds received and the period over which the discount is amortized.
505-10-50-9 Disclosures shall indicate whether the shares that would be issued if the
contingently convertible securities were converted are included in the calculation
of diluted earnings per share (EPS) and the reasons why or why not.
505-10-50-10. Disclosures of information about derivative instruments entered into in
connection with the issuance of the contingently convertible securities may be
useful in terms of fully explaining the potential impact of the contingently
convertible securities. That information might include the terms of those
derivative instruments (including the terms of settlement), how those
instruments relate to the contingently convertible securities, and the number of
shares underlying the derivative instruments (e.g., the purchase of a call option
such that the terms of the purchased call option would be expected to
substantially offset changes in value of the written call option embedded in the
convertible security). Derivative instruments are also subject to disclosure
information, as required by Topic 815.
505-10-50-10A. For incremental disclosure requirements of debt with conversion and
other options, see paragraphs 470-20-10-2 and 470-20-50-3 through 50-6 (in this
checklist).
> Redeemable Securities
505-10-50-11. An entity that issues redeemable stock shall disclose the amount of
redemption requirements, separately by issue or combined, for all issues of
capital stock that are redeemable at fixed or determinable prices on fixed or
determinable dates in each of the five years following the date of the latest
statement of financial position presented.
KPMG and Other Guidance
1 Targeted (Tracking) Stock. If no terms of the targeted stock require or assure that
potential distributions will correlate with the performance of the business unit
normally associated with the security, implications that the market value of the
security will “track,” or is otherwise linked with, a business unit are subject to
challenge by the SEC. Registrants must explain in their filings why the formula for
determining the amount available for dividends (or any other term or feature of the
security) can be expected to link in some fashion the market value of the class of
common stock with the value or performance of any subpart of the registrant, or
else state clearly that management does not intend to imply such a linkage.
For issuers of targeted (tracking) stock, provide the following additional
disclosures:
a. Policy for management of cash generated by and capital investment in the
referenced units, and policy for the pricing of transactions between the
referenced units.
b. Conflicts of interest.
c. Effects of corporate events (mergers, tender offers, changes in control, adverse
tax rulings, liquidation) on the rights of security holders.
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d. Terms under which one class may be converted into another class.
e. Effects of changes in relative market values of the registrant’s outstanding
classes of stock on rights of the security holders.
64 Subtopic 505-10: Equity—Overall—SEC Guidance
> Discounts on and Unamortized Balances of Shares
1 Regulation S-X Rule 4-07. Discount on shares, or any unamortized balance
thereof, shall be shown separately as a deduction from the applicable account(s) as
circumstances require.
> Common Stock
2 Regulation S-X Rule 5-02.29.
a. For each class of common shares state, on the face of the balance sheet, the
number of shares issued or outstanding, as appropriate (see § 210.4–07), and
the dollar amount thereof.
b. If convertible, this fact should be indicated on the face of the balance sheet.
c. For each class of common shares state, on the face of the balance sheet or in a
note, the title of the issue, the number of shares authorized, and, if convertible,
the basis of conversion (see also § 210.4–08(d)).
d. Show also the dollar amount of any common shares subscribed but unissued,
and show the deduction of subscriptions receivable therefrom.
e. Show in a note or statement the changes in each class of common shares for
each period for which an income statement is required to be filed.
> Other Stockholders' Equity
3 Regulation S-X Rule 5-02.30.
a. Separate captions shall be shown for:
1 additional paid-in capital,
2 other additional capital
3 retained earnings:
a. appropriated
b. unappropriated
Additional paid-in capital and other additional capital may be combined with
the stock caption to which it applies, if appropriate.
b. For a period of at least 10 years subsequent to the effective date of a quasireorganization, any description of retained earnings shall indicate the point in
time from which the new retained earnings dates and for a period of at least
three years shall indicate, on the face of the balance sheet, the total amount of
the deficit eliminated.
> Noncontrolling Interests
4 Regulation S-X Rule 5-02-31. Noncontrolling interests in consolidated
subsidiaries. State separately in a note the amounts represented by preferred stock
and the applicable dividend requirements if the preferred stock is material in
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relation to the consolidated stockholders' equity.
> Liabilities and Stockholders’ Equity
5 Regulation S-X Rule 5-02.32. Present on the face of the balance sheet total
liabilities and stockholders' equity.
> Subordinated Debt
6
SAB Topic 4.A. Subordinated debt may not be included in the stockholders' equity
section of the balance sheet.
> Presentation of S Corporation Undistributed Earnings in Financial Statements
upon Termination of S Election
7 SAB Topic 4.B. Undistributed earnings of an S corporation must be included in the
financial statements as additional paid-in capital on the date its S election is
terminated. This assumes a constructive distribution to the owners followed by a
contribution to the capital of the corporation.
> Presentation of Equity Section in Limited Partnership Financial Statements
8 SAB Topic 4.F. The equity section of a partnership balance sheet should
distinguish between amounts ascribed to each ownership class and provide the
following:
a. Equity attributed to the general partners
b. Equity attributed to the limited partners
c. Changes in the number of equity units authorized and outstanding for each
ownership class
d. A statement of changes in partnership equity for each ownership class should
be provided for each period an income statement is included
> Preferred Shares
9 Regulation S-X Rule 4-08(d):
a. Aggregate preferences on involuntary liquidation, if other than par or stated
value, shall be shown parenthetically in the equity section of the balance sheet.
b. Disclose any restrictions upon retained earnings that arise from the fact that
upon involuntary liquidation the aggregate preferences of the preferred shares
exceed the par or stated value of such shares.
> Restrictions that Limit the Payment of Dividends by the Registrant
10 Regulation S-X Rule 4-08(e):
a. Describe the most significant restrictions on the payment of dividends by the
registrant, including the source and pertinent provisions of the restrictions and
the amount, if determinable, of retained earnings or net income restricted or
free of restrictions
b. Disclose amount of consolidated retained earnings that represents undistributed
earnings of 50 percent-or-less-owned persons accounted for by the equity
method
c. If the restricted net assets (as defined) of consolidated and unconsolidated
subsidiaries and the parent’s equity in the undistributed earnings of 50 percentor-less-owned persons accounted for by the equity method together exceeds 25
percent of consolidated net assets as of the end of the most recently completed
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fiscal year, disclose:
1 The nature of any restrictions on the ability of consolidated and
unconsolidated subsidiaries to transfer funds to the registrant in the form
of cash dividends, loans, or advances.
2 The amounts of such restricted net assets for consolidated and
unconsolidated subsidiaries, separately, as of the end of the most recently
completed fiscal year.
3 The nature of any restrictions on the ability of consolidated and
unconsolidated subsidiaries to transfer funds to the registrant in the form
of cash dividends, loans, or advances.
4 The amounts of such restricted net assets for consolidated and
unconsolidated subsidiaries, separately, as of the end of the most recently
completed fiscal year.
> Changes in Stockholder’s Equity and Noncontrolling Interest
11 Regulation S-X Rule 210.3-04: Provide a separate schedule in the notes to the
financial statements that shows the effects of any changes in the registrant's
ownership interest in a subsidiary on the equity attributable to the registrant.
> Dividends on Income Deposit Securities
12 SEC-2004 AICPA National Conference on Current SEC and PCAOB
Developments. The SEC staff noted that they expect the following disclosures by
an entity that issues income deposit securities (IDS) which purport to pay a regular
dividend equal to all cash in excess of current operating needs, or for other
securities offered with “intended” significant dividends:
a. Dividend policy description.
b. Identify risks and limitations (e.g., discretionary nature of the dividend).
c. Forward-looking information about cash flows.
d. Intentions and assumptions regarding liquidity and capital resources (in
MD&A).
> Compensating Balance Arrangements
13 SAB Topic 6.H. Arrangements and amounts, if determinable, of compensating
balance arrangements that exist but are not agreements that legally restrict the use
of cash amounts.
> Equity Instruments with Redemption Features That Are Not Solely within the
Control of the Issuer
14 See SEC Guidance under Section 62, Subtopic 480-10 Distinguishing Liabilities
from Equity—Overall—SEC Guidance.
65 Subtopic 505-20: Equity—Stock Dividends and Stock Splits—SEC Guidance
> Capital Structure Change After the Latest Balance Sheet but Before the Release
of the Financial Statements (Stock Dividend, Stock Split or Reverse Split)
1 SAB Topic 4.C - Retroactive effect should be given to a change in capital structure
(i.e., stock dividend, stock split, or reverse split) that occurs after the balance sheet
date but before the release of financial statements with disclosure of the retroactive
treatment, explanation of the change made and the date the change became effective.
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> Issuance of "Free Distributions" by Japanese Companies
2 SAB Topic 1.D.2 - When U.S. accounting principles for stock dividends is not
applied to “free distributions” by Japanese Companies and the financial statements
are identified as being prepared in accordance with U.S. GAAP, the following
should be disclosed:
a. The method of accounting being used which also indicates that U.S. companies
issuing shares in comparable amounts would be required to account for them as
stock dividends
b. Fair value of shares issued during the year
c. Cumulative amount of the fair value of shares issued over time, either in the
aggregate figure of a listing of the amounts by year
66 Subtopic 505-30: Equity—Treasury Stock
Presentation
> Other Presentation Matters - General
505-30-45-1. If a corporation's stock is acquired for purposes other than retirement
(formal or constructive), or if ultimate disposition has not yet been decided, the
cost of acquired stock may be shown separately as a deduction from the total of
capital stock, additional paid-in capital, and retained earnings, or may be accorded
the accounting treatment appropriate for retired stock specified in paragraphs 50530-30-7 through 30-10.
Disclosure
> Disclosures Relating to State Laws
505-30-50-2. If state laws relating to an entity's repurchase of its own outstanding
common stock restrict the availability of retained earnings for payment of
dividends or have other effects of a significant nature, those facts shall be
disclosed.
> Disclosures Relating to Allocation of Repurchase Price
505-30-50-4. If shares are repurchased at a price significantly in excess of the current
market price, an entity shall disclose the allocation of amounts and the accounting
treatment for such amounts to enable the user of the financial statements to
understand the nature of significant transactions that may affect, in part, the
capital of the entity.
67 Subtopic 505-50: Equity—Equity-Based Payments to Non-Employees
Presentation
505-50-45-1. An asset (other than a note or a receivable) received in return for fully
vested, nonforfeitable equity instruments that are issued at the date the grantor and
grantee enter into an agreement for goods or services (and no specific
performance is required by the grantee in order to retain those equity instruments)
shall not be displayed as contra-equity by the grantor of the equity instruments.
The transferability (or lack thereof) of the equity instruments shall not affect the
balance sheet display of the asset. This guidance is limited to transactions in
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which equity instruments are transferred to other than employees in exchange for
goods or services.
Disclosure
> Grantor Disclosures
505-50-50-1. An entity that acquires goods or services other than employee services in
share-based payment transactions shall provide disclosures similar to those
required by paragraphs 718-10-50-1 through 50-2 (in this checklist) to the extent
that those disclosures are important to an understanding of the effects of those
transactions on the financial statements.
> Grantee Disclosures
505-50-50-2. The entity shall disclose:
a. In each period's financial statements, the amount of gross operating revenue
recognized as a result of the nonmonetary transaction (845-10-50-2 in this
checklist)
SEC Guidance
1 505-50-S99-1. SEC staff announcement. If the grantor of the warrants or rights
receives a right to receive future services in exchange for unvested, forfeitable
equity instruments, those equity instruments should be treated as unissued for
accounting purposes until the future services are received (i.e., the instruments are
not considered issued until they vest).
68 Subtopic 605-10: Revenue Recognition—Overall
SEC Guidance
1 SAB Topic 13 notes SEC Staff views on disclosures pertaining to recognition of
revenue.
a. Disclose revenue recognition policies for the following:
1
2
3
Each material type of product or service
Barter transactions
Each element in multiple-element transactions, including the policy for how
the elements are determined and valued. Disclose the method of accounting
for multiple-element arrangements
4 For equipment sold on an installed basis, the method of accounting for
installation services
5 Revenue recognition policy when refund provisions exist. Where revenue
is recognized based on estimates of cancellations, estimates should be
disclosed
b. Disclose the accounting policy related to contract acquisition and origination
costs. If costs are deferred and amortized, the policy for determining which
costs to capitalize as contract acquisition and origination costs
c. Amount of any inventory consigned to others should be reported separately as
“inventory consigned to others” or other appropriate caption
d. Amount of cash received for layaway sales should be described as “deposits
received from customers for layaway sales”
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e. For annual membership fees collected in advance and recognized in revenue,
net of estimated refunds calculated by analogy to Subtopic 605-15, disclose for
each income statement period presented
1 The unearned revenue and refund obligations as of the beginning of the
period.
2 The amount of cash received from customers during the period.
3 The amount of revenue recognized in earnings during the period.
4 The amount of refunds paid.
5 The unearned revenue and refund obligations as of the end of the period.
f. Sales returns:
1 Seller’s gross sales and related accounting policies when right of return
exists and product returns are significant
2 Changes in estimated returns recognized in accordance with Subtopic 60515
g. Amount of revenue recognized in the current period that was included in
cumulative-effect adjustment upon adoption of SAB 104 (ASC paragraph 60510-S99-1)
69 Subtopic 605-15: Revenue Recognition--Products
Presentation
> General
605-15-45-1 For any sales made with a right of return in which the criteria in paragraph
605-15-25-1 are met, revenue and cost of sales reported in the income statement
shall be reduced to reflect estimated returns.
SEC Guidance
> Sales of Leased or Licensed Departments
1 Staff Accounting Bulletin Topic 8A. It would be inappropriate for a department
store or other retailer to include in its revenue the sales of the leased or licensed
departments. Rather, the department store or other retailer should include the rental
income as part of its gross revenue. The staff would not object to disclosure in the
footnotes to the financial statements of the amount of the lessee's sales from leased
departments.
Disclosure
> Sales of Vaccines and Bioterror Countermeasures
2 Interpretive Release No. 33-8642. SEC interpretive guidance regarding appropriate
disclosures with respect to sales of vaccines and bioterror countermeasures to the
federal government for placement into stockpiles related to Vaccines for Children
Program or the Strategic National Stockpile.
A vaccine manufacturer who sells enumerated vaccines related to Federal
government stockpile programs may elect an “alternative” accounting policy. Under
the alternative policy, certain criteria applicable to “bill and hold” transactions ((1)
there must be a fixed schedule for delivery of the goods and (2) the ordered goods
must have been segregated from the seller’s inventory such and not be subject to
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being used to fill other orders) need not be met in order to recognize revenue. This
alternative accounting policy is limited only to sales of vaccines under Federal
government stockpile programs and may not be analogized to.
If the alternative accounting method is elected, the Commission believes that
sufficient disclosures should be provided to allow for a clear understanding by
investors of the subject transactions, related accounting, and the effect of the
alternative accounting method in the financial statements. The following disclosures
should be considered:
a. Material terms and conditions of contracts for which the alternative accounting
method was selected, including all fees received and a description of each
enumerated vaccine product that the vaccine manufacturer sells to vaccine
stockpiles. The vaccine manufacturer should also describe the nature of its
continuing involvement with the stockpiles for enumerated vaccine products for
which revenue has been recognized, such as stock rotation. Additionally, the
election of this alternative form of revenue recognition would generally be a
significant accounting policy under Topic 235. Vaccine manufacturers should
clearly disclose that this alternative policy applies only to enumerated vaccine
product sales.
b. Disclosures quantifying the effects of using the alternative policy on relevant
balance sheet and income statement captions, including revenue, cost of sales,
inventory and deferred revenue.
c. Supplemental disclosure of the market value of inventory available to be rotated
out of vaccine stockpiles and of sales to third parties that were filled from
vaccine stockpiles.
d. Supplemental disclosure of enumerated vaccine product quantities and related
product sales revenue for enumerated vaccines actually delivered from
stockpiles to the CDC or other party for use during the period (i. e., delivered
out of stockpiles).
> Finance Charges on Credit Sales Imposed by Department Stores and Other
Retailers
3 SAB Topic 8.B. As a minimum, the staff requests that the amount of retailers’ gross
revenue from finance charges on credit sales be stated in a footnote and that the
income statement classification which includes such revenue be identified.
70 Subtopic 605-20: Revenue Recognition--Services
> Advertising Barter Transactions
605-20-50-1. Entities shall disclose the amount of revenue and expense recognized from
advertising barter transactions for each income statement period presented.
In addition, if an entity engages in advertising barter transactions for which the
fair value is not determinable within the limits of paragraphs 605-20-25-15
through 25-18, information regarding the volume and type of advertising
surrendered and received (such as the number of equivalent pages, the number of
minutes, or the overall percentage of advertising volume) shall be disclosed for
each income statement period presented.
SEC Guidance
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> Accounting for Management Fees Based on a Formula
1 SEC Staff Announcement: Accounting for Management Fees Based on a Formula,
notes SEC Staff views on disclosures pertaining to arrangements that contain a
performance-based incentive fee.
a. For management fees based on a formula, disclose the accounting policy for
management fees based on a formula (such as in the investment advisory and
real estate management businesses), and whether the company has recorded any
revenue that is at risk due to future performance contingencies, the nature of the
contracts giving rise to the contingencies, and if material, the amount of any
such revenue recorded
> Service Period Revenue
2
If revenue is recognized over the service period, based on progress toward
completion, proportional performance, or separate contract elements or milestones,
disclose how the period’s revenue is measured (SEC-Current Accounting and
Disclosure Issues in the Division of Corporation Finance, November 30, 2006).
a. Disclose how progress is measured (cost to cost, time and materials, units of
delivery, units of work performed).
b. Identify types of contract payment milestones and explain how they relate to
substantive performance and revenue recognition events.
c. Disclose whether contracts with a single counterparty are combined or
bifurcated.
d. Identify contract elements permitting separate revenue recognition, and describe
how they are distinguished.
e. Explain how contract revenue is allocated among elements (relative fair value or
residual method, fair value based on vendor specific evidence or by other
means).
71 Subtopic 605-25: Revenue Recognition—Multiple Element Arrangements
Disclosure
605-25-50-1 The objective of the disclosure guidance in this Section is to provide both
qualitative and quantitative information about a vendor’s revenue arrangements
and about the significant judgments made about the application of this Subtopic
and changes in those judgments or in the application of this Subtopic that may
significantly affect the timing or amount of revenue recognition. Therefore, in
addition to the required disclosures, a vendor shall also disclose other qualitative
and quantitative information as necessary to comply with this objective.
605-25-50-2. A vendor shall disclose all of the following information by similar type of
arrangement:
a. The nature of its multiple-deliverable arrangements
b. The significant deliverables within the arrangements
c. The general timing of delivery or performance of service for the deliverables
within the arrangements
d. Performance-, cancellation-, termination-, and refund-type provisions
e. A discussion of the significant factors, inputs, assumptions, and methods used
to determine selling price (whether vendor-specific objective evidence, third©2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of
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party evidence, or estimated selling price) for the significant deliverables
f. Whether the significant deliverables in the arrangements qualify as separate
units of accounting, and the reasons that they do not qualify as separate units
of accounting, if applicable
g. The general timing of revenue recognition for significant units of accounting
h. Separately, the effect of changes in either the selling price or the method or
assumptions used to determine selling price for a specific unit of accounting if
either one of those changes has a significant effect on the allocation of
arrangement consideration.
72 Subtopic 605-28: Revenue Recognition—Milestone Method
Disclosure
605-28-50-1. An entity shall disclose its accounting policy for the recognition of
milestone payments as revenue in accordance with Subtopic 235-10 in this
checklist.
605-28-50-2. For each arrangement that includes milestone consideration accounted for
in accordance with the guidance in this Subtopic, an entity shall disclose all of the
following in the notes to financial statements:
a.
A description of the overall arrangement
b.
A description of each milestone and related contingent consideration
c.
A determination of whether each milestone is considered substantive
d.
e.
The factors that the entity considered in determining whether the milestone
or milestones are substantive
The amount of consideration recognized during the period for the milestone
or milestones
73 Subtopic 605-35: Revenue Recognition—Construction-Type and Production-Type Contracts
Presentation
> Provisions for Anticipated Losses on Contracts
605-35-45-1. A provision for loss shall be presented in the income statement as an
additional contract cost rather than as a reduction of contract revenue, which is a
function of contract price, not cost. Unless the provision is material in amount or
unusual or infrequent in nature, the provision shall not be shown separately in the
income statement. If it is shown separately, it shall be shown as a component of
the cost included in the computation of gross profit.
605-35-45-2. Provisions for losses on contracts shall be shown separately as liabilities
on the balance sheet, if significant, except in circumstances in which related costs
are accumulated on the balance sheet, in which case the provisions may be
deducted from the related accumulated costs. In a classified balance sheet, a
provision shown as a liability shall be shown as a current liability.
> Percentage-of-Completion Method
605-35-45-3. Under the percentage-of-completion method current assets may include
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costs and recognized income not yet billed, with respect to certain contracts.
Liabilities, in most cases current liabilities, may include billings in excess of costs
and recognized income with respect to other contracts.
> Completed Contract Method
605-35-45-4. When the completed-contract method is used, an excess of accumulated
costs over related billings shall be shown in the balance sheet as a current asset,
and an excess of accumulated billings over related costs shall be shown among the
liabilities, in most cases as a current liability.
If costs exceed billings on some contracts, and billings exceed costs on others, the
contracts shall ordinarily be segregated so that the figures on the asset side include
only those contracts on which costs exceed billings, and those on the liability side
include only those on which billings exceed costs.
605-35-45-5. It is suggested that the asset item be described as costs of uncompleted
contracts in excess of related billings rather than as inventory or work in process,
and that the item on the liability side be described as billings on uncompleted
contracts in excess of related costs.
Disclosure
> Accounting Policy
605-35-50-1. In accordance with the requirements of Section 235-10-50 (in this
checklist), a contractor shall disclose in the note on accounting policies the
method or methods of determining earned revenue and the cost of earned revenue
including the policies relating to combining and segmenting, if applicable.
> Percentage-of-Completion Method
605-35-50-2. An entity using the percentage-of-completion method shall disclose the
method or methods (for example, cost to cost, labor hours) of measuring extent of
progress toward completion.
605-35-50-3. An entity that departs from use of the percentage-of-completion method as
its basic accounting policy in the circumstances described in paragraph 605-3525-61 shall disclose such a departure from the basic policy.
> Completed-Contract Method
605-35-50-4. The specific criteria used to determine when a contract is substantially
completed shall be followed consistently and shall be disclosed in the note on
accounting policies.
605-35-50-5. An entity that departs from use of the completed-contract method as its
basic accounting policy in the circumstances described in paragraph 605-35-25-95
shall disclose such a departure.
> Contract Claims
605-35-50-6. The amounts of claim revenue recorded shall be disclosed in the notes to
financial statements.
605-35-50-7. As indicated in paragraph 605-35-25-31, a practice such as recording
revenues from claims only when the amounts have been received or awarded may
be used. If that practice is followed, the amounts shall be disclosed in the notes to
financial statements.
605-35-50-8. If the requirements in paragraph 605-35-25-31 are not met or if those
requirements are met but the claim exceeds the recorded contract costs, a
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contingent asset shall be disclosed in accordance with paragraph 450-30-50-1 (in
this checklist).
> Revisions of Estimates
605-35-50-9. Although estimating is a continuous and normal process for contractors,
paragraph 250-10-50-4 (in this checklist) requires disclosure of the effect of
revisions if the effect is material.
605-35-50-10. Events occurring after the date of the financial statements that are outside
the normal exposure and risk aspects of the contract shall not be considered
refinements of the estimating process of the prior year but should be disclosed as
subsequent events.
> Commitments to Complete Contracts in Process
605-35-50-11. Generally commitments to complete contracts in process are in the
ordinary course of a contractor's business and are not required to be disclosed in a
statement of financial position. However, in special cases disclosures of
extraordinary commitments may be required.
74 Subtopic 605-40: Revenue Recognition—Gains and Losses
Presentation
> General
605-40-45-1. Gain or loss resulting from an involuntary conversion of a nonmonetary
asset to monetary assets shall be classified in accordance with the provisions of
Subtopic 225-20.
SEC Guidance
> Gain Recognition on the Sale of a Business or Operating Assets to a Highly
Leveraged Entity
1 SAB Topic 5.U. If a gain on the sale of a business or operating assets is deferred
under the guidance in this SAB, the staff believes that the amount of any deferred
gain (including deferral of interest or dividend income on securities received) should
be disclosed on the face of the balance sheet as a deduction from the related asset
account (i. e., investment in NEWCO).
2 SAB Topic 5.U. The footnotes to the financial statements should include a complete
description of the transaction, including the existence of any commitments and
contingencies, the terms of the securities received, and the accounting treatment of
amounts due thereon.
75 Subtopic 605-45: Revenue Recognition—Principal Agent Considerations
Presentation
> Overall Considerations of Reporting Revenue Gross as a Principal versus Net as
an Agent
605-45-45-1. It is a matter of judgment whether an entity should report revenue based
on either of the following:
a. The gross amount billed to a customer because it has earned revenue (as a
principal) from the sale of the goods or services
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b. The net amount retained (that is, the amount billed to the customer less the
amount paid to a supplier) because it has earned a commission or fee as an
agent.
605-45-45-2. The factors or indicators set forth in Section 605-45-45 shall be considered
in that evaluation.
> Shipping and Handling Fees and Costs
605-45-45-20. For those entities that determine under the indicators listed in paragraphs
605-45-45-4 through 45-18 that shipping and handling fees shall be reported
gross, all amounts billed to a customer in a sale transaction related to shipping and
handling represent revenues earned for the goods provided and shall be classified
as revenue.
605-45-45-21. Shipping and handling costs shall not be deducted from revenues (that is,
netted against shipping and handling revenues).
> Reimbursements Received for Out-of-Pocket Expenses Incurred
605-45-45-23. Reimbursements received for out-of-pocket expenses incurred shall be
characterized as revenue in the income statement.
Disclosure
> Gross Transaction Volumes
605-45-50-1. Voluntary disclosure of gross transaction volume for those revenues
reported net may be useful to users of financial statements. Such disclosure can be
made parenthetically in the income statement or in the notes to the financial
statements. However, if gross amounts are disclosed on the face of the income
statement, they shall not be characterized as revenues (a description such as gross
billings may be appropriate), nor shall they be reported in a column that sums to
net income or loss. (This does not apply to the disclosure of taxes collected and
remitted to governmental authorities; see paragraphs 605-45-50-3 through 50-4 in
this checklist.)
> Shipping and Handling Fees and Costs
605-45-50-2. The classification of shipping and handling costs is an accounting policy
decision that shall be disclosed pursuant to Topic 235. An entity may adopt a
policy of including shipping and handling costs in cost of sales. If shipping costs
or handling costs are significant and are not included in cost of sales (that is, if
those costs are accounted for together or separately on other income statement
line items), an entity shall disclose both the amount of such costs and the line item
or items on the income statement that include them.
> Taxes Collected from Customers and Remitted to Governmental Authorities
605-45-50-3. The presentation of taxes within the scope of this Subtopic on either a
gross basis (included in revenues and costs) or a net basis (excluded from
revenues) is an accounting policy decision that shall be disclosed pursuant to
Topic 235.
605-45-50-4. For any such taxes that are reported on a gross basis, an entity shall
disclose the amounts of those taxes in interim and annual financial statements for
each period for which an income statement is presented if those amounts are
significant. The disclosure of those taxes can be done on an aggregate basis.
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76 Subtopic 605-50: Revenue Recognition—Customer Payments and Incentives
Note: FASB ASC Section 605-50-45 includes guidance on a vendor’s characterization
of consideration given to a customer, a customer’s characterization of
consideration received from a vendor, and related matters. Cross-references to the
applicable guidance are included below.
> Vendor's Income Statement Characterization of Consideration Given to a
Customer (Including a Reseller)
See guidance in paragraphs 605-50-45-1 through 45-5.
> > Characterization of Revenue Reductions that Result in Negative Revenue
See guidance in paragraphs 605-50-45-6 through 45-11.
Disclosure
> Service Provider's Accounting for Consideration Given to a Manufacturer or
Reseller of Equipment
605-50-50-1. Entities shall disclose the nature of the incentive programs and the
amounts recognized in the statement of operations for those incentive programs
and their related classification for each period presented, if significant.
SEC Guidance
> Accounting by a Customer (Including Reseller) for Certain Consideration
Received from a Vendor
1 SEC Observer Comment. As it relates to consideration given by a vendor to a
customer the SEC staff believes that the expense associated with a "free" product or
service delivered at the time of sale of another product or service should be
classified as cost of sales.
77 Subtopic 710-10: Compensation—General--Overall
> Compensated Absences
710-10-50-1. If an employer meets the conditions for recognizing a liability for
compensated absences in paragraph 710-10-25-1(a) through (c) and does not
accrue a liability because the amount cannot be reasonably estimated, that fact
shall be disclosed.
78 Subtopic 712-10: Compensation—Nonretirement Postemployment Benefits--Overall
> Termination Benefits
712-10-50-1. For guidance on disclosure requirements related to special and contractual
termination benefits, see paragraph 715-20-50-1 (in this checklist).
> Other Postemployment Benefits
712-10-50-2. If an obligation for other postemployment benefits is not accrued in
accordance with paragraphs 450-20-25-2 or 710-10-25-1 only because the amount
cannot be reasonably estimated, the financial statements shall disclose that fact.
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79 Pension and Other Postretirement Benefits Guidance (Subtopics 715-20, 715-30, and 715-60)
That Applies to Both Public and Nonpublic Entities
Note: The content in this Subtopic has been updated for FSP FAS 132(R)-1,
Employers’ Disclosures about Postretirement Benefit Plan Assets, which is
effective for fiscal years ending after December 15, 2009. Upon initial
application, the new disclosure requirements of this FSP are not required for
earlier periods that are presented for comparative purposes (i.e., comparative
disclosures are not required for fiscal years ended September 30, 2009).
Presentation
> Classification
715-20-45-2. An employer that sponsors one or more defined benefit pension plans or
one or more defined benefit other postretirement plans shall provide separately
for pension plans and other postretirement benefit plans the funded status of the
plans and the amounts recognized in the statement of financial position, showing
separately the assets and current and noncurrent liabilities recognized.
715-20-45-3. An employer that presents a classified statement of financial position
shall classify the liability for an underfunded plan as a current liability, a
noncurrent liability, or a combination of both. The current portion (determined
on a plan-by-plan basis) is the amount by which the actuarial present value of
benefits included in the benefit obligation payable in the next 12 months, or
operating cycle if longer, exceeds the fair value of plan assets. The asset for an
overfunded plan shall be classified as a noncurrent asset in a classified statement
of financial position. The amount classified as a current liability is limited to the
amount of the plan’s unfunded status recognized in the employer’s statement of
financial position.
> Disclosure
>Entities (Public and Nonpublic) with Two or More Plans
715-20-50-2. The disclosures required by this Subtopic shall be aggregated for all of an
employer’s defined benefit pension plans and for all of an employer’s other
defined benefit postretirement plans unless disaggregating in groups is
considered to provide useful information or is otherwise required by the
following paragraph and paragraph 715-20-50-4 (in this checklist).
715-20-50-3. Disclosures about pension plans with assets in excess of the accumulated
benefit obligation generally may be aggregated with disclosures about pension
plans with accumulated benefit obligations in excess of assets. The same
aggregation is permitted for other postretirement benefit plans. If aggregate
disclosures are presented, an employer shall disclose both of the following:
a) The aggregate benefit obligation and aggregate fair value of plan assets for
plans with benefit obligations in excess of plan assets as of the measurement
date of each statement of financial position presented
b) The aggregate pension accumulated benefit obligation and aggregate fair
value of plan assets for pension plans with accumulated benefit obligations
in excess of plan assets.
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715-20-50-4. A U.S. reporting entity may combine disclosures about pension plans or
other postretirement benefit plans outside the United States with those for U.S.
plans unless the benefit obligations of the plans outside the United States are
significant relative to the total benefit obligation and those plans use significantly
different assumptions. A foreign reporting entity that prepares financial
statements in conformity with U.S. generally accepted accounting principles
(GAAP) shall apply the preceding guidance to its domestic and foreign plans.
> Disclosures Related to Expected Rate of Return on Plan Assets
715-20-50-8. The weighted-average expected long-term rate of return on plan assets is
used to determine net benefit cost, and, therefore, in the absence of a subsequent
interim measurement of both pension or other postretirement plan assets and
obligations (see paragraph 715-30-35-68), the disclosed rate is the rate
determined as of the beginning of the year. However, if that rate changes because
of a subsequent interim measurement of both pension or other postretirement
plan assets and obligations, disclosure of the beginning and more recently
assumed rate, or a properly weighted combination of the two, shall be made.
> Disclosures Related to Japanese Governmental Settlement Transactions
715-20-50-10. The required disclosures for the separation of the substitutional portion
of the benefit obligation from the corporate portion of the benefit obligation in a
Japanese Employee Pension Fund arrangement and the transfer of the
substitutional portion and related assets to the Japanese government pursuant to
the June 2001 Japanese Welfare Pension Insurance Law amendment are as
follows:
a) The difference between the obligation settled and the assets transferred to the
government, determined pursuant to the government formula, shall be
disclosed separately as a subsidy from the government pursuant to applicable
GAAP.
b) The derecognition of previously accrued salary progression at the time of
settlement, pursuant to this consensus, shall be disclosed separately from the
government subsidy.
KPMG and Other Guidance
> Cash Balance Plans
1. KARG 123.313; KARG 126.066. There are contrary legal findings regarding the
legality of cash balance pension plans. Entities that sponsor cash balance plans
should consider ASC Subtopic 450-20, Contingencies—Loss Contingencies, and
ASC Subtopic 275-10, Risks and Uncertainties—General (in this checklist), to
ensure proper disclosures related to this uncertainty are included in the financial
statements.
> Impact of 2010 Health Care Legislation on OPEB Plan Measurements
2
There are several provisions of the 2010 health care legislation that could affect a
company’s measurement of its OPEB obligations. These provisions include:
a. Excise tax on high cost coverage. A 40% excise tax will be imposed on high
cost health care plans beginning in 2018. The thresholds to which the tax
applies are those plan costs that exceed $10,200 for individuals or $27,500 for
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families and are indexed for inflation thereafter.
b. Health care reforms. Protections to consumers such as eliminating lifetime or
annual limits of coverage and providing coverage for preventive health
services may increase estimates of per capita costs for plan participants. These
provisions are effective six months after the date of enactment (i.e., third
quarter for calendar year-end companies).
c. Fees for insured and self-insured health plans. Inflation-adjusted fees equal to
$2 per person covered by a policy per year of coverage will be imposed on
each individual policy provided by a company. Governmental entities
generally are not excluded from this fee.
80 Pension and Other Postretirement Benefit Guidance (Subtopics 715-20, 715-30, and 715-60)
That Applies to Public Entities Only
Disclosure
715-20-50-1. An employer that sponsors one or more defined benefit pension plans or
one or more defined benefit other postretirement plans shall provide the following
information, separately for pension plans and other postretirement benefit plans.
Amounts related to the employer’s results of operations shall be disclosed for
each period for which a statement of income is presented. Amounts related to the
employer’s statement of financial position shall be disclosed as of the date of each
statement of financial position presented. All of the following shall be disclosed:
a. A reconciliation of beginning and ending balances of the benefit obligation
showing separately, if applicable, the effects during the period attributable to
each of the following:
1
Service cost
2
Interest cost
3
Contributions by plan participants
4
Actuarial gains and losses
5
Foreign currency exchange rate changes (The effects of foreign currency
exchange rate changes that are to be disclosed are those applicable to
plans of a foreign operation whose functional currency is not the reporting
currency pursuant to Section 830-10-45.)
6
Benefits paid
7
Plan amendments
8
Business combinations
9
Divestitures
10 Curtailments, settlements, and special and contractual termination
benefits.
For defined benefit pension plans, the benefit obligation is the projected benefit
obligation. For defined benefit other postretirement plans, the benefit obligation is
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the accumulated postretirement benefit obligation.
b. A reconciliation of beginning and ending balances of the fair value of plan
assets showing separately, if applicable, the effects during the period
attributable to each of the following:
1
Actual return on plan assets
2
Foreign currency exchange rate changes (see (a)(5))
3
Contributions by the employer
4
Contributions by plan participants
5
Benefits paid
6
Business combinations
7
Divestitures
8
Settlements.
c. The funded status of the plans and the amounts recognized in the statement of
financial position, showing separately the assets and current and noncurrent
liabilities recognized.
d. The objectives of the disclosures about postretirement benefit plan assets are
to provide users of financial statements with an understanding of:
1
How investment allocation decisions are made, including the factors that
are pertinent to an understanding of investment policies and strategies
2
The classes of plan assets
3
The inputs and valuation techniques used to measure the fair value of plan
assets
4
The effect of fair value measurements using significant unobservable
inputs (Level 3) on changes in plan assets for the period
5
Significant concentrations of risk within plan assets.
An employer shall consider those overall objectives in providing the
following information about plan assets:
i
A narrative description of investment policies and strategies,
including target allocation percentages or range of percentages
considering the classes of plan assets disclosed pursuant to (ii) below,
as of the latest statement of financial position presented (on a
weighted-average basis for employers with more than one plan), and
other factors that are pertinent to an understanding of those policies
and strategies such as investment goals, risk management practices,
permitted and prohibited investments including the use of derivatives,
diversification, and the relationship between plan assets and benefit
obligations. For investment funds disclosed as classes as described in
(ii) below, a description of the significant investment strategies of
those funds shall be provided.
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ii
The fair value of each class of plan assets as of each date for which a
statement of financial position is presented. For additional guidance
on determining appropriate classes of plan assets, see paragraph 82010-50-2B (in this checklist). Examples of classes of assets could
include, but are not limited to, the following: cash and cash
equivalents; equity securities (segregated by industry type, company
size, or investment objective); debt securities issued by national, state,
and local governments; corporate debt securities; asset-backed
securities; structured debt; derivatives on a gross basis (segregated by
type of underlying risk in the contract, for example, interest rate
contracts, foreign exchange contracts, equity contracts, commodity
contracts, credit contracts, and other contracts); investment funds
(segregated by type of fund); and real estate. Those examples are not
meant to be all inclusive. An employer should consider the overall
objectives in paragraph 715-20-50-1(d)(1) through (5) (in this
checklist) in determining whether additional classes of plan assets or
further disaggregation of classes should be disclosed.
iii A narrative description of the basis used to determine the overall
expected long-term rate-of-return-on-assets assumption, such as the
general approach used, the extent to which the overall rate-of-returnon-assets assumption was based on historical returns, the extent to
which adjustments were made to those historical returns in order to
reflect expectations of future returns, and how those adjustments were
determined. The description should consider the classes of assets as
described in (ii) above, as appropriate.
iv Information that enables users of financial statements to assess the
inputs and valuation techniques used to develop fair value
measurements of plan assets at the reporting date. For fair value
measurements using significant observable inputs, an employer shall
disclose the effect of the measurements on changes in plan assets for
the period. To meet those objectives, the employer shall disclose the
following information for each class of plan assets disclosed pursuant
to (ii) above for each annual period:
a. The level of the fair value hierarchy within which the fair value
measurements are categorized in their entirety, segregating fair
value measurements using quoted prices in active markets for
identical assets or liabilities (Level 1), significant other
observable inputs (Level 2), and significant unobservable inputs
(Level 3). The guidance in paragraphs 820-10-35-37 through 3537A is applicable.
b. For fair value measurements of plan assets using significant
unobservable inputs (Level 3), a reconciliation from the opening
balances to the closing balances, disclosing separately changes
during the period attributable to the following:
1
Actual Return on Plan Assets (Component of Net Periodic
Postretirement Benefit Cost) or Actual Return on Plan Assets
(Component of Net Periodic Pension Cost), separately
identifying the amount related to assets still held at the
reporting date and the amount related to assets sold during the
period
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2
Purchases, sales, and settlements, net
3
The amounts of any transfers into or out of Level 3 (for
example, transfers due to changes in the observability of
significant inputs)
c. Information about the valuation technique(s) and inputs used to
measure fair value and a discussion of changes in valuation
techniques and inputs, if any, during the period.
e. For defined benefit pension plans, the accumulated benefit obligation.
f.
The benefits (as of the date of the latest statement of financial position
presented) expected to be paid in each of the next five fiscal years, and in the
aggregate for the five fiscal years thereafter. The expected benefits shall be
estimated based on the same assumptions used to measure the entity's benefit
obligation at the end of the year and shall include benefits attributable to
estimated future employee service.
g. The employer’s best estimate, as soon as it can reasonably be determined, of
contributions expected to be paid to the plan during the next fiscal year
beginning after the date of the latest statement of financial position presented.
Estimated contributions may be presented in the aggregate combining all of
the following:
1
Contributions required by funding regulations or laws
2
Discretionary contributions
3
Noncash contributions.
h. The amount of net benefit cost recognized, showing separately all of the
following:
1
The service cost component
2
The interest cost component
3
The expected return on plan assets for the period
4
The gain or loss component
5
The prior service cost or credit component
6
The transition asset or obligation component
7
The gain or loss recognized due to settlements or curtailments.
i.
Separately, the net gain or loss and net prior service cost or credit recognized
in other comprehensive income for the period pursuant to paragraphs 715-3035-11, 715-30-35-21, 715-60-35-16, and 715-60-35-25, and reclassification
adjustments of other comprehensive income for the period, as those amounts,
including amortization of the net transition asset or obligation, are recognized
as components of net periodic benefit cost.
j.
The amounts in accumulated other comprehensive income that have not yet
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been recognized as components of net periodic benefit cost, showing
separately the net gain or loss, net prior service cost or credit, and net
transition asset or obligation.
k. On a weighted-average basis, all of the following assumptions used in the
accounting for the plans, specifying in a tabular format, the assumptions used
to determine the benefit obligation and the assumptions used to determine net
benefit cost:
l.
1
Assumed discount rates (see paragraph 715-30-35-45 for a discussion of
representationally faithful disclosure)
2
Rates of compensation increase (for pay-related plans)
3
Expected long-term rates of return on plan assets.
The assumed health care cost trend rate(s) for the next year used to measure
the expected cost of benefits covered by the plan (gross eligible charges), and
a general description of the direction and pattern of change in the assumed
trend rates thereafter, together with the ultimate trend rate(s) and when that
rate is expected to be achieved.
m. The effect of a one-percentage-point increase and the effect of a onepercentage-point decrease in the assumed health care cost trend rates on the
aggregate of the service and interest cost components of net periodic
postretirement health care benefit costs and the accumulated postretirement
benefit obligation for health care benefits. Measuring the sensitivity of the
accumulated postretirement benefit obligation and the combined service and
interest cost components to a change in the assumed health care cost trend
rates requires remeasuring the accumulated postretirement benefit obligation
as of the beginning and end of the year. (For purposes of this disclosure, all
other assumptions shall be held constant, and the effects shall be measured
based on the substantive plan that is the basis for the accounting.)
n. If applicable, the amounts and types of securities of the employer and related
parties included in plan assets, the approximate amount of future annual
benefits of plan participants covered by insurance contracts, including annuity
contracts issued by the employer or related parties, and any significant
transactions between the employer or related parties and the plan during the
period.
o. If applicable, any alternative method used to amortize prior service amounts
or net gains and losses pursuant to paragraphs 715-30-35-13 and 715-30-3525 or 715-60-35-18 and 715-60-35-31.
p. If applicable, any substantive commitment, such as past practice or a history
of regular benefit increases, used as the basis for accounting for the benefit
obligation.
q. If applicable, the cost of providing special or contractual termination benefits
recognized during the period and a description of the nature of the event.
r.
An explanation of any significant change in the benefit obligation or plan
assets not otherwise apparent in the other disclosures required by this
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Subtopic.
s. The amounts in accumulated other comprehensive income expected to be
recognized as components of net periodic benefit cost over the fiscal year that
follows the most recent annual statement of financial position presented,
showing separately the net gain or loss, net prior service cost or credit, and net
transition asset or obligation.
t.
The amount and timing of any plan assets expected to be returned to the
employer during the 12-month period, or operating cycle if longer, that
follows the most recent annual statement of financial position presented.
SEC Guidance
> Determination of Vested Benefit Obligation for a Defined Benefit Pension Plan
1
SEC Observer Comment on EITF Issue No. 88-1, “Determination of Vested Benefit
Obligation for a Defined Benefit Pension Plan”: Under the guidance in paragraph
715-30-35-41, an entity has the option of determining whether the vested benefit
obligation for a defined benefit pension plan is the actuarial present value of the
vested benefits to which the employee is entitled if the employee separates
immediately or the actuarial present value of the vested benefits to which the
employee is currently entitled but based on the employee's expected date of
separation of retirement. The method used should be disclosed.
> Selection of Discount Rates
2
2005 SEC Staff Speeches: The following disclosures related to the selection of
discount rates should be included either in the footnotes or in the critical accounting
policies section of the MD&A.
a) The specific source data used to support the discount rate.
b) If the discount rate is published long-term bond indices, how the registrant
determined that the timing and amount of cash outflows related to the bonds
included in the indices match its estimated defined benefit payments.
If t here are d ifferences b etween the t erms o f the b onds an d the terms o f the
benefit obligations, how the registrant adjusted for the difference.
> Termination Benefits
3
SAB Topic 5-P, footnote 18: The SEC staff would expect similar disclosures for
employee termination benefits, whether those costs have been recognized under
ASC Topic 712, ASC Topic 715, or ASC Topic 420-10.
81 Pension and Other Postretirement Benefit Guidance (Subtopics 715-20, 715-30, and 715-60)
That Applies to Nonpublic Entities Only
Disclosure
715-20-50-5. A nonpublic entity is not required to disclose the information required by
paragraphs 715-20-50-1(a) through (c), 715-20-50-1(h), 715-20-50-1(m), and
715-20-50-1(o) through (r) (all in this checklist). A nonpublic entity that sponsors
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one or more defined benefit pension plans or one or more other defined benefit
postretirement plans shall provide all of the following information, separately for
pension plans and other postretirement benefit plans. Amounts related to the
employer’s results of operations shall be disclosed for each period for which a
statement of income is presented. Amounts related to the employer’s statement of
financial position shall be disclosed as of the date of each statement of financial
position presented.
a. The benefit obligation, fair value of plan assets, and funded status of the plan.
b. Employer contributions, participant contributions, and benefits paid.
c. The objectives of the disclosures about postretirement benefit plan assets are
to provide users of financial statements with an understanding of:
1
How investment allocation decisions are made, including the factors that
are pertinent to an understanding of investment policies and strategies
2
The classes of plan assets
3
The inputs and valuation techniques used to measure the fair value of plan
assets
4
The effect of fair value measurements using significant unobservable
inputs (Level 3) on changes in plan assets for the period
5
Significant concentrations of risk within plan assets.
An employer shall consider those overall objectives in providing the
following information about plan assets:
i.
A narrative description of investment policies and strategies,
including target allocation percentages or range of percentages
considering the classes of plan assets disclosed pursuant to (ii) below,
as of the latest statement of financial position presented (on a
weighted-average basis for employers with more than one plan), and
other factors that are pertinent to an understanding of those policies
and strategies such as investment goals, risk management practices,
permitted and prohibited investments including the use of derivatives,
diversification, and the relationship between plan assets and benefit
obligations. For investment funds disclosed as classes as described in
(ii) below, a description of the significant investment strategies of
those funds shall be provided.
ii. The fair value of each class of plan assets as of each date for which a
statement of financial position is presented. For additional guidance
on determining appropriate classes of plan assets, see paragraph 82010-50-2B (in this checklist). Examples of classes include, but are not
limited to, the following: cash and cash equivalents; equity securities
(segregated by industry type, company size, or investment objective);
debt securities issued by national, state, and local governments;
corporate debt securities; asset-backed securities; structured debt;
derivatives on a gross basis (segregated by type of underlying risk in
the contract, for example, interest rate contracts, foreign exchange
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contracts, equity contracts, commodity contracts, credit contracts, and
other contracts); investment funds (segregated by type of fund); and
real estate. Those examples are not meant to be all inclusive. An
employer should consider the overall objectives in paragraph 715-2050-5(c)(1) through (5) (in this checklist) in determining whether
additional classes of plan assets or further disaggregation of classes
should be disclosed.
iii. A narrative description of the basis used to determine the overall
expected long-term rate-of-return-on-assets assumption, such as the
general approach used, the extent to which the overall rate-of-returnon-assets assumption was based on historical returns, the extent to
which adjustments were made to those historical returns in order to
reflect expectations of future returns, and how those adjustments were
determined. The description should consider the classes of assets
described in (ii) above, as appropriate.
iv. Information that enables users of financial statements to assess the
inputs and valuation techniques used to develop fair value
measurements of plan assets at the reporting date. For fair value
measurements using significant unobservable inputs, an employer
shall disclose the effect of the measurements on changes in plan
assets for the period. To meet those objectives, the employer shall
disclose the following information for each class of plan assets
disclosed pursuant to (ii) above for each annual period:
1. The level of the fair value hierarchy within which the fair value
measurements are categorized in their entirety, segregating fair
value measurements using quoted prices in active markets for
identical assets or liabilities (Level 1), significant other
observable inputs (Level 2), and significant unobservable inputs
(Level 3). The guidance in paragraphs 820-10-35-37 through 3537A is applicable.
2. For fair value measurements of plan assets using significant
unobservable inputs (Level 3), a reconciliation from the opening
balances to the closing balances, disclosing separately presenting
changes during the period attributable to the following:
A. Actual Return on Plan Assets (Component of Net Periodic
Postretirement Benefit Cost) or Actual Return on Plan Assets
(Component of Net Periodic Pension Cost), separately
identifying the amount related to assets still held at the
reporting date and the amount related to assets sold during the
period
B. Purchases, sales, and settlements, net
C. The amounts of any transfers into or out of Level 3 (for
example, transfers due to changes in the observability of
significant inputs)
3. Information about the valuation technique(s) and inputs used to
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measure fair value and a discussion of changes in valuation
techniques and inputs, if any, during the period.
d. For defined benefit pension plans, the accumulated benefit obligation.
e. The benefits (as of the date of the latest statement of financial position
presented) expected to be paid in each of the next five fiscal years, and in the
aggregate for the five fiscal years thereafter. The expected benefits shall be
estimated based on the same assumptions used to measure the entity's benefit
obligation at the end of the year and shall include benefits attributable to
estimated future employee service.
f.
The employer’s best estimate, as soon as it can reasonably be determined, of
contributions expected to be paid to the plan during the next fiscal year
beginning after the date of the latest statement of financial position presented.
Estimated contributions may be presented in the aggregate combining any of
the following:
1
Contributions required by funding regulations or laws
2
Discretionary contributions
3
Noncash contributions.
g. The amounts recognized in the statements of financial position, showing
separately the postretirement benefit assets and current and noncurrent
postretirement benefit liabilities.
h. Separately, the net gain or loss and net prior service cost or credit recognized
in other comprehensive income for the period pursuant to paragraphs 715-3035-11, 715-30-35-21, 715-60-35-16, and 715-60-35-25 and reclassification
adjustments of other comprehensive income for the period, as those amounts,
including amortization of the net transition asset or obligation, are recognized
as components of net periodic benefit cost.
i.
The amounts in accumulated other comprehensive income that have not yet
been recognized as components of net periodic benefit cost, showing
separately the net gain or loss, net prior service cost or credit, and net
transition asset or obligation.
j.
On a weighted-average basis, all of the following assumptions used in the
accounting for the plans, specifying in a tabular format, the assumptions used
to determine the benefit obligation and the assumptions used to determine net
benefit cost:
1
Assumed discount rates (see paragraph 715-30-35-45 for a discussion of
representationally faithful disclosure)
2
Rates of compensation increase (for pay-related plans)
3
Expected long-term rates of return on plan assets.
k. The assumed health care cost trend rate(s) for the next year used to measure
the expected cost of benefits covered by the plan (gross eligible charges), and
a general description of the direction and pattern of change in the assumed
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trend rates thereafter, together with the ultimate trend rate(s) and when that
rate is expected to be achieved.
l.
If applicable, the amounts and types of securities of the employer and related
parties included in plan assets, the approximate amount of future annual
benefits of plan participants covered by insurance contracts, including annuity
contracts, issued by the employer or related parties, and any significant
transactions between the employer or related parties and the plan during the
period.
m. The nature and effect of significant nonroutine events, such as amendments,
combinations, divestitures, curtailments, and settlements.
n. The amounts in accumulated other comprehensive income expected to be
recognized as components of net periodic benefit cost over the fiscal year that
follows the most recent annual statement of financial position presented,
showing separately the net gain or loss, net prior service cost or credit, and net
transition asset or obligation.
o. The amount and timing of any plan assets expected to be returned to the
employer during the 12-month period, or operating cycle if longer, that
follows the most recent annual statement of financial position presented.
p. [not used]
q. The amount of net periodic benefit cost recognized.
82 Medicare Prescription Drug, Improvement, and Modernization Act Subsection of Subtopic 71560: Compensation—Retirement Benefits—Defined Benefit Plans—Other Postretirement
Disclosure
715-60-50-2. This Subsection provides guidance on disclosures regarding the effect of
the Medicare subsidy. This Subsection also provides guidance on the disclosures
about the effects of the subsidy for an employer that sponsors a postretirement
health care benefit plan that provides prescription drug coverage but for which the
employer has not yet been able to determine actuarial equivalency.
715-60-50-3. In interim and annual financial statements for the first period in which an
employer includes the effects of the subsidy in measuring the accumulated
postretirement benefit obligation and the first period in which an employer
includes the effects of the subsidy in measuring net periodic postretirement
benefit cost, it shall disclose all of the following:
a. The reduction in the accumulated postretirement benefit obligation for the
subsidy related to benefits attributed to past service.
b. The effect of the subsidy on the measurement of net periodic postretirement
benefit cost for the current period. That effect includes any amortization of
the actuarial gain in (a) of this paragraph as a component of the net
amortization called for by paragraphs 715-60-35-29 through 35-30, the
reduction in current period service cost due to the subsidy, and the resulting
reduction in interest cost on the accumulated postretirement benefit obligation
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as a result of the subsidy.
c. Any other disclosures required by paragraph 715-20-50-1(r) (in this
checklist).
715-60-50-4. For purposes of the disclosures required by paragraphs 715-20-50-1(a) and
715-20-50-1(f) (both in this checklist), an employer shall disclose gross benefit
payments (paid and expected, respectively), including prescription drug benefits,
and separately the gross amount of the subsidy receipts (received and expected,
respectively). Disclosure of paragraphs 715-20-50-1(a) and 715-20-50-1(f) are
required as follows:
a. Reconciliation of beginning and ending balances of the benefit obligation.
b. Benefits (as of the date of the latest balance sheet presented) expected to be
paid in each of the next five fiscal years, and in the aggregate for the five
fiscal years thereafter.
715-60-50-6. Until an employer is able to determine whether benefits provided by its
plan are actuarially equivalent, it shall disclose both of the following in financial
statements for interim or annual periods:
a. The existence of the Medicare Prescription Drug, Improvement, and
Modernization Act
b. That measures of the accumulated postretirement benefit obligation or net
periodic postretirement benefit cost do not reflect any amount associated with
the subsidy because the employer is unable to conclude whether the benefits
provided by the plan are actuarially equivalent to Medicare Part D under the
Act.
83 Subtopic 715-70: Compensation—Retirement Benefits—Defined Contribution Plans
Disclosure
715-70-50-1. An employer shall disclose the amount of cost recognized for defined
contribution pension plans and for other defined contribution postretirement
benefit plans for all periods presented separately from the amount of cost
recognized for defined benefit plans. The disclosures shall include a description of
the nature and effect of any significant changes during the period affecting
comparability, such as a change in the rate of employer contributions, a business
combination, or a divestiture.
84 Subtopic 715-80: Compensation—Retirement Benefits—Multiemployer Plans
Note: In September 2011, the FASB issued ASU 2011-09, Disclosures about an
Employer’s Participation in a Multiemployer Plan, which requires additional
disclosures about employers’ participation in multiemployer pension plans
including information about the plan’s funded status if it is readily available. The
ASU is effective for annual periods for fiscal years ending after December 15,
2011 and December 15, 2012 for public and nonpublic entities, respectively.
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Early application is permitted. An entity is required to apply the ASU
retrospectively for all periods presented. For more information, see pending
content below.
Note: For entities with a December 31st year-end, the pending content below is
applicable because ASU 2011-09 would be effective. See below.
715-30-35-70. Note: Some pension plans to which two or more unrelated employers
contribute are not multiemployer plans. Rather, they are in substance aggregations
of single-employer plans combined to allow participating employers to pool their
assets for investment purposes and to reduce the costs of plan administration.
Those multiple-employer plans ordinarily do not involve collective-bargaining
agreements. They may also have features that allow participating employers to
have different benefit formulas, with the employer's contributions to the plan
based on the benefit formula selected by the employer. Such plans shall be
considered single-employer plans rather than multiemployer plans for purposes of
both accounting and disclosure.
Disclosure
715-80-50-1. An employer shall disclose the amount of contributions to multiemployer
plans for each annual period for which a statement of income is presented. An
employer may disclose total contributions to multiemployer plans without
disaggregating the amounts attributable to pension plans and other postretirement
benefit plans. The disclosures shall include a description of the nature and effect
of any changes affecting comparability, such as a change in the rate of employer
contributions, a business combination, or a divestiture.
715-80-50-2. An employer shall apply the provisions of Topic 450 if it is either
probable or reasonably possible that either of the following would occur:
a. An employer would withdraw from the plan under circumstances that would
give rise to an obligation
b. An employer's contribution to the fund would be increased during the
remainder of the contract period to make up a shortfall in the funds necessary
to maintain the negotiated level of benefit coverage (a maintenance of benefits
clause).
Pending Content
Note: This pending content is applicable for an entity with a December 31st year-end.
Note: The following disclosure requirements apply to entities that have adopted ASU
2011-09, Disclosures about an Employer’s Participation in a Multiemployer
Plan. The ASU is effective for annual periods for fiscal years ending after
December 15, 2011 and December 15, 2012 for public and nonpublic entities,
respectively.
715-80-50-2. An employer shall apply the provisions of Topic 450 to its participation in
a multiemployer plan if it is either probable or reasonably possible that either of
the following would occur:
a. An employer would withdraw from the plan under circumstances that would
give rise to an obligation
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b. An employer's contribution to the fund would be increased during the
remainder of the contract period to make up a shortfall in the funds necessary
to maintain the negotiated level of benefit coverage (a maintenance of benefits
clause).
>Multiemployer Plans That Provide Pension Benefits
715-80-50-3. An employer shall provide the disclosures required by paragraphs 715-8050-4 through 50-10 in annual financial statements. The disclosures of the
employer’s contributions made to the plan in paragraphs 715-80-50-4 through 5010 include all items recognized as net pension costs (see paragraph 715-80-35-1).
The disclosures based on the most recently available information shall be the most
recently available through the date at which the employer has evaluated
subsequent events.
715-80-50-4. An employer that participates in a multiemployer plan that provides
pension benefits shall provide a narrative description both of the general nature of
the multiemployer plans that provide pension benefits and of the employer’s
participation in the plans that would indicate how the risks of participating in
these plans are different from single-employer plans.
715-80-50-5. When feasible, the information required by this paragraph shall be
provided in a tabular format. Information that requires greater narrative
description may be provided outside the table. For each individually significant
multiemployer plan that provides pension benefits, an employer shall disclose the
following:
a. Legal name of the plan.
b. The plan’s Employer Identification Number and, if available, its plan number.
c. For each statement of financial position presented, the most recently available
certified zone status provided by the plan, as currently defined by the Pension
Protection Act of 2006 or a subsequent amendment of that Act. The disclosure
shall specify the date of the plan’s year-end to which the zone status relates
and whether the plan has utilized any extended amortization provisions that
affect the calculation of the zone status. If the zone status is not available, an
employer shall disclose, as of the most recent date available, on the basis of
the financial statements provided by the plan, the total plan assets and
accumulated benefit obligations, whether the plan was:
1 Less than 65 percent funded
2 Between 65 percent and 80 percent funded
3 At least 80 percent funded.
d. The expiration date(s) of the collective-bargaining agreement(s) requiring
contributions to the plan, if any. If more than one collective-bargaining
agreement applies to the plan, the employer shall provide a range of the
expiration dates of those agreements, supplemented with a qualitative
description that identifies the significant collective-bargaining agreements
within that range as well as other information to help investors understand the
significance of the collective-bargaining agreements and when they expire
(for example, the portion of employees covered by each agreement or the
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portion of contributions required by each agreement).
e. For each period that a statement of income (statement of activities for not-for
profit entities) is presented:
1 The employer’s contributions made to the plan
2 Whether the employer’s contributions represent more than 5 percent of
total contributions to the plan as indicated in the plan’s most recently
available annual report (Form 5500 for U.S. plans). The disclosure shall
specify the year-end date of the plan to which the annual report relates.
f. As of the end of the most recent annual period presented:
1 Whether a funding improvement plan or rehabilitation plan (for example,
as those terms are defined by the Employment Retirement Security Act of
1974) had been implemented or was pending
2 Whether the employer paid a surcharge to the plan
3 A description of any minimum contribution(s), required for future periods
by the collective-bargaining agreement(s), statutory obligations, or other
contractual obligations, if applicable.
Factors other than the amount of the employer’s contribution to a plan, for
example, the severity of the underfunded status of the plan, may need to be
considered when determining whether a plan is significant.
715-80-50-6. An employer shall provide a description of the nature and effect of any
significant changes that affect comparability of total employer contributions from
period to period, such as:
a. A business combination or a divestiture
b. A change in the contractual employer contribution rate
c. A change in the number of employees covered by the plan during each year.
715-80-50-7. The requirements in paragraph 715-80-50-5 assume that the other
information about the plan is available in the public domain. For example, for
U.S. plans, the plan information in Form 5500 is publicly available. In
circumstances in which plan level information is not available in the public
domain, an employer shall disclose, in addition to the requirements of paragraphs
715-80-50-5 through 50-6, the following information about each significant plan:
a. A description of the nature of the plan benefits
b. A qualitative description of the extent to which the employer could be
responsible for the obligations of the plan, including benefits earned by
employees during employment with another employer
c. Other quantitative information, to the extent available, as of the most recent
date available, to help users understand the financial information about the
plan, such as total plan assets, actuarial present value of accumulated plan
benefits, and total contributions received by the plan.
If the quantitative information in paragraph 715-80-50-5(c), 715-80-50-5(e)(2), or
715-80-50-7(c) cannot be obtained without undue cost and effort, that quantitative
information may be omitted and the employer shall describe what information has
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been omitted and why. In that circumstance, the employer also shall provide any
qualitative information as of the most recent date available that would help users
understand the financial information that otherwise is required to be disclosed
about the plan.
715-80-50-8. Disclosures about multiemployer plans that are subject to the guidance in
the preceding paragraph shall be included in a separate section of the tabular
disclosure required by paragraph 715-80-50-5.
715-80-50-9. In addition to the information about the significant multiemployer plans
that provide pension benefits required by paragraphs 715-80-50-5 and 715-80-507, an employer shall disclose in a tabular format for each annual period for which
a statement of income or statement of activities is presented, both of the
following:
a. Its total contributions made to all plans that are not individually significant
b. Its total contributions made to all plans.
715-80-50-10. See Example 1 (paragraph 715-80-55-6) for an illustration of the
application of the disclosure requirements in paragraphs 715-80-50-4 through 509).
> Multiemployer Plans That Provide Postretirement Benefits Other Than
Pensions
715-80-50-11. An employer shall disclose the amount of contributions to multiemployer
plans that provide postretirement benefits other than pensions for each annual
period for which a statement of income or statement of activities is presented. The
disclosures shall include a description of the nature and effect of any changes that
affect comparability of total employer contributions from period to period, such
as:
a. A business combination or a divestiture
b. A change in the contractual employer contribution rate
c. A change in the number of employees covered by the plan during each year.
The disclosures also shall include a description of the nature of the benefits and
the types of employees covered by these benefits, such as medical benefits
provided to active employees and retirees.
85 Subtopic 718-10: Compensation—Stock Compensation—Overall
Note: A public entity in the context of ASC Topic 718, Compensation – Stock
Compensation, includes any subsidiary of a public entity.
Note: Under Accounting Standards Update No. 2010-13, Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a ShareBased Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades (EITF 09-J), the exercise price of an employee stock
option may be denominated in the currency of the market in which the underlying
stock is traded. An employee share-based payment with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity’s equity securities trade should be considered an equity classified award
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assuming all other criteria for equity classification are met. The ASU will not
affect the accounting for instruments outside the scope of ASC Topic 718.
ASU 2010-13 is effective for annual and interim periods beginning on or after
December 15, 2010, with early adoption permitted. The ASU requires a
cumulative-effect adjustment to the opening balance of retained earnings for the
impact of any outstanding awards as of the date of adoption. The transition
disclosures in paragraph 250-10-50-1 (in this checklist) are required.
Disclosure
718-10-35-8. An entity shall make [and disclose] a policy decision about whether to
recognize compensation cost for an award with only service conditions that has a
graded vesting schedule (a) on a straight-line basis over the requisite service
period for each separately vesting portion of the award as if the award was, insubstance, multiple awards or (b) on a straight-line basis over the requisite service
period for the entire award (that is, over the requisite service period of the last
separately vesting portion of the award).
718-30-30-2. A nonpublic entity shall make [and disclose] a policy decision of whether
to measure all of its liabilities incurred under share-based payment arrangements
at fair value or to measure all such liabilities at intrinsic value.
718-10-50-1. An entity with one or more share-based payment arrangements shall
disclose information that enables users of the financial statements to understand
all of the following:
a. The nature and terms of such arrangements that existed during the period and
the potential effects of those arrangements on shareholders
b. The effect of compensation cost arising from share-based payment
arrangements on the income statement
c. The method of estimating the fair value of the goods or services received, or
the fair value of the equity instruments granted (or offered to grant), during
the period
d. The cash flow effects resulting from share-based payment arrangements.
See Example 9 (paragraph 718-10-55-134 through 55-137) for an illustration of
this guidance.
718-10-50-2. The following list indicates the minimum information needed to achieve
the objectives in the preceding paragraph and illustrates how the disclosure
requirements might be satisfied. In some circumstances, an entity may need to
disclose information beyond the following to achieve the disclosure objectives:
a. A description of the share-based payment arrangement(s), including the
general terms of awards under the arrangement(s), such as:
1
The requisite service period(s) and any other substantive conditions
(including those related to vesting)
2
The maximum contractual term of equity (or liability) share options or
similar instruments
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3
The number of shares authorized for awards of equity share options or
other equity instruments.
b. The method it uses for measuring compensation cost from share-based
payment arrangements with employees.
c. For the most recent year for which an income statement is provided, both of
the following:
1
The number and weighted-average exercise prices (or conversion ratios)
for each of the following groups of share options (or share units) :
a. Those outstanding at the beginning of the year
b. Those outstanding at the end of the year
c. Those exercisable or convertible at the end of the year
d. Those that during the year were:
2
1
Granted
2
Exercised or converted
3
Forfeited
4
Expired.
The number and weighted-average grant-date fair value (or calculated
value for a nonpublic entity that uses that method or intrinsic value for
awards measured pursuant to paragraph 718-10-30-21) of equity
instruments not specified in c(1), for all of the following groups of equity
instruments :
a. Those nonvested at the beginning of the year
b. Those nonvested at the end of the year
c. Those that during the year were:
1
Granted
2
Vested
3
Forfeited.
d. For each year for which an income statement is provided, both of the
following:
1
The weighted-average grant-date fair value (or calculated value for a
nonpublic entity that uses that method or intrinsic value for awards
measured at that value pursuant to paragraphs 718-10-30-21 through 3022) of equity options or other equity instruments granted during the year.
2
The total intrinsic value of options exercised (or share units converted),
share-based liabilities paid, and the total fair value of shares vested during
the year.
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e. For fully vested share options (or share units) and share options expected to
vest at the date of the latest statement of financial position, both of the
following:
f.
1
The number, weighted-average exercise price (or conversion ratio),
aggregate intrinsic value (except for nonpublic entities), and weightedaverage remaining contractual term of options (or share units)
outstanding.
2
The number, weighted-average exercise price (or conversion ratio),
aggregate intrinsic value (except for nonpublic entities), and weightedaverage remaining contractual term of options (or share units) currently
exercisable (or convertible).
For each year for which an income statement is presented, both of the
following (An entity that uses the intrinsic value method pursuant to
paragraphs 718-10-30-21 through 30-22 is not required to disclose the
following information for awards accounted for under that method):
1
A description of the method used during the year to estimate the fair value
(or calculated value) of awards under share-based payment arrangements.
2
A description of the significant assumptions used during the year to
estimate the fair value (or calculated value) of share-based compensation
awards, including (if applicable):
a. Expected term of share options and similar instruments, including a
discussion of the method used to incorporate the contractual term of
the instruments and employees’ expected exercise and postvesting
employment termination behavior into the fair value (or calculated
value) of the instrument.
b. Expected volatility of the entity’s shares and the method used to
estimate it. An entity that uses a method that employs different
volatilities during the contractual term shall disclose the range of
expected volatilities used and the weighted-average expected
volatility. A nonpublic entity that uses the calculated value method
shall disclose the reasons why it is not practicable for it to estimate
the expected volatility of its share price, the appropriate industry
sector index that it has selected, the reasons for selecting that
particular index, and how it has calculated historical volatility using
that index.
c. Expected dividends. An entity that uses a method that employs
different dividend rates during the contractual term shall disclose the
range of expected dividends used and the weighted-average expected
dividends.
d. Risk-free rate(s). An entity that uses a method that employs different
risk-free rates shall disclose the range of risk-free rates used.
e. Discount for post-vesting restrictions and the method for estimating
it.
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g. An entity that grants equity or liability instruments under multiple share-based
payment arrangements with employees shall provide the information specified
in paragraph (a) through (f) separately for different types of awards to the
extent that the differences in the characteristics of the awards make separate
disclosure important to an understanding of the entity’s use of share-based
compensation. In addition, an entity that has multiple share-based payment
arrangements with employees shall disclose information separately for
different types of awards under those arrangements to the extent that
differences in the characteristics of the awards make separate disclosure
important to an understanding of the entity’s use of share-based
compensation.
h. For each year for which an income statement is presented, both of the
following:
1
Total compensation cost for share-based payment arrangements
a. Recognized in income as well as the total recognized tax benefit
related thereto
b. Capitalized as part of the cost of an asset.
2
A description of significant modifications, including:
a. The terms of the modifications
b. The number of employees affected
c. The total incremental compensation cost resulting from the
modifications.
i.
As of the latest balance sheet date presented, the total compensation cost
related to nonvested awards not yet recognized and the weighted-average
period over which it is expected to be recognized
j.
If not separately disclosed elsewhere, the amount of cash received from
exercise of share options and similar instruments granted under share-based
payment arrangements and the tax benefit realized from stock options
exercised during the annual period
k. If not separately disclosed elsewhere, the amount of cash used to settle equity
instruments granted under share-based payment arrangements
l.
A description of the entity’s policy, if any, for issuing shares upon share
option exercise (or share unit conversion), including the source of those
shares (that is, new shares or treasury shares). If as a result of its policy, an
entity expects to repurchase shares in the following annual period, the entity
shall disclose an estimate of the amount (or a range, if more appropriate) of
shares to be repurchased during that period.
718-10-50-4. In addition to the information required by this Topic, an entity may
disclose supplemental information that it believes would be useful to investors
and creditors, such as a range of values calculated on the basis of different
assumptions, provided that the supplemental information is reasonable and does
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not lessen the prominence and credibility of the information required by this
Topic. The alternative assumptions shall be described to enable users of the
financial statements to understand the basis for the supplemental information.
KPMG and Other Guidance
1
The AICPA Practice Aid Series (PAS) Valuation of Privately-Held Company
Equity Securities Issues As Compensation discusses best practices for the valuation
and disclosures about such transactions. The Practice Aid provides guidance on socalled “cheap stock” issues. The Practice Aid should be considered in valuations of
equity securities issued (1) by privately held entities as compensation as well as (2)
for other than compensation purposes, e.g., in a business combination. The SEC
staff has indicated that they would expect the suggested disclosures of the Practice
Aid to be presented in IPO registration statements (KPMG’s Share-Based Payment,
¶7.024).
Suggested disclosures for financial statements included in a registration statement
for equity instruments granted during the 12-month period prior to the date of the
most recent balance sheet included in a registration statement include:
a. For each grant date, the number of shares or options granted, the exercise price,
the fair value of the shares and the intrinsic value, if any, of the options.
b. Whether the valuation of the equity instruments was contemporaneous or
retrospective.
c. If the valuation specialist was a related party, a statement of that fact.
Suggested disclosures in MD&A:
d. Intrinsic value of outstanding vested and unvested options based on the
estimated IPO price and the options outstanding as of the most recent balance
sheet date (year-end or interim) presented in the registration statement.
e. Where a valuation was based on a retrospective valuation or a valuation by a
related party, disclose:
2
1
A description of the significant factors, assumptions, and methodologies
used in the valuation.
2
A discussion of each significant factor contributing to the difference
between the fair value at the grate date and (a) estimated IPO price or (b) if
a contemporaneous valuation by an unrelated party was obtained after the
grants but prior to the IPO, the difference with that value.
3
The valuation alternative selected and the reason management chose not to
obtain a contemporaneous valuation by an unrelated party.
An Interpretation of SAB Topic 4.C. Give retroactive effect to a change in capital
structure (i.e., stock dividend, stock split, or reverse split) that occurs after the
balance sheet date but before the release of financial statements.
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86 Subtopic 718-10: Compensation—Stock Compensation—Overall—SEC Guidance
> Disclosures Upon Becoming a Public Entity
1
SAB Topic 14.B, Question 4, SEC Staff views on appropriate disclosures upon
becoming a public entity in addition to those prescribed by paragraphs 718-10-50-1
through 50-4.
a. An entity should clearly describe in MD&A the change in accounting policy
that will be required by Topic 718 in subsequent periods and the reasonably
likely material future effects.
b. In subsequent filings, an entity should provide financial statement disclosure of
the effects of the changes in accounting policy.
> Changes in Valuation Technique or Model Used to Value Instruments
2
SAB Topic 14.C, Question 3. If a company elects to change the valuation technique
or model used to value instruments with similar characteristics, the basis for change
should be disclosed.
> Changes in Assumptions Used in Valuation Models
3
SAB Topic 14.D. Changes in assumptions used in valuation models during the
periods presented in the financial statements should be disclosed in the footnotes.
> Expected Volatility Assumptions
4
SAB Topic 14.D.1, Question 5. SEC Staff views on disclosures pertaining to an
entity’s assumption of expected volatility.
a. Consider the applicability of SEC Release No. FR-60 and Section V, Critical
Accounting Estimates, in SEC Release FR-72 regarding critical accounting
policies and estimates in MD&A.
> Expected Term
5
SAB Topic 14.D.2, Question 6. If a simplified method is used to estimate the
expected life of options, disclose:
a. the use of the method
b. the reason why the method was used, the types of share option grants for which
the method was used if the method was not used for all share option grants
c. the periods for which the method was used if the method was not used in all
periods
The SEC issued SEC Staff Accounting Bulletin No. 110, Share-Based Payment,
indicating that they will continue to accept the simplified method for estimating the
expected term of a plain vanilla share option grant under specified conditions.
> Classification of Compensation Expense Associated with Share-Based Payment
Arrangements
6
SAB Topic 14.F. The expense related to share-based payment arrangements should
be presented in the same line or lines as cash compensation paid to the same
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employees.
7
SAB Topic 14.F. Consider disclosing the amount of expense related to share-based
payment arrangements included in specific line items in the financial statements.
Disclosure of this information might be appropriate in a parenthetical note to the
appropriate income statement line items, on the cash flow statement, in the
footnotes to the financial statements, or within MD&A.
> Nonsubstantive Vesting Periods
8
Subsequent to the adoption of ASC Topic 718, the SEC staff expects registrants
which, prior to the adoption of Topic 718, have reflected compensation cost over the
nominal vesting period in situations when that period was nonsubstantive, to
disclose the following information for all periods for which compensation cost is
being recognized over the nonsubstantive nominal vesting period for awards granted
prior to the adoption of Topic 718 (KPMG’s Share-Based Payment,¶7.022):
a. Accounting policy for recognizing compensation costs for such awards granted
(a) after the adoption of Topic 718, and (b) prior to the adoption of Topic 718.
b. The quantitative effect of the change in accounting policy for such awards as a
result of the adoption of Topic 718 (i.e., the compensation cost recognized in
the current period for previous awards that would have been recognized in
previous periods had the policy required by Topic 718 been applied to awards
granted prior to the adoption of Topic 718).
87 Subtopic 718-40: Compensation—Stock Compensation—Employee Stock Ownership Plans
Presentation
718-40-25-9 For purposes of applying this Subtopic, employee stock ownership plan
debt is characterized as follows:
a.
Employers that sponsor an employee stock ownership plan with a direct
loan shall report the obligations of the employee stock ownership plan to
the outside lender as debt.
b.
Employers that sponsor an employee stock ownership plan with an indirect
loan shall report outside loans as debt. Employers shall not report a loan
receivable from the employee stock ownership plan as an asset and shall,
therefore, not recognize interest income on such receivable.
c.
[omitted]
d.
Employers that sponsor an employee stock ownership plan with an
employer loan shall not report the employee stock ownership plan's note
payable and the employer's note receivable in the employer's balance sheet.
Disclosure
718-40-50-1. An employer sponsoring an employee stock ownership plan shall disclose
all of the following information about the plan, if applicable:
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a. A description of the plan, the basis for determining contributions, including
the employee groups covered, and the nature and effect of significant matters
affecting comparability of information for all periods presented. For leveraged
employee stock ownership plans and pension reversion employee stock
ownership plans, the description shall include the basis for releasing shares
and how dividends on allocated and unallocated shares are used.
b. A description of the accounting policies followed for employee stock
ownership plan transactions, including the method of measuring
compensation, the classification of dividends on employee stock ownership
plan shares, and the treatment of employee stock ownership plan shares for
earnings per share (EPS) computations. If the employer has both old
employee stock ownership plan shares for which it does not adopt the
guidance in this Subtopic and new employee stock ownership plan shares for
which the guidance in this Subtopic is required, the accounting policies for
both blocks of shares shall be described.
c. The amount of compensation cost recognized during the period.
d. The number of allocated shares, committed-to-be-released shares, and
suspense shares held by the employee stock ownership plan at the balancesheet date. This disclosure shall be made separately for shares accounted for
under this Subtopic and for grandfathered employee stock ownership plan
shares.
e. The fair value of unearned employee stock ownership plan shares at the
balance-sheet date for shares accounted for under this Subtopic. (Future tax
deductions will be allowed only for the employee stock ownership plan’s cost
of unearned employee stock ownership plan shares.) This disclosure need not
be made for old employee stock ownership plan shares for which the
employer does not apply the guidance in this Subtopic.
f.
The existence and nature of any repurchase obligation, including disclosure of
the fair value (see paragraph 718-40-30-4) of the shares allocated as of the
balance sheet date, which are subject to a repurchase obligation.
g. The amount and treatment in the EPS computation of the tax benefit related to
dividends paid to any employee stock ownership plan, if material.
88 Claims-Made Contracts Subsection of Subtopic 720-20: Other Expenses—Insurance Costs
Disclosure
720-20-50-1. When an entity changes from occurrence-based insurance to claims-made
insurance or elects to significantly reduce or eliminate its insurance coverage
paragraphs 450-20-50-3 through 50-6 require disclosure if it is at least reasonably
possible that a loss has been incurred. That paragraph also discusses disclosure
with respect to unasserted claims.
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89 Subtopic 720-35: Other Expenses—Advertising Costs
Disclosure
720-35-50-1. The notes to financial statements shall disclose both of the following:
a. The accounting policy selected from the two alternatives in paragraph 720-3525-1 for reporting advertising, indicating whether such costs are expensed as
incurred or the first time the advertising takes place
b. The total amount charged to advertising expense for each income statement
presented.
See disclosure requirements for capitalized advertising costs at 340-20-50-1 (in this
checklist).
90 Subtopic 720-50: Other Expenses—Fees Paid to the Federal Government by Pharmaceutical
Manufacturers and Health Insurers
Presentation
720-50-45-1 The annual fee applicable to pharmaceutical manufacturing entities
described in paragraph 720-50-05-1 [and applicable to health insurers as described
in paragraphs 720-50-05-1 through 05-4 for calendar years beginning after
December 31, 2013] shall be presented as an operating expense.
91 Subtopic 730-10: Research and Development—Overall
Disclosure
730-10-50-1. Disclosure shall be made in the financial statements of the total research
and development costs charged to expense in each period for which an income
statement is presented. Such disclosure shall include research and development
costs incurred for a computer software product to be sold, leased, or otherwise
marketed.
KPMG and Other Guidance
1
An entity should consider whether to disclose its research and development
activities under critical accounting policies based on FRR-60.
92 Subtopic 730-20: Research and Development—Research and Development Arrangements
Disclosure
730-20-50-1. An entity that under the provisions of this Subtopic accounts for its
obligation under a research and development arrangement as a contract to perform
research and development for others shall disclose both of the following:
a. The terms of significant agreements under the research and development
arrangement (including royalty arrangements, purchase provisions, license
agreements, and commitments to provide additional funding) as of the date of
each balance sheet presented
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b. The amount of compensation earned and costs incurred under such contracts
for each period for which an income statement is presented.
730-20-50-2. Topic 850 specifies additional disclosure requirements for related party
transactions and certain control relationships.
730-20-50-3. An entity that is a party to more than one research and development
arrangement need not separately disclose each arrangement unless separate
disclosure is necessary to understand the effects on the financial statements.
Aggregation of similar arrangements by type may be appropriate.
93 Income Taxes (Subtopics 740-10, 740-20, and 740-30)
Overall
Presentation
> Statement of Financial Position Classification of Income Tax Accounts
>> Deferred Tax Accounts
740-10-45-4. In a classified statement of financial position, an entity shall separate
deferred tax liabilities and assets into a current amount and a noncurrent amount.
Deferred tax liabilities and assets shall be classified as current or noncurrent based
on the classification of the related asset or liability for financial reporting.
740-10-45-5. The valuation allowance for a particular tax jurisdiction shall be allocated
between current and noncurrent deferred tax assets for that tax jurisdiction on a
pro rata basis.
740-10-45-6. For a particular tax-paying component of an entity and within a particular
tax jurisdiction, all current deferred tax liabilities and assets shall be offset and
presented as a single amount and all noncurrent deferred tax liabilities and assets
shall be offset and presented as a single amount.
However, an entity shall not offset deferred tax liabilities and assets attributable to
different tax-paying components of the entity or to different tax jurisdictions.
>>> Deferred Tax Accounts Not Related to an Asset or Liability
740-10-45-9. A deferred tax liability or asset that is not related to an asset or liability for
financial reporting (see paragraphs 740-10-25-24 through 25-26), including
deferred tax assets related to carryforwards, shall be classified according to the
expected reversal date of the temporary difference.
> > Tax Accounts, Other than Deferred
>>> Unrecognized Tax Benefits
740-10-45-11. An entity that presents a classified statement of financial position shall
classify a liability associated with an unrecognized tax benefit as a current
liability (or the amount of a net operating loss carryforward or amount refundable
is reduced) to the extent the entity anticipates payment (or receipt) of cash within
one year or the operating cycle, if longer.
The liability for unrecognized tax benefits (or reduction in amounts refundable)
shall not be combined with deferred tax liabilities or assets.
740-10-45-12. A tax position recognized in the financial statements as a result of
applying the guidance on uncertain tax positions may also affect the tax bases of
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assets and liabilities and thereby change or create temporary differences. A
liability recognized for an unrecognized tax benefit shall not be classified as a
deferred tax liability unless it arises from a taxable temporary difference.
>>> Offsetting
740-10-45-13. The offset of cash or other assets against the tax liability or other
amounts owing to governmental bodies is not acceptable except as noted in
paragraph 210-20-45-6 (in this checklist).
> Income Statement Presentation of Certain Measurement Changes to Income Tax
Accounts
>> Changes in Tax Laws or Rates
740-10-45-15. When deferred tax accounts are adjusted as required by paragraph 74010-35-4 for the effect of a change in tax laws or rates, the effect shall be included
in income from continuing operations for the period that includes the enactment
date.
>> Changes in the Tax Status of an Entity
740-10-45-19. When deferred tax accounts are recognized or derecognized as required
by paragraphs 740-10-25-32 and 740-10-40-6 due to a change in tax status, the
effect of recognizing or derecognizing the deferred tax liability or asset shall be
included in income from continuing operations.
>> Changes that Impact the Valuation Allowance for Deferred Tax Assets
See guidance in paragraphs 740-10-45-20 through 45-21.
>> Changes Related to Assets Acquired Outside of a Business Combination
See guidance in paragraphs 740-10-45-22 through 45-24.
Disclosure
> Statement of Financial Position Related Disclosures
740-10-50-2. The components of the net deferred tax liability or asset recognized in an
entity's statement of financial position shall be disclosed as follows:
a. The total of all deferred tax liabilities measured in paragraph 740-10-30-5(b)
b. The total of all deferred tax assets measured in paragraph 740-10-30-5(c)
through (d)
c. The total valuation allowance recognized for deferred tax assets determined in
paragraph 740-10-30-5(e).
The net change during the year in the total valuation allowance also shall be
disclosed.
740-10-50-3. An entity shall disclose both of the following:
a. The amounts and expiration dates of operating loss and tax credit
carryforwards for tax purposes
b. Any portion of the valuation allowance for deferred tax assets for which
subsequently recognized tax benefits will be credited directly to contributed
capital (see paragraph 740-20-45-11).
740-10-50-4. In the event that a change in an entity's tax status becomes effective after
year-end in Year 2 but before the financial statements for Year 1 are issued or are
available to be issued (as discussed in Section 855-10-25), the entity's financial
statements for Year 1 shall disclose the change in the entity's tax status for Year 2
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and the effects of that change, if material.
> > Public Entities
740-10-50-6. A public entity shall disclose the approximate tax effect of each type of
temporary difference and carryforward that gives rise to a significant portion of
deferred tax liabilities and deferred tax assets (before allocation of valuation
allowances).
> > Nonpublic Entities
740-10-50-8. A nonpublic entity shall disclose the types of significant temporary
differences and carryforwards but may omit disclosure of the tax effects of each
type.
> Income Statement Related Disclosures
740-10-50-9. The significant components of income tax expense attributable to
continuing operations for each year presented shall be disclosed in the financial
statements or notes thereto. Those components would include, for example:
a. Current tax expense (or benefit)
b. Deferred tax expense (or benefit) (exclusive of the effects of other
components listed below)
c. Investment tax credits
d. Government grants (to the extent recognized as a reduction of income tax
expense)
e. The benefits of operating loss carryforwards
f. Tax expense that results from allocating certain tax benefits directly to
contributed capital
g. Adjustments of a deferred tax liability or asset for enacted changes in tax laws
or rates or a change in the tax status of the entity
h. Adjustments of the beginning-of-the-year balance of a valuation allowance
because of a change in circumstances that causes a change in judgment about
the realizability of the related deferred tax asset in future years. For example,
any acquisition-date income tax benefits or expenses recognized from changes
in the acquirer's valuation allowance for its previously existing deferred tax
assets as a result of a business combination (see paragraph 805-740-30-3).
> Income Tax Expense Compared to Statutory Expectations
> > Public Entities
740-10-50-12. A public entity shall disclose a reconciliation using percentages or dollar
amounts of the reported amount of income tax expense attributable to continuing
operations for the year to the amount of income tax expense that would result
from applying domestic federal statutory tax rates to pretax income from
continuing operations. The statutory tax rates shall be the regular tax rates if there
are alternative tax systems. The estimated amount and the nature of each
significant reconciling item shall be disclosed.
> > Nonpublic Entities
740-10-50-13. A nonpublic entity shall disclose the nature of significant reconciling
items but may omit a numerical reconciliation.
> > All Entities
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740-10-50-14. If not otherwise evident from the disclosures required by this Section, all
entities shall disclose the nature and effect of any other significant matters
affecting comparability of information for all periods presented.
> Unrecognized Tax Benefit Related Disclosures
740-10-50-15. All entities shall disclose all of the following at the end of each annual
reporting period presented:
a. [not used]
b. [not used]
c. The total amounts of interest and penalties recognized in the statement of
operations and the total amounts of interest and penalties recognized in the
statement of financial position
d. For positions for which it is reasonably possible that the total amounts of
unrecognized tax benefits will significantly increase or decrease within 12
months of the reporting date:
1 The nature of the uncertainty
2 The nature of the event that could occur in the next 12 months that would
cause the change
3 An estimate of the range of the reasonably possible change or a statement
that an estimate of the range cannot be made.
e. A description of tax years that remain subject to examination by major tax
jurisdictions.
740-10-50-15A. Public entities shall disclose both of the following at the end of each
annual reporting period presented:
a. A tabular reconciliation of the total amounts of unrecognized tax benefits at
the beginning and end of the period, which shall include at a minimum:
1 The gross amounts of the increases and decreases in unrecognized tax
benefits as a result of tax positions taken during a prior period
2 The gross amounts of increases in unrecognized tax benefits as a result of
tax positions taken during the current period
3 The amounts of decreases in the unrecognized tax benefits relating to
settlements with taxing authorities
4 Reductions to unrecognized tax benefits as a result of a lapse of the
applicable statute of limitations.
b. The total amount of unrecognized tax benefits that, if recognized, would
affect the effective tax rate.
See Example 30 (paragraph 740-10-55-217) for an illustration of disclosures
about uncertainty in income taxes.
> Public Entities Not Subject to Income Taxes
740-10-50-16. A public entity that is not subject to income taxes because its income is
taxed directly to its owners shall disclose that fact and the net difference between
the tax bases and the reported amounts of the entity's assets and liabilities.
> Entities with Separately Issued Financial Statements that Are Members of a
Consolidated Tax Return
740-10-50-17. An entity that is a member of a group that files a consolidated tax return
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shall disclose in its separately issued financial statements:
a. The aggregate amount of current and deferred tax expense for each statement
of earnings presented and the amount of any tax-related balances due to or
from affiliates as of the date of each statement of financial position presented
b. The principal provisions of the method by which the consolidated amount of
current and deferred tax expense is allocated to members of the group and the
nature and effect of any changes in that method (and in determining related
balances to or from affiliates) during the years for which the above
disclosures are presented.
> Policy Related Disclosures
> > Interest and Penalty Recognition Policies
740-10-50-19. An entity shall disclose its policy on classification of interest and
penalties in accordance with the alternatives permitted in paragraph 740-10-45-25
in the notes to the financial statements.
> > Investment Tax Credit Recognition Policy
740-10-50-20. Paragraph 740-10-25-46 identifies the deferral method and the flowthrough method as acceptable methods of accounting for investment tax credits.
Whichever method of accounting for the investment credit is adopted, it is
essential that full disclosure be made of the method followed and amounts
involved, when material.
> Other Disclosures
740-10-50-21. In addition to disclosures required by this Subtopic, disclosures regarding
estimates meeting certain criteria are established in paragraph 275-10-50-8 (in this
checklist) for nongovernmental entities. See Example 31 (paragraph 740-10-55218) for an illustration of disclosure relating to the realizability of a deferred tax
asset under the requirements of Topic 275.
SEC Guidance
> Income Tax Disclosures
1 Regulation S-X Rule 4-08(h). The following are required disclosures related to
income taxes:
a. Disclosure shall be made in the income statement or a note thereto, of the
components of income (loss) before income tax expense (benefit) as either
domestic or foreign. Amounts applicable to United States Federal income taxes,
to foreign income taxes and the other income taxes shall be stated separately for
each major component. Amounts applicable to foreign income (loss) and
amounts applicable to foreign or other income taxes which are less than five
percent of the total of income before taxes or the component of tax expense,
respectively, need not be separately disclosed. For purposes of this rule, foreign
income (loss) is defined as income (loss) generated from a registrant's foreign
operations, i. e., operations that are located outside of the registrant's home
country.
b. Regarding the reconciliation required by paragraph 740-10-50-12 (in this
checklist):
1 If no individual reconciling item amounts to more than five percent of the
amount computed by multiplying the income before tax by the applicable
statutory Federal income tax rate, and the total difference to be reconciled is
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2
3
4
less than five percent of such computed amount, no reconciliation need be
provided unless it would be significant in appraising the trend of earnings.
2 Reconciling items that are individually less than five percent of the
computed amount may be aggregated in the reconciliation.
3 The reconciliation may be presented in percentages rather than in dollar
amounts.
4 Where the reporting person is a foreign entity, the income tax rate in that
person's country of domicile should normally be used in making the above
computation, but different rates should not be used for subsidiaries or other
segments of a reporting entity.
5 When the rate used by a reporting person is other than the United States
Federal corporate income tax rate, the rate used and the basis for using such
rate shall be disclosed.
SEC-2002 AICPA National Conference on Current SEC Developments; SEC
Speech by Doug Alkema. To the extent a benefit is realized for significant impacts
of tax planning strategies, the reduction in the effective tax rate, if significant,
should be disclosed in the rate reconciliation. Registrants should include in MD&A
a discussion of significant changes in the effective tax rate and the effects on
liquidity of expected future tax payments.
SAB Topic 11.C. SEC Staff views on disclosures related to income tax holidays. If
an entity conducts business in a foreign jurisdiction which attracts industry by
granting a “holiday” from income taxes for a specified period, a note must:
a. Disclose the aggregate dollar and per share effects of the tax holiday
b. Briefly describe the factual circumstances including the date on which the
special tax status will terminate.
The SEC staff expects a registrant that asserts that the earnings of its foreign
operations will be indefinitely reinvested to disclose the tax effects of those foreign
operations. The SEC staff recently requested registrants disclose in MD&A: (1) the
amount of cash and short-term investments related to foreign operations that
management asserted was permanently reinvested, (2) a statement that the company
would need to accrue and pay taxes, if repatriated, and (3) a statement that the
company does not intend to repatriate funds, if true. The SEC staff is particularly
concerned about situations in which a registrant may appear to have significant
liquid assets, but asserts that a substantial portion of those liquid assets are not
available to the company without triggering tax implications.
The Staff has noted situations in which companies derive a significant portion of
their earnings from countries with low income tax rates that may not be sustainable
because of fiscal imbalances in the country. In these situations, disaggregated
disclosure related to operations in that country may be appropriate, including
disclosure of the portion of earnings attributable to that foreign operation.
Additionally, the SEC staff commented on the need for consistency between the
assumptions registrants describe related to a valuation allowance on deferred tax
assets and assumptions related to other accounting areas (e.g., impairments)
disclosed in MD&A or discussed during conference calls for investors and analysts.
Section Seven of KPMG’s Accounting for Income Taxes addresses accounting for
the tax effects of foreign operations, including exceptions to recording deferred tax
liabilities for indefinitely reinvested profits. Refer to Issues In-Depth 11-1 for
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further information.
KPMG and Other Guidance
1 Disclose the facts and circumstances supporting the realizability of deferred tax
assets, including (Accounting for Income Taxes, paragraph 9.066(12):
a. Amount of taxable income and periods over which it must be earned to allow
for realization of the deferred tax asset.
b. Actual levels of past taxable income.
c. Reasons for significant differences between actual levels of past taxable income
and pretax book income.
d. Known trends, events, or transactions that are expected to affect future levels of
taxable income.
e. An explicit statement by management of the assertion that it is more likely than
not that the results of future operations will generate sufficient taxable income
to realize the deferred tax assets.
> Changes in Tax Law
2
For financial reporting purposes, under ASC Topic 740, Income Taxes, the effects
of changes in tax law on current and deferred taxes are accounted for in the period
that includes the enactment date of the change. If material, the effect of changes in
tax law should be disclosed.
a.
As of November 30, 2012, Congress has not extended beyond their
December 31, 2011 expiration dates temporary business tax provisions in
certain Internal Revenue Code (IRC) Sections including the research credit
and exceptions under Subpart F for active financing income.
b.
If these provisions are reinstated subsequent to the balance sheet date or
other changes to tax law are enacted prior to the issuance of the financial
statements, even if the tax law has a retroactive effective date, current taxes
and deferred tax assets and liabilities should be measured using the enacted
tax law and rates as of the balance sheet date. If material, the effect of
changes in tax law should be disclosed.
c.
If these provisions are reinstated or other changes to tax law are enacted
prior to the issuance of the financial statements and are effective
prospectively, the effect of the change in tax law on future financial
reporting periods should be disclosed, if material.
> Sale or Purchase of Tax Benefits
3
FTB 82-1, ¶6. If material and unusual or infrequent, the nature and financial
effects of transactions involving the sale or purchase of tax benefits through tax
leases should be disclosed on the face on the income statement or alternatively, in
notes to the financial statements.
> Income Tax Accounting for Treasury Department Repair Regulations
4
On December 23, 2011, the Treasury Department released proposed and
temporary regulations (Temporary Regulations), which contain standards for
determining whether and when an entity must capitalize costs incurred to acquire,
maintain, or improve tangible property for tax purposes and for determining
whether unrecovered costs of structural components are deductible for tax
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purposes. On March 7, 2012, the Internal Revenue Service issued procedural rules
(Revenue Procedures) that describe how a taxpayer may change its method of
accounting to comply with the Temporary Regulations. On March 15, 2012, the
Large Business and International Division of the Internal Revenue Service issued
a directive about examination procedures for certain aspects of the Temporary
Regulations (Directive).
It may be appropriate for some entities to eliminate accruals for interest and
penalties on certain unrecognized tax positions as a result of the Revenue
Procedures and Directive.
Intraperiod Tax Allocation
Presentation
> Allocation of Income Tax Expense or Benefit for the Year
740-20-45-2. Disclose the amount of income tax expense or benefit for the year
allocated to the following:
a. Continuing operations
b. Discontinued operations
c. Extraordinary items
d. Other comprehensive income
e. Items charged or credited directly to shareholders’ equity
Other Considerations or Special Areas
Disclosure
> Undistributed Earnings of Subsidiaries and Corporate Joint Ventures
740-30-50-2. All of the following information shall be disclosed whenever a deferred
tax liability is not recognized because of the exceptions to comprehensive
recognition of deferred taxes related to subsidiaries and corporate joint ventures:
a. A description of the types of temporary differences for which a deferred tax
liability has not been recognized and the types of events that would cause
those temporary differences to become taxable
b. The cumulative amount of each type of temporary difference
c. The amount of the unrecognized deferred tax liability for temporary
differences related to investments in foreign subsidiaries and foreign
corporate joint ventures that are essentially permanent in duration if
determination of that liability is practicable or a statement that determination
is not practicable. While paragraph 740-30-25-14 prohibits recognition of a
tax benefit for tax deductions or favorable tax rates attributable to future
dividends of undistributed earnings for which a deferred tax liability has not
been recognized, favorable tax treatment would be reflected in measuring that
unrecognized deferred tax liability for disclosure purposes.
d. The amount of the deferred tax liability for temporary differences other than
those in (c) (that is, undistributed domestic earnings) that is not recognized in
accordance with the provisions of paragraph 740-30-25-18.
KPMG and Other Guidance
> Single Member LLC Tax Expense
1.
A single member LLC should disclose pro forma tax expense as if the entity was a
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separate tax paying entity if taxes are not allocated by the parent company to the
single member LLC. The following characteristics suggest that it may be
acceptable to treat an entity as a partnership and not allocate income taxes to the
single member LLC (Accounting for Income Taxes, paragraph 10.050):
(a) there is no tax-sharing arrangement between the LLC and its parent,
(b) no dividends have been paid by the LLC to its parent for tax
reimbursements,
(c) the LLC has no present intention to enter into a tax-sharing arrangement or
distribute dividends to its parent for tax reimbursements, and
(d) the financial statements include disclosure of pro forma tax expense as if the
entity was a separate tax-paying entity.
94 Business Combinations (Subtopics 805-10, 805-20, and 805-30)
Note: The FASB issued ASU No. 2012-06, Business Combinations (Topic 805):
Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition
Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a
consensus of the FASB Emerging Issues Task Force), which requires an acquirer
to measure the indemnification asset that results from a business combination in
which a loss-sharing agreement indemnifies the acquirer for certain losses on
acquired assets exists and is valued in purchase accounting, on the same basis as
the indemnified asset. Changes in the indemnified asset should be amortized over
the lesser of the term of the indemnification agreement or the remaining life of the
indemnified asset. The ASU is effective for fiscal years (and interim reporting
periods within those years) beginning on or after December 15, 2012. This
ASU is to be applied prospectively to new indemnification assets acquired and to
changes in expected cash flows of existing indemnification assets occurring on or
after the date of adoption. An unamortized balance that exists at the date of
adoption also is to be amortized over the shorter of the remaining term of the losssharing agreement or the remaining life of the indemnified assets. Early adoption
of the ASU is permitted.
Although the ASU does not contain additional disclosure requirements, the
transition disclosures in paragraphs 250-10-50-1 through 50-3 (in this checklist)
are required.
Note: The content of the Subtopic has been updated for ASU 2010-29, Business
Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information
for Business Combinations (EITF 10-G), which specifies that if a public entity
presents comparative financial statements, the entity (acquirer) should disclose
revenue and earnings of the combined entity as though the business combination(s)
that occurred during the current year had occurred as of the beginning of the
comparable prior annual reporting period only. ASU 2010-29 also expands the
supplemental pro forma disclosures under Topic 805 to include a description of the
nature and amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the reported pro forma revenue
and earnings.
ASU 2010-29 is effective prospectively for business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2010. Early adoption is permitted.
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Disclosure
> Aggregation of Disclosures
805-10-50-3, 805-20-50-2, 805-30-50-2. For individually immaterial business
combinations occurring during the reporting period that are material collectively,
the acquirer shall disclose the information required by subparagraphs 805-10-502(e) through 50-2(h) and paragraphs 805-20-50-1 and 805-30-50-1 (in this
checklist) in the aggregate.
> Disclosures about Business Combinations Occurring After the Reporting Date
but Before the Financial Statements Are Issued
805-10-50-4. 805-20-50-3, 805-30-50-3. If the acquisition date of a business
combination is after the reporting date but before the financial statements are
issued or are available to be issued (as discussed in Section 855-10-25), the
acquirer shall disclose the information required by paragraphs 805-10-50-2, 80520-50-1, and 805-30-50-1 (in this checklist) unless the initial accounting for the
business combination is incomplete at the time the financial statements are issued
or are available to be issued. In that situation, the acquirer shall describe which
disclosures could not be made and the reason why they could not be made.
> Business Combinations Occurring During a Current Reporting Period or After
the Reporting Date but Before the Financial Statements Are Issued
805-10-50-1. The acquirer shall disclose information that enables users of its financial
statements to evaluate the nature and financial effect of a business combination
that occurs either:
a. During the current reporting period
b. After the reporting date but before the financial statements are issued or are
available to be issued (as discussed in Section 855-10-25).
805-10-50-2. To meet the objective in the preceding paragraph, the acquirer shall
disclose the following information for each business combination that occurs
during the reporting period:
a. The name and a description of the acquiree
b. The acquisition date
c. The percentage of voting equity interests acquired
d. The primary reasons for the business combination and a description of how
the acquirer obtained control of the acquiree
e. For transactions that are recognized separately from the acquisition of assets
and assumptions of liabilities in the business combination (see paragraph 80510-25-20), all of the following:
1
A description of each transaction
2
How the acquirer accounted for each transaction
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f.
3
The amounts recognized for each transaction and the line item in the
financial statements in which each amount is recognized
4
If the transaction is the effective settlement of a preexisting relationship,
the method used to determine the settlement amount.
The disclosure of separately recognized transactions required in (e) shall
include the amount of acquisition-related costs, the amount recognized as an
expense, and the line item or items in the income statement in which those
expenses are recognized. The amount of any issuance costs not recognized as
an expense and how they were recognized also shall be disclosed.
g. In a business combination achieved in stages, all of the following:
1
The acquisition-date fair value of the equity interest in the acquiree held
by the acquirer immediately before the acquisition date
2
The amount of any gain or loss recognized as a result of remeasuring to
fair value the equity interest in the acquiree held by the acquirer
immediately before the business combination (see paragraph 805-10-2510) and the line item in the income statement in which that gain or loss is
recognized
3
The valuation technique(s) used to measure the acquisition-date fair value
of the equity interest in the acquiree held by the acquirer immediately
before the business combination
4
Information that enables users of the acquirer’s financial statements to
assess the inputs used to develop the fair value measurement of the equity
interest in the acquiree held by the acquirer immediately before the
business combination.
h. If the acquirer is a public business entity:
1 The amounts of revenue and earnings of the acquiree since the
acquisition date included in the consolidated income statement for the
reporting period.
2 If comparative financial statements are not presented, the revenue and
earnings of the combined entity for the current reporting period as
though the acquisition date for all business combinations that occurred
during the year had been as of the beginning of the annual reporting
period (supplemental pro forma information).
3 If comparative financial statements are presented, the revenue and
earnings of the combined entity as though the business combination(s)
that occurred during the current year had occurred as of the beginning
of the comparable prior annual reporting period (supplemental pro
forma information). For example, for a calendar year-end entity,
disclosures would be provided for a business combination that occurs
in 20X2, as if it occurred on January 1, 20X1. Such disclosures would
not be revised if 20X2 is presented for comparative purposes with the
20X3 financial statements (even if 20X2 is the earliest period
presented).
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4
The nature and amount of any material, nonrecurring pro forma
adjustments directly attributable to the business combination(s)
included in the reported pro forma revenue and earnings (supplemental
pro forma information).
If disclosure of any of the information required by (h) is impracticable, the
acquirer shall disclose that fact and explain why the disclosure is impracticable. In
this context, the term impracticable has the same meaning as in paragraph 250-1045-9.
> The Financial Effects of Adjustments that Relate to Business Combinations that
Occurred in the Current or Previous Reporting Periods
805-10-50-5. The acquirer shall disclose information that enables users of its financial
statements to evaluate the financial effects of adjustments recognized in the
current reporting period that relate to business combinations that occurred in the
current or previous reporting periods.
805-10-50-6. If the initial accounting for a business combination is incomplete (see
paragraphs 805-10-25-13 through 25-14) for particular assets, liabilities,
noncontrolling interests, or items of consideration and the amounts recognized in
the financial statements for the business combination thus have been determined
only provisionally, the acquirer shall disclose the following information for each
material business combination or in the aggregate for individually immaterial
business combinations that are material collectively to meet the objective in
preceding paragraph:
a. The reasons why the initial accounting is incomplete
b. The assets, liabilities, equity interests, or items of consideration for which the
initial accounting is incomplete
c. The nature and amount of any measurement period adjustments recognized
during the reporting period in accordance with paragraph 805-10-25-17.
> Other Disclosures
805-10-50-7. If the specific disclosures required by this Subtopic and other generally
accepted accounting principles (GAAP) do not meet the objectives set out in
paragraphs 805-10-50-1 and 805-10-50-5 (both in this checklist), the acquirer
shall disclose whatever additional information is necessary to meet those
objectives.
805-10-50-8. Example 5 (see paragraph 805-10-55-37) illustrates the disclosure
requirements applicable to business combinations.
SEC Guidance
> Pro Forma Disclosure
1
Regulation S-X Rule 10-1. Where a material business combination has occurred
during the current fiscal year, pro forma disclosure shall be made of the results of
operations for the current year up to the date of the most recent interim balance
sheet provided (and for the corresponding period in the preceding year) as though
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the companies had combined at the beginning of the period being reported on. This
pro forma information should at a minimum show revenue, income before
extraordinary items and the cumulative effect of accounting changes, including such
income on a per share basis, and net income and net income per share. (See
paragraph 270-10-S99-1 for rules pertaining to supplemental pro forma disclosure in
a business combination).
Subtopic 805-20: Business Combinations—Identifiable Assets and Liabilities, and
Any Noncontrolling Interest
Disclosure
> Business Combinations Occurring During a Current Reporting Period or After
the Reporting Date but Before the Financial Statements Are Issued
805-20-50-1. Paragraph 805-10-50-1 (in this checklist) identifies one of the objectives
of disclosures about a business combination. To meet that objective, the acquirer
shall disclose all of the following information for each business combination that
occurs during the reporting period:
a. For indemnification assets, all of the following:
1
The amount recognized as of the acquisition date
2
A description of the arrangement and the basis for determining the
amount of the payment
3
An estimate of the range of outcomes (undiscounted) or, if a range cannot
be estimated, that fact and the reasons why a range cannot be estimated. If
the maximum amount of the payment is unlimited, the acquirer shall
disclose that fact.
b. For acquired receivables not subject to the requirements of Subtopic 310-30,
all of the following:
1
The fair value of the receivables
2
The gross contractual amounts receivable
3
The best estimate at the acquisition date of the contractual cash flows not
expected to be collected.
The disclosures shall be provided by major class of receivable, such as loans,
direct financing leases in accordance with Subtopic 840-30, and any other
class of receivables.
c. The amounts recognized as of the acquisition date for each major class of
assets acquired and liabilities assumed (see Example 5 [paragraph 805-10-5537]).
d. For contingencies, the following disclosures shall be included in the footnote
that describes the business combination:
1
For assets and liabilities arising from contingencies recognized at the
acquisition date:
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a. The amounts recognized at the acquisition date and the measurement
basis applied (that is, at fair value or at an amount recognized in
accordance with Topic 450 and Section 450-20-25)
b. The nature of the contingencies.
2
For contingencies that are not recognized at the acquisition date, the
disclosures required by Topic 450 if the criteria for disclosures in that
Topic are met.
An acquirer may aggregate disclosures for assets and liabilities arising from
contingencies that are similar in nature.
e. For each business combination in which the acquirer holds less than 100
percent of the equity interests in the acquiree at the acquisition date, both of
the following:
1
The fair value of the noncontrolling interest in the acquiree at the
acquisition date
2
The valuation technique(s) and significant inputs used to measure the fair
value of the noncontrolling interest.
KPMG and Other Guidance
1
The AICPA Practice Aid Series (PAS) Accounting for Assets Acquired in a Business
Combination to be Used in Research and Development Activities: A Focus on
Software, Electronic Devices and Pharmaceutical Industries discusses best practice
disclosures relative to in-process research and development (IPR&D) acquired in a
business combination. (Note: The AICPA is currently updating its PAS to reflect the
effects of Statements 141(R) and 157). In determining whether entities should
provide disclosures about IPR&D, the PAS identifies the following general
considerations:
a. The qualitative and quantitative materiality of IPR&D (individually or in the
aggregate).
b. The extent of disclosures about IPR&D should not give undue emphasis to
IPR&D when research and development is a relatively minor aspect of the
overall financial activities of the company.
c. To the extent that contemplated disclosures about IPR&D include forwardlooking information, a public company should consider the legal implications of
including those disclosures in the financial statements rather than outside the
financial statements, such as in MD&A. The safe harbor for forward-looking
information adopted in the Private Securities Litigation Reform Act of 1995
does not extend to financial statement disclosures.
Suggested disclosures include the following:
a. Specific nature and fair value of each significant IPR&D project acquired.
b. Completeness, complexity, and uniqueness of projects at acquisition date.
c. Nature, timing, and estimated cost of efforts necessary to complete projects and
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the anticipated completion dates.
d. Risks and uncertainties associated with completing development on schedule
and consequences if it is not completed timely.
e. Appraisal method used to value projects.
f.
Significant appraisal assumptions.
g. For each acquisition resulting in a material IPR&D charge, disclose the portion
of the purchase price assigned to each individually material project.
h. In periods after a significant write-off, discuss the status of efforts to complete
the projects and the impact of any delays on expected investment return, results
of operations, and financial condition.
i.
The technique used in each acquisition to value material assets acquired to be
used in R&D activities.
Subtopic 805-30: Business Combinations—Goodwill or Gain from Bargain
Purchase, Including Consideration Transferred
Disclosure
> Business Combinations Occurring During a Current Reporting Period or after
the Reporting Date but before the Financial Statements Are Issued
805-30-50-1. Paragraph 805-10-50-1 (in this checklist) identifies one of the objectives
of disclosures about a business combination. To meet that objective, the acquirer
shall disclose all of the following information for each business combination that
occurs during the reporting period:
a. A qualitative description of the factors that make up the goodwill recognized,
such as expected synergies from combining operations of the acquiree and the
acquirer, intangible assets that do not qualify for separate recognition, or other
factors.
b. The acquisition-date fair value of the total consideration transferred and the
acquisition-date fair value of each major class of consideration, such as the
following:
1
Cash
2
Other tangible or intangible assets, including a business or subsidiary of
the acquirer
3
Liabilities incurred, for example, a liability for contingent consideration
4
Equity interests of the acquirer, including the number of instruments or
interests issued or issuable and the method of determining the fair value
of those instruments or interests.
c. For contingent consideration arrangements, all of the following:
1
The amount recognized as of the acquisition date
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2
A description of the arrangement and the basis for determining the
amount of the payment
3
An estimate of the range of outcomes (undiscounted) or, if a range cannot
be estimated, that fact and the reasons why a range cannot be estimated. If
the maximum amount of the payment is unlimited, the acquirer shall
disclose that fact.
d. The total amount of goodwill that is expected to be deductible for tax
purposes.
e. If the acquirer is required to disclose segment information in accordance with
Subtopic 280-10, the amount of goodwill by reportable segment. If the
assignment of goodwill to reporting units required by paragraphs 350-20-3541 through 35-44 has not been completed as of the date the financial
statements are issued or are available to be issued (as discussed in Section
855-10-25), the acquirer shall disclose that fact.
f.
In a bargain purchase (see paragraphs 805-30-25-2 through 25-4), both of the
following:
1
The amount of any gain recognized in accordance with paragraph 805-3025-2 and the line item in the income statement in which the gain is
recognized
2
A description of the reasons why the transaction resulted in a gain.
> The Financial Effects of Adjustments that Relate to Business Combinations that
Occurred in the Current or Previous Reporting Periods
805-30-50-4. The acquirer shall disclose the following information for each material
business combination or in the aggregate for individually immaterial business
combinations that are material collectively:
a. For each reporting period after the acquisition date until the entity collects,
sells, or otherwise loses the right to a contingent consideration asset, or until
the entity settles a contingent consideration liability or the liability is
cancelled or expires, all of the following:
1
Any changes in the recognized amounts, including any differences arising
upon settlement
2
Any changes in the range of outcomes (undiscounted) and the reasons for
those changes
3
The disclosures required by Section 820-10-50.
b. A reconciliation of the carrying amount of goodwill at the beginning and end
of the reporting period as required by paragraph 350-20-50-1.
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95 Transactions Between Entities Under Common Control Subsection of Subtopic 805-50:
Business Combinations—Related Issues
Presentation
> Financial Statement Presentation in Period of Transfer
805-50-45-2. The financial statements of the receiving entity shall report results of
operations for the period in which the transfer occurs as though the transfer of net
assets or exchange of equity interests had occurred at the beginning of the period.
Results of operations for that period will thus comprise those of the previously
separate entities combined from the beginning of the period to the date the
transfer is completed and those of the combined operations from that date to the
end of the period. By eliminating the effects of intra-entity transactions in
determining the results of operations for the period before the combination, those
results will be on substantially the same basis as the results of operations for the
period after the date of combination. The effects of intra-entity transactions on
current assets, current liabilities, revenue, and cost of sales for periods presented
and on retained earnings at the beginning of the periods presented shall be
eliminated to the extent possible.
805-50-45-4. Similarly, the receiving entity shall present the statement of financial
position and other financial information as of the beginning of the period as
though the assets and liabilities had been transferred at that date.
> Comparative Financial Statement Presentation in Prior Years
805-50-45-5. Financial statements and financial information presented for prior years
also shall be retrospectively adjusted to furnish comparative information. All
adjusted financial statements and financial summaries shall indicate clearly that
financial data of previously separate entities are combined. However, the
comparative information in prior years shall only be adjusted for periods during
which the entities were under common control.
Disclosure
805-50-50-2. The nature of and effects on earnings per share (EPS) of nonrecurring
intra-entity transactions involving long-term assets and liabilities is not required to
be eliminated under the guidance in paragraph 805-50-45-3 but shall be disclosed.
805-50-50-3. The notes to financial statements of the receiving entity shall disclose the
following for the period in which the transfer of assets and liabilities or exchange
of equity interests occurred:
a. The name and brief description of the entity included in the reporting entity as
a result of the net asset transfer or exchange of equity interests
b. The method of accounting for the transfer of net assets or exchange of equity
interests.
805-50-50-4. The receiving entity also shall consider whether additional disclosures are
required in accordance with Section 850-10-50 (in this checklist), which provides
guidance on related party transactions and certain common control relationships
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96 New Basis of Accounting (Pushdown) Subsection of Subtopic 805-50: Business Combinations—
Related Issues—SEC Guidance
> Push-Down Basis of Accounting Required in Certain Limited Circumstances
1
SAB Topic 5.J. In separate financial statements of a subsidiary, in circumstances
where the parent company borrowed funds to acquire the subsidiary, regardless of
whether the debt is reflected in the subsidiary’s financial statements, disclose at a
minimum:
a. the relationship between the parent company and subsidiary;
b. a d escription o f an y arrangements t hat r esult i n su bsidiary’s guarantee, pledge
of assets or stock, etc. that provides security for parent company’s debt;
c. the extent (in the aggregate and for each of the five years subsequent to the date
of the latest balance sheet presented) to which parent company is dependent on
subsidiary’s c ash f lows t o s ervice its de bt a nd the m ethod by w hich t his w ill
occur; and
d. the impact of such cash flows on s ubsidiary’s ability to pay dividends or other
amounts to holders of its securities.
2
A material asset pledge should be clearly indicated on the face of the balance sheet.
For example, if all or substantially all of the assets are pledged, the "assets" and
"total assets" captions should include parenthetically: "pledged for parent company
debt-See Note X."
3
Additionally, the SEC staff believes subsidiary’s Management’s Discussion and
Analysis of Financial Condition and Results of Operations should discuss any
material impact of its servicing of parent company’s debt on its own liquidity
pursuant to Item 303(a)(1) of Regulation S-K.
97 Subtopic 808-10: Collaborative Arrangements—Overall
Presentation
808-10-45-1. An entity shall not apply the equity method of accounting to activities of
collaborative arrangements.
808-10-45-2. For costs incurred and revenue generated from third parties, the participant
in a collaborative arrangement that is deemed to be the principal participant for a
given transaction under Subtopic 605-45 shall record that transaction on a gross
basis in its financial statements.
808-10-45-4. An entity shall evaluate the income statement classification of payments
between participants pursuant to a collaborative arrangement based on the nature
of the arrangement, the nature of its business operations, the contractual terms of
the arrangement, and whether those payments are within the scope of other
authoritative accounting literature on income statement classification.
Disclosure
808-10-50-1. In the period in which a collaborative arrangement is entered into (which
may be an interim period) and all annual periods thereafter, a participant to a
collaborative arrangement shall disclose all of the following:
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a. Information about the nature and purpose of its collaborative arrangements
b. Its rights and obligations under the collaborative arrangements
c. The accounting policy for collaborative arrangements in accordance with
Topic 235
d. The income statement classification and amounts attributable to transactions
arising from the collaborative arrangement between participants for each
period an income statement is presented.
Information related to individually significant collaborative arrangements shall be
disclosed separately.
98 Subtopic 810-10: Consolidation—Overall
Presentation
> Procedures
810-10-45-1. In the preparation of consolidated financial statements, intra-entity
balances and transactions shall be eliminated. This includes intra-entity open
account balances, security holdings, sales and purchases, interest, dividends, and
so forth. As consolidated financial statements are based on the assumption that
they represent the financial position and operating results of a single economic
entity, such statements shall not include gain or loss on transactions among the
entities in the consolidated group. Accordingly, any intra-entity profit or loss on
assets remaining within the consolidated group shall be eliminated; the concept
usually applied for this purpose is gross profit or loss (see also paragraph 81010-45-8 in this checklist).
810-10-45-5. Shares of the parent held by a subsidiary shall not be treated as
outstanding shares in the consolidated statement of financial position and,
therefore, shall be eliminated in the consolidated financial statements and
reflected as treasury shares.
810-10-45-8. If income taxes have been paid on intra-entity profits on assets remaining
within the consolidated group, those taxes shall be deferred or the intra-entity
profits to be eliminated in consolidation shall be appropriately reduced.
> Combined Financial Statements
810-10-45-10. If combined financial statements are prepared for a group of related
entities, such as a group of commonly controlled entities, intra-entity
transactions and profits or losses shall be eliminated, and noncontrolling
interests, foreign operations, different fiscal periods, or income taxes shall be
treated in the same manner as in consolidated financial statements.
> Parent Entity Statements
810-10-45-11. In some cases parent-entity financial statements may be needed, in
addition to consolidated financial statements, to indicate adequately the position
of bondholders and other creditors or preferred shareholders of the parent.
Consolidating financial statements, in which one column is used for the parent
and other columns for particular subsidiaries or groups of subsidiaries, often are
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an effective means of presenting the pertinent information. However,
consolidated financial statements are the general-purpose financial statements of
a parent having one or more subsidiaries; thus, parent-entity financial statements
are not a valid substitute for consolidated financial statements.
> Differing Fiscal Year-Ends Between Parent and Subsidiary
810-10-45-12. It ordinarily is feasible for the subsidiary to prepare, for consolidation
purposes, financial statements for a period that corresponds with or closely
approaches the fiscal period of the parent. However, if the difference is not more
than about three months, it usually is acceptable to use, for consolidation
purposes, the subsidiary's financial statements for its fiscal period; if this is done,
recognition should be given by disclosure or otherwise to the effect of
intervening events that materially affect the financial position or results of
operations.
> Noncontrolling Interest in a Subsidiary
>> Nature and Classification of the Noncontrolling Interest in the Consolidated
Statement of Financial Position
810-10-45-16. The noncontrolling interest shall be reported in the consolidated
statement of financial position within equity, separately from the parent’s equity.
That amount shall be clearly identified and labeled, for example, as
noncontrolling interest in subsidiaries (see paragraph 810-10-55-4I). An entity
with noncontrolling interests in more than one subsidiary may present those
interests in aggregate in the consolidated financial statements.
810-10-45-16A. Only either of the following can be a noncontrolling interest in the
consolidated financial statements:
a. A financial instrument (or an embedded feature) issued by a subsidiary that
is classified as equity in the subsidiary’s financial statements
b. A financial instrument (or an embedded feature) issued by a parent or a
subsidiary for which the payoff to the counterparty is based, in whole or in
part, on the stock of a consolidated subsidiary, that is considered indexed to
the entity’s own stock in the consolidated financial statements of the parent
and that is classified as equity.
810-10-45-17. A financial instrument issued by a subsidiary that is classified as a
liability in the subsidiary’s financial statements based on the guidance in other
Subtopics is not a noncontrolling interest because it is not an ownership interest.
For example, Topic 480 provides guidance for classifying certain financial
instruments issued by a subsidiary.
810-10-45-17A. An equity-classified instrument (including an embedded feature that is
separately recorded in equity under applicable GAAP) within the scope of the
guidance in paragraph 815-40-15-5C shall be presented as a component of
noncontrolling interest in the consolidated financial statements whether the
instrument was entered into by the parent or the subsidiary. However, if such an
equity-classified instrument was entered into by the parent and expires
unexercised, the carrying amount of the instrument shall be reclassified from the
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noncontrolling interest to the controlling interest.
> Attributing Net Income and Comprehensive Income to the Parent and the
Noncontrolling Interest
810-10-45-19. Revenues, expenses, gains, losses, net income or loss, and other
comprehensive income shall be reported in the consolidated financial statements
at the consolidated amounts, which include the amounts attributable to the
owners of the parent and the noncontrolling interest.
810-10-45-20. Net income or loss and comprehensive income or loss, as described in
Topic 220, shall be attributed to the parent and the noncontrolling interest.
810-10-45-21. Losses attributable to the parent and the noncontrolling interest in a
subsidiary may exceed their interests in the subsidiary’s equity. The excess, and
any further losses attributable to the parent and the noncontrolling interest, shall
be attributed to those interests. That is, the noncontrolling interest shall continue
to be attributed its share of losses even if that attribution results in a deficit
noncontrolling interest balance.
Disclosure
> Consolidation Policy
810-10-50-1. Consolidated financial statements shall disclose the consolidation policy
that is being followed. In most cases this can be made apparent by the headings
or other information in the financial statements, but in other cases a footnote is
required.
> Parent with a Less-than-Wholly-Owned Subsidiary
810-10-50-1A. A parent with one or more less-than-wholly-owned subsidiaries shall
disclose all of the following for each reporting period:
a. Separately, on the face of the consolidated financial statements, both of the
following:
1
The amounts of consolidated net income and consolidated
comprehensive income
2
The related amounts of each attributable to the parent and the
noncontrolling interest.
b. Either in the notes or on the face of the consolidated income statement,
amounts attributable to the parent for any of the following, if reported in the
consolidated financial statements:
1
Income from continuing operations
2
Discontinued operations
3
Extraordinary items.
c. Either in the consolidated statement of changes in equity, if presented, or in
the notes to consolidated financial statements, a reconciliation at the
beginning and the end of the period of the carrying amount of total equity
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(net assets), equity (net assets) attributable to the parent, and equity (net
assets) attributable to the noncontrolling interest. That reconciliation shall
separately disclose all of the following:
1
Net income
2
Transactions with owners acting in their capacity as owners, showing
separately contributions from and distributions to owners
3
Each component of other comprehensive income.
d. In notes to the consolidated financial statements, a separate schedule that
shows the effects of any changes in a parent’s ownership interest in a
subsidiary on the equity attributable to the parent.
Example 2 (see paragraph 810-10-55-4G) illustrates the application of the
guidance in this paragraph.
> Deconsolidation of a Subsidiary
810-10-50-1B. In the period that a subsidiary or group of assets specified in paragraph
810-10-40-3A is deconsolidated, the parent shall disclose all of the following:
(Note: The guidance in this paragraph is effective for not-for-profit entities in
reporting periods beginning on or after December 15, 2009.)
a. The amount of any gain or loss recognized in accordance with paragraph
810-10-40-5
b. The portion of any gain or loss related to the remeasurement of any retained
investment in the former subsidiary to its fair value
c. The caption in the income statement in which the gain or loss is recognized
unless separately presented on the face of the income statement
d. The valuation technique(s) use to measure the fair value of any direct or
indirect retained investment in the former subsidiary or group of assets
e. Information that enables users of the parent’s financial statements to assess
the inputs used to develop the fair value measurement
f.
The nature of continuing involvement with the subsidiary after it has been
deconsolidated
g. Whether the transaction that resulted in the deconsolidation was with a
related party
h. Whether the former subsidiary or entity acquiring a group of assets will be a
related party after deconsolidation.
> A Change in the Difference Between Parent and Subsidiary Fiscal Year-Ends
810-10-50-2. An entity should make the disclosures required pursuant to Topic 250.
This paragraph applies to all entities that change (or eliminate) a previously
existing difference between the reporting periods of a parent and a consolidated
entity or an investor and an equity method investee. This paragraph does not
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end.
SEC Guidance
> Disclosure of Accounting Policies
1
Regulation S-X Rule 3A-02. This Rule provides the requirements for disclosure of
consolidation policy. The disclosures should clearly explain the accounting policies
followed by the registrant, including the circumstances involved in any departure
from the normal practice of consolidating majority owned subsidiaries and not
consolidating entities that are less than majority owned.
> Statements as to Principles of Consolidation or Combination Followed
2
Regulation S-X Rule 3A-03. This rule provides the requirements for disclosure of
principles followed in consolidating or combining separate financial statements,
include:
a. A brief description of the principles followed in consolidating or combining
the separate financial statements, including the principles followed in
determining the inclusion or exclusion of subsidiaries in consolidated or
combined financial statements, and companies in consolidated or combined
financial statements, shall be stated in the notes to the respective financial
statements.
b. As to each consolidated financial statement and as to each combined financial
statement, if there has been a change in the persons included or excluded in the
corresponding statement for the preceding fiscal period filed with the SEC
which has a material effect on the financial statements, the persons included
and the persons excluded shall be disclosed. If there have been any changes in
the respective fiscal periods of the persons included made during the periods of
the report which have a material effect on the financial statements, indicate
clearly such changes and the manner of treatment.
> Intercompany (Intra-entity) Items and Transactions
3
Regulation S-X Rule 3A-04. This Rule provides the requirements for disclosure of
intercompany (intra-entity) items and transactions. If such eliminations are not
made, a statement of the reasons and the methods of treatment shall be made.
> Other
4
Regulation S-X Rule 5-02.27. Classify separately amounts represented by preferred
stock and applicable dividend requirements.
5
Regulation S-X Rule 5-02.28. Disclose information regarding redemption features
of noncontrolling interests, including terms of redemption features and how
redemption amounts are determined (such as fair value, specified amount, formula,
etc.).
6
SAB Topic 5-E. Classify as “assets of business transferred under contractual
arrangements (notes receivable)” or similar terminology, assets of a divested
business not treated as such for accounting purposes.
7
File separate audited financial statements of subsidiaries not consolidated and 50
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percent-or-less-owned persons accounted for by the equity method, if the criteria
for a significant subsidiary are met using 20 percent (S-X, Rule 3-09). When
determining significance for an investment that is accounted for using the fair
option under Statement 159 (ASC Topic 825), a registrant should perform the
income test using the change in the fair value of the investment recorded in its
income statement, as this is the best indication of the impact of the investment on
the registrant’s financial statements. Also, included in the numerator would be any
gain/loss recorded by the registrant in its financial statements arising from a
transaction in which a consolidated subsidiary becomes eligible for equity method
accounting, but will be accounted for under the fair value option.
Note: At the 2010 AICPA Conference, the SEC staff announced changes to certain
long-standing staff interpretations of SEC rules for calculating the significance of
acquired businesses and investments accounted for under the equity method. The
new interpretations are effective immediately and may be applied retroactively. See
SEC Financial Reporting Manual Topic 2410.
KPMG and Other Guidance
1
In September 2009, the EITF discussed Issue No. 09-4, “Seller Accounting for
Contingent Consideration.” No conclusion was reached, and the Task Force
dropped the issue. The Task Force acknowledged that unless and until the issue is
addressed, there will be diversity in how sellers in a business combination account
for contingent consideration. The FASB’s Exposure Draft on accounting for
financial instruments would provide guidance only for seller contingent
consideration that is based on an observable market or index.
If a subsidiary is deconsolidated as part of a business combination that includes a
contingent consideration arrangement as part of the consideration received by the
parent, we believe the parent should disclose the following:
a. A description of how the contingent consideration arrangement is accounted
for in the financial statements, either:
1
At fair value as part of the initial gain or loss recognized in accordance
with paragraph 810-10-40-5, or
2
As a gain contingency under Topic 450
b. If the contingent consideration is initially measured at fair value by the parent:
1
The amount recognized as of the date of deconsolidation of the subsidiary
2
A description of the arrangement and the basis for determining its fair
value
3
The caption in the income statement in which the gain or loss is recognized
unless separately presented on the face of the income statement
4
A description how the arrangement is subsequently accounted for after its
initial measurement at fair value
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99 Variable Interest Entities Subsection of Subtopic 810-10: Consolidation—Overall
Presentation
810-10-45-25. A reporting entity shall present each of the following separately on the
face of the statement of financial position:
a. Assets of a consolidated variable interest entity (VIE) that can be used only
to settle obligations of the consolidated VIE
b. Liabilities of a consolidated VIE for which creditors (or beneficial interest
holders) do not have recourse to the general credit of the primary
beneficiary.
Disclosure
810-10-50-2AA. The principal objectives of this Subsection’s required disclosures are
to provide financial statement users with an understanding of all of the
following:
a The significant judgments and assumptions made by a reporting entity in
determining whether it must do any of the following:
1 Consolidate a variable interest entity (VIE)
2
Disclose information about its involvement in a VIE.
b
The nature of restrictions on a consolidated VIE’s assets reported by a
reporting entity in its statement of financial position, including the carrying
amounts of such assets and liabilities.
c The nature of, and changes in, the risks associated with a reporting entity’s
involvement with the VIE.
d How a reporting entity’s involvement with the VIE affects the reporting
entity’s financial position, financial performance, and cash flows.
810-10-50-2AB. A reporting entity shall consider the overall objectives in the
preceding paragraph in providing the disclosures required by this Subsection. To
achieve those objectives, a reporting entity may need to supplement the
disclosures otherwise required by this Subsection, depending on the facts and
circumstances surrounding the VIE and a reporting entity’s interest in that VIE.
810-10-50-2AC. The disclosures required by this Subsection may be provided in more
than one note to the financial statements, as long as the objectives in paragraph
810-10-50-2AA are met. If the disclosures are provided in more than one note to
the financial statements, the reporting entity shall provide a cross reference to the
other notes to the financial statements that provide the disclosures prescribed in
this Subsection for similar entities
> Primary Beneficiary of a VIE
810-10-50-3. A VIE may issue voting equity interests, and the entity that holds a
majority voting interest also may be the primary beneficiary of the VIE. If so,
and if the VIE meets the definition of a business and the VIE’s assets can be used
for purposes other than the settlement of the VIE’s obligations, the disclosures in
this paragraph are not required.
The primary beneficiary of a VIE that is a business shall provide the disclosures
required by other guidance.
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The primary beneficiary of a VIE that is not a business shall disclose the amount
of gain or loss recognized on the initial consolidation of the VIE.
In addition to disclosures required elsewhere in this Topic, the primary
beneficiary of a VIE shall disclose all of the following:
a. [Not Used]
b. [Not Used]
bb. The carrying amounts and classification of the VIE’s assets and liabilities in
the statement of financial position that are consolidated in accordance with
the Variable Interest Entities Subsections, including qualitative information
about the relationship(s) between those assets and liabilities. For example, if
the VIE’s assets can be used only to settle obligations of the VIE, the
reporting entity shall disclose qualitative information about the nature of the
restrictions on those assets.
c. Lack of recourse if creditors (or beneficial interest holders) of a consolidated
VIE have no recourse to the general credit of the primary beneficiary
d. Terms of arrangements, giving consideration to both explicit arrangements
and implicit variable interests that could require the reporting entity to
provide financial support (for example, liquidity arrangements and
obligations to purchase assets) to the VIE, including events or circumstances
that could expose the reporting entity to a loss.
> Nonprimary Beneficiary Holder of a Variable Interest in a VIE
810-10-50-4. In addition to disclosures required by other guidance, a reporting entity
that holds a variable interest in a VIE, but is not the VIE’s primary beneficiary,
shall disclose:
a. The carrying amounts and classification of the assets and liabilities in the
reporting entity’s statement of financial position that relate to the reporting
entity’s variable interest in the VIE.
b. The reporting entity’s maximum exposure to loss as a result of its
involvement with the VIE, including how the maximum exposure is
determined and the significant sources of the reporting entity’s exposure to
the VIE. If the reporting entity’s maximum exposure to loss as a result of its
involvement with the VIE cannot be quantified, that fact shall be disclosed.
c. A tabular comparison of the carrying amounts of the assets and liabilities, as
required by (a) above, and the reporting entity’s maximum exposure to loss,
as required by (b) above. A reporting entity shall provide qualitative and
quantitative information to allow financial statement users to understand the
differences between the two amounts. That discussion shall include, but is
not limited to, the terms of arrangements, giving consideration to both
explicit arrangements and implicit variable interests, that could require the
reporting entity to provide financial support (for example, liquidity
arrangements and obligations to purchase assets) to the VIE, including
events or circumstances that could expose the reporting entity to a loss.
d. Information about any liquidity arrangements, guarantees, and/or other
commitments by third parties that may affect the fair value or risk of the
reporting entity’s variable interest in the VIE is encouraged.
e. If applicable, significant factors considered and judgments made in
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determining that the power to direct the activities of a VIE that most
significantly impact the VIE’s economic performance is shared in
accordance with the guidance in paragraph 810-10-25-38D.
> Primary Beneficiaries or Other Holders of Interests in VIEs
810-10-50-5A and 50-5B. A VIE may issue voting equity interests, and the entity that
holds a majority voting interest also may be the primary beneficiary of the VIE.
If so, and if the VIE meets the definition of a business and the VIE’s assets can
be us ed f or pur poses o ther t han t he s ettlement of t he V IE’s obl igations, the
disclosures in this paragraph are not required.
A reporting entity that is a primary beneficiary of a VIE or a reporting entity that
holds a variable interest in a VIE but is not the entity’s primary beneficiary shall
disclose all of the following:
a. Its methodology for determining whether the reporting entity is the primary
beneficiary of a VIE, including, but not limited to, significant judgments and
assumptions made. One way to meet this disclosure requirement would be to
provide information about the types of involvements a reporting entity
considers significant, supplemented with information about how the
significant involvements were considered in determining whether the
reporting entity is the primary beneficiary.
b. If facts and circumstances change such that the conclusion to consolidate a
VIE has changed in the most recent financial statements (for example, the
VIE was previously consolidated and is not currently consolidated), the
primary factors that caused the change and the effect on the reporting entity’s
financial statements.
c. Whether the reporting entity has provided financial or other support
(explicitly or implicitly) during the periods presented to the VIE that it was
not previously contractually required to provide or whether the reporting
entity intends to provide that support, including both of the following:
1. The type and amount of support, including situations in which the
reporting entity assisted the VIE in obtaining another type of support
2. The primary reasons for providing the support.
d. Qualitative and quantitative information about the reporting entity’s
involvement (giving consideration to both explicit arrangements and implicit
variable interests) with the VIE, including, but not limited to, the nature,
purpose, size, and activities of the VIE, including how the VIE is financed.
Paragraphs 810-10-25-48 through 25-54 and Example 4 (see paragraph 81010-55-87) provide guidance on how to determine whether a reporting entity
has an implicit variable interest in a VIE.
> > Scope-Related Disclosures
810-10-50-6. An enterprise that does not apply the guidance in ASC Subtopic 810-10
for VIEs to one or more VIEs or potential VIEs because of the condition
described in paragraph 810-10-15-17(c) (the “information-out” scope exception)
should disclose all the following information:
a. The number of legal entities to which the guidance in ASC Subtopic 810-10
for VIEs is not being applied and the reason why the information required to
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apply this guidance is not available
b. The nature, purpose, size (if available), and activities of the legal entities and
the nature of the reporting entity's involvement with the legal entities
c. The reporting entity's maximum exposure to loss because of its involvement
with the legal entities
d. The amount of income, expense, purchases, sales, or other measure of
activity between the reporting entity and the legal entities for all periods
presented. However, if it is not practicable to present that information for
prior periods that are presented in the first set of financial statements for
which this requirement applies, the information for those prior periods is not
required.
> Aggregation of Certain Disclosures
810-10-50-9. Disclosures about VIEs may be reported in the aggregate for similar
entities if separate reporting would not provide more useful information to
financial statement users. A reporting entity shall disclose how similar entities
are aggregated and shall distinguish between:
a. VIEs that are not consolidated because the reporting entity is not the primary
beneficiary but has a variable interest
b. VIEs that are consolidated.
In determining whether to aggregate VIEs, the reporting entity shall consider
quantitative and qualitative information about the different risk and reward
characteristics of each VIE and the significance of each VIE to the entity. The
disclosures shall be presented in a manner that clearly explains to financial
statement users the nature and extent of an entity’s involvement with VIEs.
810-10-50-10. A reporting entity shall determine, in light of the facts and
circumstances, how much detail it shall provide to satisfy the requirements of the
Variable Interest Entities Subsections. A reporting entity shall also determine
how it aggregates information to display its overall involvements with VIEs with
different risk characteristics. The reporting entity must strike a balance between
obscuring important information as a result of too much aggregation and
overburdening financial statements with excessive detail that may not assist
financial statement users to understand the reporting entity’s financial position.
For example, a reporting entity shall not obscure important information by
including it with a large amount of insignificant detail. Similarly, a reporting
entity shall not disclose information that is so aggregated that it obscures
important differences between the types of involvement or associated risks.
SEC Guidance
> Other
1
Rule S-X Rule 3-10. The Variable Interest Entities Subsections of ASC Subtopic
810-10 will not affect the ability of finance subsidiaries issuing trust preferred
securities to avail themselves of Rule 3-10(b) of Regulation S-X (ASC paragraph
470-10-S99-1) and Exchange Act Rule 12h-5 if the finance subsidiaries meet the
conditions of that paragraph and provide the following footnote disclosure:
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a. An explanation of the transaction between the parent and the subsidiary that
resulted in debt appearing on the books of the subsidiary.
b. A statement of whether the finance subsidiary is consolidated. If the finance
subsidiary is not consolidated, an explanation for why it is not.
c. If a deconsolidated finance subsidiary was previously consolidated,
explanation of the effect that deconsolidation had on the financial statements.
100
Subtopic 815-10: Derivatives and Hedging--Overall
Presentation
> Balance Sheet—Netting
815-10-45-2. None of the provisions in this Subtopic support netting a hedging
derivative's asset (or liability) position against the hedged liability (or asset)
position in the balance sheet.
815-10-45-5. Without regard to the condition in paragraph 210-20-45-1(c) (in this
checklist), a reporting entity may offset fair value amounts recognized for
derivative instruments and fair value amounts recognized for the right to reclaim
cash collateral (a receivable) or the obligation to return cash collateral (a
payable) arising from derivative instrument(s) recognized at fair value executed
with the same counterparty under a master netting arrangement. Solely as it
relates to the right to reclaim cash collateral or the obligation to return cash
collateral, fair value amounts include amounts that approximate fair value. The
preceding sentence shall not be analogized to for any other asset or liability. The
fair value recognized for some contracts may include an accrual component for
the periodic unconditional receivables and payables that result from the contract;
the accrual component included therein may also be offset for contracts executed
with the same counterparty under a master netting arrangement. A master netting
arrangement exists if the reporting entity has multiple contracts, whether for the
same type of derivative instrument or for different types of derivative
instruments, with a single counterparty that are subject to a contractual
agreement that provides for the net settlement of all contracts through a single
payment in a single currency in the event of default on or termination of any one
contract.
815-10-45-6. A reporting entity shall make an accounting policy decision to offset fair
value amounts in the manner described in this paragraph [and should disclose
that policy]. The reporting entity's choice to offset or not must be applied
consistently. A reporting entity shall not offset fair value amounts recognized for
derivative instruments without offsetting fair value amounts recognized for the
right to reclaim cash collateral or the obligation to return cash collateral. A
reporting entity that makes an accounting policy decision to offset fair value
amounts recognized for derivative instruments pursuant to the preceding
paragraph but determines that the amount recognized for the right to reclaim cash
collateral or the obligation to return cash collateral is not a fair value amount
shall continue to offset the derivative instruments.
815-10-45-7. A reporting entity that has made an accounting policy decision to offset
fair value amounts is not permitted to offset amounts recognized for the right to
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reclaim cash collateral or the obligation to return cash collateral against net
derivative instrument positions if those amounts either:
a. Were not fair value amounts
b. Arose from instruments in a master netting arrangement that are not eligible
to be offset.
> Income Statement Classification
> > Derivative Instruments Held for Trading Purposes
815-10-45-9. Gains and losses (realized and unrealized) on all derivative instruments
within the scope of this Subtopic that are held for trading purposes shall be
shown net when recognized in the income statement, whether or not settled
physically.
> > Options Granted to Employees in Unrestricted Publicly Traded Shares of an
Unrelated Entity
815-10-45-10. Subsequent changes in the fair value of an option that was granted to an
employee and is subject to this Subtopic shall be included in the determination of
net income. Changes in fair value of the option award before vesting shall be
characterized as compensation expense in the employer's income statement.
Changes in fair value of the option award after vesting may be reflected
elsewhere in the employer's income statement.
> Cash Flow Statement Classification
> > Derivative Instrument with a Financing Element
815-10-45-12. If an other-than-insignificant financing element is present at inception—
other than a financing element inherently included in an at-the-market derivative
instrument with no prepayments (that is, the forward points in an at-the-money
forward contract)—then the borrower shall report all cash inflows and outflows
associated with that derivative instrument in a manner consistent with financing
activities as described in paragraphs 230-10-45-14 through 45-15 (in this
checklist). See paragraphs 815-10-45-14 to 45-15 for additional guidance on
determining when a derivative instrument contains a financing element.
Disclosure
815-10-50-1. An entity with derivative instruments (or nonderivative instruments that
are designated and qualify as hedging instruments pursuant to paragraphs 81520-25-58 (hedging instruments in fair value hedges involving foreign exchange
risk) and 815-20-25-66 (hedging instruments in net investment hedges) shall
disclose information to enable users of the financial statements to understand all
of the following:
a. How and why an entity uses derivative instruments (or such nonderivative
instruments)
b. How derivative instruments (or such nonderivative instruments) and related
hedged items are accounted for under Topic 815
c. How derivative instruments (or such nonderivative instruments) and related
hedged items affect all of the following:
1 An entity’s financial position
2 An entity’s financial performance
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3 An entity’s cash flows.
815-10-50-1A. An entity that holds or issues derivative instruments (or nonderivative
instruments that are designated and qualify as hedging instruments pursuant to
paragraphs 815-20-25-58 and 815-20-25-66 shall disclose all of the following for
every annual and interim reporting period for which a statement of financial
position and statement of financial performance are presented:
a. Its objectives for holding or issuing those instruments
b. The context needed to understand those objectives
c. Its strategies for achieving those objectives
d. Information that would enable users of its financial statements to understand
the volume of its activity in those instruments.
815-10-50-1B. For item (d) in the preceding paragraph, an entity shall select the format
and the specifics of disclosures relating to its volume of such activity that are
most relevant and practicable for its individual facts and circumstances.
Information about the instruments in items (a) through (c) in the preceding
paragraph shall be disclosed in the context of each instrument’s primary
underlying risk exposure (for example, interest rate, credit, foreign exchange
rate, interest rate and foreign exchange rate, or overall price). Further, those
instruments shall be distinguished between those used for risk management
purposes and those used for other purposes. Derivative instruments (and
nonderivative instruments that are designated and qualify as hedging instruments
pursuant to paragraphs 815-20-25-58 and 815-20-25-66) used for risk
management purposes include those designated as hedging instruments under
Subtopic 815-20 as well as those used as economic hedges and for other
purposes related to the entity’s risk exposures.
815-10-50-2. The instruments addressed by items (a) through (c) in the preceding
paragraph 815-10-50-1A shall be distinguished between each of the following:
a. Derivative instruments (and nonderivative instruments as noted in items
(1)(a) and (1)(c) of this paragraph) used for risk management purposes,
distinguished between each of the following:
1 Derivative instruments (and nonderivative instruments) designated as
hedging instruments, distinguished between each of the following:
a. Derivative instruments (and nonderivative instruments) designated
as fair value hedging instruments
b. Derivative instruments designated as cash flow hedging instruments
c. Derivative instruments (and nonderivative instruments) designated
as hedging instruments for hedges of the foreign currency exposure
of a net investment in a foreign operation.
2 Derivative instruments used as economic hedges and for other purposes
related to the entity’s risk exposures.
b. Derivative instruments used for other purposes.
815-10-50-3. The description also shall indicate the entity’s risk management policy
for each of those types of hedges, including a description of the items or
transactions for which risks are hedged.
815-10-50-4. For derivative instruments not designated as hedging instruments under
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Subtopic 815-20, the description shall indicate the purpose of the derivative
activity.
> Overall Quantitative Disclosures
815-10-50-4A. An entity that holds or issues derivative instruments (and nonderivative
instruments that are designated and qualify as hedging instruments pursuant to
paragraphs 815-20-25-58 and 815-20-25-66) shall disclose all of the following
for every annual and interim reporting period for which a statement of financial
position and statement of financial performance are presented:
a. The location and fair value amounts of derivative instruments (and such
nonderivative instruments) reported in the statement of financial position
b. The location and amount of the gains and losses on derivative instruments
(and such nonderivative instruments) and related hedged items reported in
any of the following:
1 The statement of financial performance.
2 The statement of financial position (for example, gains and losses
initially recognized in other comprehensive income).
815-10-50-4B. The disclosures required by item (a) in the preceding paragraph shall
comply with all of the following:
a. The fair value of derivative instruments (and nonderivative instruments that
are designated and qualify as hedging instruments pursuant to paragraphs
815-20-25-58, hedging instruments in fair value hedges involving foreign
exchange risk, and 815-20-25-66, hedging instruments in net investment
hedges) shall be presented on a gross basis, even when those instruments are
subject to master netting arrangements and qualify for net presentation in the
statement of financial position in accordance with Topic 210-20.
b. Cash collateral payables and receivables associated with those instruments
shall not be added to or netted against the fair value amounts.
c. Fair value amounts shall be presented as separate asset and liability values
segregated between each of the following:
1 Those instruments designated and qualifying as hedging instruments
under Subtopic 815-20, presented separately by type of contract (for
example, interest rate contracts, foreign exchange contracts, equity
contracts, commodity contracts, credit contracts, other contracts, and so
forth)
2 Those instruments not designated as hedging instruments, presented
separately by type of contract.
d. The disclosure shall identify the line item(s) in the statement of financial
position in which the fair value amounts for these categories of derivative
instruments are included.
Amounts required to be reported for nonderivative instruments that are
designated and qualify as hedging instruments pursuant to paragraphs 815-20-2558 and 815-20-25-66 shall be the carrying value of the nonderivative hedging
instrument, which includes the adjustment for the foreign currency transaction
gain or loss on that instrument.
815-10-50-4C. The gains and losses disclosed pursuant to paragraph 815-10-50-4A(b)
(in this checklist) shall be presented separately for all of the following by type of
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contract (as discussed in the following paragraph):
a. Derivative instruments designated and qualifying as hedging instruments in
fair value hedges and related hedged items designated and qualifying in fair
value hedges.
b. The effective portion of gains and losses on derivative instruments (and
nonderivative instruments) designated and qualifying in cash flow hedges
and net investment hedges that was recognized in other comprehensive
income during the current period.
c. The effective portion of gains and losses on derivative instruments (and
nonderivative instruments) designated and qualifying in cash flow hedges
and net investment hedges recorded in accumulated other comprehensive
income during the term of the hedging relationship and reclassified into
earnings during the current period.
d. The portion of gains and losses on derivative instruments (and nonderivative
instruments) designated and qualifying in cash flow hedges and net
investment hedges representing any of the following:
1 The amount of the hedges’ ineffectiveness
2 The amount, if any, excluded from the assessment of hedge
effectiveness.
e. Derivative instruments not designated or qualifying as hedging instruments
under Subtopic 815-20 (see paragraph 815-10-50-4F).
Example 21 (see paragraph 815-10-55-182) illustrates the disclosure of fair value
amounts of derivative instruments (and such nonderivative instruments) reported
in the statement of financial position.
815-10-50-4D. Disclosures pursuant to the preceding paragraph shall both:
a. Be presented separately by type of contract, for example:
1 Interest rate contracts
2 Foreign exchange contracts
3 Equity contracts
4 Commodity contracts
5 Credit contracts
6 Other contracts.
b. Identify the line item(s) in the statement of financial performance in which
the gains and losses for these categories of derivative instruments (and
nonderivative instruments that are designated and qualify as hedging
instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) are
included.
815-10-50-4E. The quantitative disclosures required by paragraphs 815-10-50-4A(a)
and 50-4A(b) (in this checklist) shall be presented in tabular format except for
the information required for hedged items by subparagraph 815-10-50-4C(a) (in
this checklist). Information about hedged items can be presented in a tabular or
nontabular format.
If a proportion of a derivative instrument is designated and qualifying as a
hedging instrument and a proportion is not designated and qualifying as a
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hedging instrument, an entity shall allocate the related amounts to the appropriate
categories within the disclosure table.
Example 20 (see paragraph 815-10-55-181) illustrates a nontabular presentation.
Example 21 (see paragraph 815-10-55-182) illustrates the disclosure of fair value
amounts of derivative instruments (and such nonderivative instruments) reported
in the statement of financial performance.
> > Trading Derivatives
815-10-50-4F. For derivative instruments that are not designated or qualifying as
hedging instruments under Subtopic 815-20, if an entity’s policy is to include
those derivative instruments in its trading activities (for example, as part of its
trading portfolio that includes both derivative instruments and nonderivative or
cash instruments), the entity can elect to not separately disclose gains and losses
as required by paragraph 815-10-50-4C(e) (in this checklist) provided that the
entity discloses all of the following:
a. The gains and losses on its trading activities (including both derivative
instruments and nonderivative instruments) recognized in the statement of
financial performance, separately by major types of items, for example:
1 Fixed income/interest rates
2 Foreign exchange
3 Equity
4 Commodity
5 Credit.
b. The line items in the statement of financial performance in which trading
activities gains and losses are included
c. A description of the nature of its trading activities and related risks, and how
the entity manages those risks.
If the disclosure option in this paragraph is elected, the entity shall include a
footnote in the required tables referencing the use of alternative disclosures for
trading activities.
Example 21 (see paragraph 815-10-55-182) illustrates a footnote referencing the
use of alternative disclosures for trading activities. Example 22 (see paragraph
815-10-55-184) illustrates the disclosure of the information required in items (a)
and (b).
> > Application by Not-for-Profit Entities
815-10-50-4G. For purposes of the disclosure requirements beginning in paragraph
815-10-50-4A (in this checklist), not-for-profit entities within the scope of Topic
954 should present a similarly formatted table. Those entities shall refer to
amounts within their performance indicator, instead of in income, and amounts
outside their performance indicator, instead of in other comprehensive income.
Not-for-profit entities not within the scope of Topic 954 shall disclose the gain or
loss recognized in changes in net assets using a similar format. All not-for-profit
entities also would indicate which class or classes of net assets (unrestricted,
temporarily restricted, or permanently restricted) are affected.
> Credit-Risk-Related Contingent Features
815-10-50-4H. An entity that holds or issues derivative instruments (or nonderivative
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instruments that are designated and qualify as hedging instruments pursuant to
paragraphs 815-20-25-58 and 815-20-25-66) shall disclose all of the following
for every annual and interim reporting period for which a statement of financial
position is presented:
a. The existence and nature of credit-risk-related contingent features
b. The circumstances in which credit-risk-related contingent features could be
triggered in derivative instruments (or such nonderivative instruments) that
are in a net liability position at the end of the reporting period
c. The aggregate fair value amounts of derivative instruments (or such
nonderivative instruments) that contain credit-risk-related contingent features
that are in a net liability position at the end of the reporting period
d. The aggregate fair value of assets that are already posted as collateral at the
end of the reporting period
e. The aggregate fair value of additional assets that would be required to be
posted as collateral if the credit-risk-related contingent features were
triggered at the end of the reporting period
f. The aggregate fair value of assets needed to settle the instrument
immediately if the credit-risk-related contingent features were triggered at
the end of the reporting period.
Amounts required to be reported for nonderivative instruments that are
designated and qualify as hedging instruments pursuant to paragraphs 815-20-2558 and 815-20-25-66 shall be the carrying value of the nonderivative hedging
instrument, which includes the adjustment for the foreign currency transaction
gain or loss on that instrument. Example 23 (see paragraph 815-10-55-185)
illustrates a credit-risk-related contingent feature disclosure.
> Information in More than One Footnote
815-10-50-4I. If information on derivative instruments (or nonderivative instruments
that are designated and qualify as hedging instruments pursuant to paragraphs
815-20-25-58 and 815-20-25-66 is disclosed in more than a single footnote, an
entity shall cross-reference from the derivative instruments (or nonderivative
instruments) footnote to other footnotes in which derivative-instrument-related
information is disclosed.
> Credit Derivatives
815-10-50-4K. A seller of credit derivatives shall disclose information about its credit
derivatives and hybrid instruments (for example, a credit-linked note) that have
embedded credit derivatives to enable users of financial statements to assess their
potential effect on its financial position, financial performance, and cash flows.
Specifically, for each statement of financial position presented, the seller of a
credit derivative shall disclose all of the following information for each credit
derivative, or each group of similar credit derivatives, even if the likelihood of
the seller’s having to make any payments under the credit derivative is remote:
a. The nature of the credit derivative, including all of the following:
1 The approximate term of the credit derivative
2 The reason(s) for entering into the credit derivative
3 The events or circumstances that would require the seller to perform
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under the credit derivative
4 The current status (that is, as of the date of the statement of financial
position) of the payment/performance risk of the credit derivative, which
could be based on either recently issued external credit ratings or current
internal groupings used by the seller to manage its risk
5 If the entity uses internal groupings for purposes of item (a)(4), how
those groupings are determined and used for managing risk.
b. All of the following information about the maximum potential amount of
future payments under the credit derivative:
1 The maximum potential amount of future payments (undiscounted) that
the seller could be required to make under the credit derivative, which
shall not be reduced by the effect of any amounts that may possibly be
recovered under recourse or collateralization provisions in the credit
derivative (which are addressed in items (c) through (f))
2 The fact that the terms of the credit derivative provide for no limitation
to the maximum potential future payments under the contract, if
applicable
3 If the seller is unable to develop an estimate of the maximum potential
amount of future payments under the credit derivative, the reasons why it
cannot estimate the maximum potential amount.
c. The fair value of the credit derivative as of the date of the statement of
financial position
d. The nature of any recourse provisions that would enable the seller to recover
from third parties any of the amounts paid under the credit derivative
e. The nature of any assets held either as collateral or by third parties that, upon
the occurrence of any specified triggering event or condition under the credit
derivative, the seller can obtain and liquidate to recover all or a portion of the
amounts paid under the credit derivative
f. If estimable, the approximate extent to which the proceeds from liquidation
of assets held either as collateral or by third parties would be expected to
cover the maximum potential amount of future payments under the credit
derivative. In its estimate of potential recoveries, the seller of credit
protection shall consider the effect of any purchased credit protection with
identical underlying(s).
However, the disclosures required by this paragraph do not apply to an
embedded derivative feature related to the transfer of credit risk that is only in
the form of subordination of one financial instrument to another, as described in
paragraph 815-15-15-9.
815-10-50-4L. One way to present the information required by the preceding paragraph
for groups of similar credit derivatives would be first to segregate the disclosures
by major types of contracts (for example, single-name credit default swaps,
traded indexes, other portfolio products, and swaptions) and then, for each major
type, provide additional subgroups for major types of referenced (or underlying)
asset classes (for example, corporate debt, sovereign debt, and structured
finance). With respect to hybrid instruments that have embedded credit
derivatives, the seller of the embedded credit derivative shall disclose the
information required by the preceding paragraph for the entire hybrid instrument,
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not just the embedded credit derivatives.
> Qualitative Disclosures
815-10-50-5. Qualitative disclosures about an entity’s objectives and strategies for
using derivative instruments (and nonderivative instruments that are designated
and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and
815-20-25-66) may be more meaningful if such objectives and strategies are
described in the context of an entity’s overall risk exposures relating to all of the
following:
a. Interest rate risk
b. Foreign exchange risk
c. Commodity price risk
d. Credit risk
e. Equity price risk.
Those additional qualitative disclosures, if made, should include a discussion of
those exposures even though the entity does not manage some of those exposures
by using derivative instruments. An entity is encouraged, but not required, to
provide such additional qualitative disclosures about those risks and how they
are managed.
> Unconditional Purchase Obligations
815-10-50-6. If an unconditional purchase obligation is subject to the requirements of
both Topic 440 and this Subtopic, the entity shall comply with both sets of
disclosure requirements, including paragraph 440-10-50-4 (in this checklist). For
example, a power purchase agreement entered into in connection with the
financing of a generation facility subject to the disclosure requirements of Topic
440 may also meet the definition of derivative instrument in paragraphs 815-1015-83 through 15-139 and is accounted for as a derivative instrument at fair
value in the balance sheet.
> Balance Sheet Offsetting
815-10-50-7. A reporting entity’s accounting policy to offset or not offset in
accordance with paragraph 815-10-45-6 (in this checklist) shall be disclosed.
815-10-50-8. A reporting entity shall disclose the amounts recognized at the end of
each reporting period for the right to reclaim cash collateral or the obligation to
return cash collateral as follows:
a. A reporting entity that has made an accounting policy decision to offset fair
value amounts shall separately disclose amounts recognized for the right to
reclaim cash collateral or the obligation to return cash collateral that have
been offset against net derivative positions in accordance with paragraph
815-10-45-5.
b. A reporting entity shall separately disclose amounts recognized for the right
to reclaim cash collateral or the obligation to return cash collateral under
master netting arrangements that have not been offset against net derivative
instrument positions.
c. A reporting entity that has made an accounting policy decision to not offset
fair value amounts shall separately disclose the amounts recognized for the
right to reclaim cash collateral or the obligation to return cash collateral
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under master netting arrangements.
> Contingently Convertible Securities
815-10-50-8A. For guidance on disclosures of information about derivative
transactions entered into in connection with the issuance of the contingently
convertible securities, see paragraph 505-10-50-10.
> Certain Contracts on Debt and Equity Securities
815-10-50-9. An entity shall disclose its accounting policy for the premium paid (time
value) to acquire an option that is classified as held to maturity or available for
sale.
KPMG and Other Guidance
1 SEC-Current Accounting and Disclosure Issues in the Division of Corporation
Finance, November 30, 2006. Unrealized and realized gains and losses on
derivative instruments not accounted for as hedging instruments should be recorded
in the same income statement caption (SEC 2003 AICPA National Conference on
Current SEC Developments). Components of a derivative presented in different
line items or reclassified realized gains and losses of a derivative out of the line
item that included unrealized gains and losses on the same derivative is
inappropriate.
2 Disclose any associated hedging strategies (economic or accounting) to describe
how the entity manages the risk associated with issuing loan commitments and its
operations.
101
Subtopic 815-15: Derivatives and Hedging—Embedded Derivatives
Presentation
815-15-45-1. In each statement of financial position presented, an entity shall report
hybrid financial instruments measured at fair value under the election and under
the practicability exception in paragraph 815-15-30-1 in a manner that separates
those reported fair values from the carrying amounts of assets and liabilities
subsequently measured using another measurement attribute on the face of the
statement of financial position. To accomplish that separate reporting, an entity
may do either of the following:
a. Display separate line items for the fair value and non-fair-value carrying
amounts
b. Present the aggregate of the fair value and non-fair-value amounts and
parenthetically disclose the amount of fair value included in the aggregate
amount.
Disclosure
> Hybrid Instruments that Are Not Separated
815-15-50-1. For those hybrid financial instruments measured at fair value under the
election and under the practicability exception in paragraph 815-15-30-1, an
entity shall also disclose the information specified in paragraphs 825-10-50-28
through 50-32 (in this checklist).
815-15-50-2. An entity shall provide information that will allow users to understand
the effect of changes in the fair value of hybrid financial instruments measured at
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fair value under the election and under the practicability exception in paragraph
815-15-30-1 on earnings (or other performance indicators for entities that do not
report earnings).
> Embedded Conversion Option that Is No Longer Bifurcated
815-15-50-3. An issuer shall disclose both of the following for the period in which an
embedded conversion option previously accounted for as a derivative instrument
under this Subtopic no longer meets the separation criteria under this Subtopic:
a. A description of the principal changes causing the embedded conversion
option to no longer require bifurcation under this Subtopic
b. The amount of the liability for the conversion option reclassified to
stockholders' equity.
KPMG and Other Guidance
1 KPMG Derivatives and Hedging Accounting Handbook: We expect that most
entities will follow the legal form of the instrument such that the carrying amount
of the hybrid instrument will reflect the aggregate carrying amount of the host
contract (as determined by the accounting standards applicable to instruments of
that type) and the fair value of the embedded derivative instrument. An alternative
is to present the embedded derivative instrument separately from the host contract.
Regardless of the presentation alternative chosen, the policy should be disclosed in
the notes to the financial statements.
102
Subtopic 815-25: Derivatives and Hedging—Fair Value Hedging
Disclosure
815-20-50-1. For guidance on disclosures about instruments used to mitigate the
income statement effect of changes in fair value of servicing assets and servicing
liabilities, see paragraph 860-50-50-2(b) (in this checklist). For guidance on
encouraged disclosure of quantitative information about instruments used to
manage the risks inherent in servicing assets and servicing liabilities, see
paragraph 860-50-50-2 (in this checklist).
815-25-50-1. See Section 815-10-50 (in this checklist) for overall guidance on
disclosures. An entity’s disclosures for every annual and interim reporting period
for which a statement of financial position and a statement of financial
performance is presented shall include both of the following for derivative
instruments, as well as nonderivative instruments that may give rise to foreign
currency transaction gains or losses under Subtopic 830-20, that have been
designated and have qualified as fair value hedging instruments and for the
related hedged items:
a. The net gain or loss recognized in earnings during the reporting period
representing both of the following:
1 The amount of the hedges’ ineffectiveness
2 The component of the derivative instruments’ gain or loss, if any,
excluded from the assessment of hedge effectiveness.
b. The amount of net gain or loss recognized in earnings when a hedged firm
commitment no longer qualifies as a fair value hedge.
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815-25-50-2. For guidance on qualitative disclosures, see paragraph 815-10-50-5 (in
this checklist).
SEC Guidance
1 SEC-Current Accounting and Disclosure Issues in the Division of Corporation
Finance, November 30, 2006. Classify the effective portion of the gain or loss on a
derivative hedging instrument in the same income statement line as the hedged
item.
103 Subtopic 815-30: Derivatives and Hedging—Cash Flow Hedges
Presentation
> Other Comprehensive Income
815-30-45-1. An entity shall display as a separate classification within other
comprehensive income the net gain or loss on derivative instruments designated
and qualifying as cash flow hedging instruments that are reported in
comprehensive income. The effective portion of the gain or loss on a derivative
instrument designated as a cash flow hedge is reported in other comprehensive
income, and the ineffective portion is reported in earnings.
Disclosure
815-30-50-1. See Section 815-10-50 (in this checklist) for overall guidance on
disclosures. An entity’s disclosures for every annual and interim reporting period
for which a statement of financial position and a statement of financial
performance is presented shall include all of the following for derivative
instruments that have been designated and have qualified as cash flow hedging
instruments and for the related hedged transactions:
a. [not used]
b. A description of the transactions or other events that will result in the
reclassification into earnings of gains and losses that are reported in
accumulated other comprehensive income
c. The estimated net amount of the existing gains or losses that are reported in
accumulated other comprehensive income at the reporting date that is
expected to be reclassified into earnings within the next 12 months
d. The maximum length of time over which the entity is hedging its exposure to
the variability in future cash flows for forecasted transactions excluding
those forecasted transactions related to the payment of variable interest on
existing financial instruments
e. The amount of gains and losses reclassified into earnings as a result of the
discontinuance of cash flow hedges because it is probable that the original
forecasted transactions will not occur by the end of the originally specified
time period or within the additional period of time discussed in paragraphs
815-30-40-4 through 40-5.
815-30-50-2. As part of the disclosures of accumulated other comprehensive income,
pursuant to paragraph 220-10-45-14, an entity shall separately disclose all of the
following:
a. The beginning and ending accumulated derivative instrument gain or loss
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b. The related net change associated with current period hedging transactions
c. The net amount of any reclassification into earnings.
815-30-50-3. For guidance on qualitative disclosures, see paragraph 815-10-50-5 (in
this checklist).
SEC Guidance
1 SEC-Current Accounting and Disclosure Issues in the Division of Corporation
Finance, November 30, 2006. Classify the effective portion of the gain or loss on a
derivative hedging instrument in the same income statement line as the hedged
item.
104
Subtopic 815-35: Derivatives and Hedging—Net Investment Hedges
Disclosure
815-35-50-2. For guidance on qualitative disclosures, see paragraph 815-10-50-5 (in
this checklist). The quantitative disclosures about derivative instruments may be
more useful, and less likely to be perceived to be out of context or otherwise
misunderstood, if similar information is disclosed about other financial
instruments or nonfinancial assets and liabilities to which the derivative
instruments are related by activity. Accordingly, in those situations, an entity is
encouraged, but not required, to present a more complete picture of its activities
by disclosing that information.
105
Subtopic 815-40: Derivatives and Hedging—Contracts in Entity’s Own Equity
Disclosure
815-40-50-1. Changes in the fair value of all contracts within the scope of this Subtopic
classified as assets or liabilities shall be disclosed in the financial statements as
long as the contracts remain classified as assets or liabilities.
815-40-50-2. Some contracts within the scope of this Subtopic that are classified as
assets or liabilities meet the definition of a derivative instrument under the
provisions of Subtopic 815-10. The related disclosures that are required by
Sections 815-10-50, 815-25-50, 815-30-50, and 815-35-50 (in this checklist)
also are required for those contracts.
> Reclassifications and Related Accounting Policy Disclosures
815-40-50-3. Contracts within the scope of this Subtopic may be required to be
reclassified into (or out of) equity during the life of the instrument (in whole or
in part) pursuant to the provisions of paragraphs 815-40-35-8 through 35-13. An
issuer shall disclose contract reclassifications (including partial reclassifications),
the reason for the reclassification, and the effect on the issuer's financial
statements.
815-40-50-4. The determination of how to partially reclassify contracts subject to this
Subtopic is an accounting policy decision that shall be disclosed pursuant to
Topic 235.
> Interaction with Disclosures About Capital Structure
815-40-50-5. The disclosures required by Section 505-10-50 (in this checklist) apply to
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all contracts within the scope of this Subtopic as follows:
a. In the case of an option or forward contract indexed to the issuer's equity, the
pertinent information to be disclosed under Section 505-10-50 (in this
checklist) about the contract includes all of the following:
1 The forward rate
2 The option strike price
3 The number of issuer's shares to which the contract is indexed
4 The settlement date or dates of the contract
5 The issuer's accounting for the contract (that is, as an asset, liability, or
equity).
b. If the terms of the contract provide settlement alternatives, those settlement
alternatives shall be disclosed under Section 505-10-50, (in this checklist)
including both of the following:
1 Who controls the settlement alternatives
2 The maximum number of shares that could be required to be issued to
net share settle a contract, if applicable. Paragraph 505-10-50-3 (in this
checklist) requires additional disclosures for actual issuances and
settlements that occurred during the accounting period.
c. If a contract does not have a fixed or determinable maximum number of
shares that may be required to be issued, the fact that a potentially infinite
number of shares could be required to be issued to settle the contract shall be
disclosed under Section 505-10-50 (in this checklist).
d. A contract's current fair value for each settlement alternative (denominated,
as relevant, in monetary amounts or quantities of shares) and how changes in
the price of the issuer's equity instruments affect those settlement amounts
(for example, the issuer is obligated to issue an additional X shares or pay an
additional Y dollars in cash for each $1 decrease in stock price) shall be
disclosed under Section 505-10-50 (in this checklist). (For some issuers, a
tabular format may provide the most concise and informative presentation of
these data.)
e. The disclosures required by paragraph 505-10-50-11 (in this checklist) shall
be made for any equity instrument in the scope of this Subtopic that is (or
would be if the issuer were a public entity) classified as temporary equity.
(That paragraph applies to redeemable stock issued by nonpublic entities,
regardless of whether the private entity chooses to classify those securities as
temporary equity.)
SEC Guidance
> Warrants or Rights Outstanding
1 Regulation S-X Rule 4-08(i). Information with respect to warrants or rights
outstanding at the date of the related balance sheet shall be set forth as follows:
a. Title of issue of securities called for by warrants or rights.
b. Aggregate amount of securities called for by warrants or rights outstanding
c. Date from which warrants or rights are exercisable
d. Price at which warrant or right is exercisable.
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KPMG and Other Guidance
> Warrants or Rights Outstanding
1 SEC Comment Letters. Disclose the expense (or revenue offset) recognized, if any,
related to the warrants or rights and the line item(s) on the income statement that
include such costs.
2 SEC Comment Letters. Disclose the purpose of issuing warrants to nonemployees.
106
Subtopic 820-10: Fair Value Measurements and Disclosures—Overall, prior to the adoption
of ASU 2011-04
Note: The content of this Subtopic has not been updated for FASB ASU No. 2011-04,
Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs. This ASU and IFRS 13, Fair Value
Measurement, were issued concurrently to provide largely identical guidance
about fair value measurement and disclosure requirements. The new standards do
not extend the use of fair value but, rather, provide guidance about how fair value
should be applied where it already is required or permitted under IFRS or U.S.
GAAP. For U.S. GAAP, most of the changes are clarifications of existing
guidance or wording changes to align with IFRS 13.
A public entity is required to apply the ASU prospectively for interim and
annual periods beginning after December 15, 2011. Measurement and
disclosure requirements would be applicable for the fourth quarter for a
March year-end public entity. For example, a public entity would be required to
apply the ASU 2011-04 requirements for activities during the quarter ended
March 31, 2012 and for any year-end fair value measurements recognized or
disclosed as of March 31, 2012. A nonpublic entity is required to apply the
ASU prospectively for annual periods beginning after December 15, 2011. A
nonpublic entity may elect to adopt the requirements early, but no earlier
than interim periods beginning after December 15, 2011. (See Section 107 (in
this checklist) for disclosure requirements under ASU 2011-04.)
Note: For entities w ith a D ecember 3 1st year-end, t his c ategory is n ot a pplicable
because ASU 2011-04 would be effective. See Section 107 below.
Note: The content of the Subtopic has been updated for ASU 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair
Value Measurements, which is effective for interim and annual reporting periods
beginning after December 15, 2009, except the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements (see subparagraph 820-10-50-2(c)(2)). Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. Early adoption is permitted.
In the initial adoption period, entities are not required to include disclosures for
ASU 2010-06 for previous comparative periods. In periods after the initial
adoption, comparative disclosures under ASU 2010-06 are required only for
periods ending after the initial adoption.
Disclosure
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> Recurring Measurements
820-10-50-1. The reporting entity shall disclose information that enables users of its
financial statements to assess both of the following:
a. For assets and liabilities that are measured at fair value on a recurring basis
in periods subsequent to initial recognition (for example, trading securities),
the valuation techniques and inputs used to develop those measurements
b. For recurring fair value measurements using significant unobservable inputs
(Level 3), the effect of the measurements on earnings (or changes in net
assets) for the period.
820-10-50-2. To meet the objectives of the preceding paragraph, the reporting entity
shall disclose all of the information in (a) through (e) below for each interim and
annual period separately for each class of assets and liabilities. The reporting
entity shall determine the appropriate classes of assets and liabilities on the basis
of the guidance in the following paragraph. It shall provide sufficient information
to permit reconciliation of the fair value measurement disclosures for the various
classes of assets and liabilities to the line items in the statement of financial
position
a. The fair value measurement at the reporting date.
b. The level within the fair value hierarchy in which the fair value measurement
in its entirety falls, segregating the fair value measurement using any of the
following:
1
Quoted prices in active markets for identical assets or liabilities (Level
1)
2
Significant other observable inputs (Level 2)
3
Significant unobservable inputs (Level 3).
bb. The amounts of significant transfers between Level 1 and Level 2 of the fair
value hierarchy and the reasons for the transfers. Significant transfers into
each level shall be disclosed separately from transfers out of each level. For
this purpose, significance shall be judged with respect to earnings and total
assets or total liabilities or, when changes in fair value are recognized in
other comprehensive income, with respect to total equity. A reporting entity
shall disclose and consistently follow its policy for determining when
transfers between levels are recognized. The policy about the timing of
recognizing transfers shall be the same for transfers into the levels as that for
transfers out of the levels. Examples of policies for when to recognize the
transfers are as follows:
1
The actual date of the event or change in circumstances that caused
the transfer
2
The beginning of the reporting period
3
The end of the reporting period.
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c. For fair value measurements using significant unobservable inputs (Level 3),
a reconciliation of the beginning and ending balances, separately presenting
changes during the period attributable to any of the following:
1
Total gains or losses for the period (realized and unrealized),
separately presenting gains or losses included in earnings (or changes
in net assets) and gains or losses recognized in other comprehensive
income, and a description of where those gains or losses included in
earnings (or changes in net assets) are reported in the statement of
income (or activities) or in other comprehensive income
2
Purchases, sales, issuances, and settlements (each type disclosed
separately). Note: The requirement in this subparagraph to disclose
each type separately is effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years.
Early adoption is permitted.
3
Transfers in and/or out of Level 3 and the reasons for those transfers.
Significant transfers into Level 3 shall be disclosed separately from
significant transfers out of Level 3. For this purpose, significance shall
be judged with respect to earnings and total assets or total liabilities
or, when changes in fair value are recognized in other comprehensive
income, with respect to total equity. A reporting entity shall disclose
and consistently follow its policy for determining when transfers
between levels are recognized. The policy about the timing of
recognizing transfers shall be the same for transfers into Level 3 as
that for transfers out of Level 3. Examples of policies for when to
recognize the transfers are as follows:
i.
The actual date of the event or change in circumstances that caused
the transfer
ii. The beginning of the reporting period
iii. The end of the reporting period
d. The amount of the total gains or losses for the period in (c)(1) included in
earnings (or changes in net assets) that are attributable to the change in
unrealized gains or losses relating to those assets and liabilities still held at
the reporting date and a description of where those unrealized gains or losses
are reported in the statement of income (or activities).
e. For fair value measurements using significant other observable inputs (Level
2) and significant unobservable inputs (Level 3), a description of the
valuation technique (or multiple valuation techniques) used, such as the
market approach, income approach, or the cost approach, and the inputs used
in determining the fair values of each class of assets or liabilities. If there has
been a change in the valuation technique(s) (for example, changing from a
market approach to an income approach or the use of an additional valuation
technique), the reporting entity shall disclose that change and the reason for
making it. For examples of disclosures that a reporting entity may present to
comply with the requirement to disclose the inputs used in measuring fair
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value in this paragraph, see paragraphs 820-10-55-22A through 55-22B.
820-10-50-2A. For equity and debt securities, class shall be determined on the basis of
the nature and risks of the investments in a manner consistent with the guidance
in paragraph 320-10-50-1B (in this checklist) and, if applicable, shall be the same
as the guidance on major security type as described in paragraph 942-320-50-2
even if the equity securities or debt securities are not within the scope of
paragraph 320-10-50-1B.
For entities within the scope of Topic 942, Financial Services—Depository and
Lending, the guidance on major security type in paragraph 942-320-50-2 applies.
Under that guidance, financial institutions shall include in their disclosure all of
the following major security types, although additional types also may be
necessary:
a. Equity securities, segregated by any one of the following:
1
Industry type
2
Entity size
3
Investment objective.
b. Debt securities issued by the U.S. Treasury and other U.S. government
corporations and agencies
c. Debt securities issued by states of the United States and political
subdivisions of the states
d. Debt securities issued by foreign governments
e. Corporate debt securities
f.
Residential mortgage-backed securities
g. Commercial mortgage-backed securities
h. Collateralized debt obligations
i.
Other debt obligations.
For all other entities, the guidance on major security type in paragraph 320-10-501B applies. Under that guidance, major security types shall be based on the nature
and risks of the security. In determining whether disclosure for a particular
security type is necessary and whether it is necessary to further separate a
particular security type into greater detail, an entity shall consider all of the
following:
a. (Shared) activity or business sector
b. Vintage
c. Geographic concentration
d. Credit quality
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e. Economic characteristic.
For all other assets and liabilities, judgment is needed to determine the
appropriate classes of assets and liabilities for which disclosures about fair value
measurements should be provided.
Fair value measurement disclosures for each class of assets and liabilities often
will require greater disaggregation than the reporting entity’s line items in the
statement of financial position. A reporting entity shall determine the appropriate
classes for those disclosures on the basis of the nature and risks of the assets and
liabilities and their classification in the fair value hierarchy (that is, Levels 1, 2,
and 3).
In determining the appropriate classes for fair value measurement disclosures, the
reporting entity shall consider the level of disaggregated information required for
specific assets and liabilities under other Topics. For example, under Topic 815,
disclosures about derivative instruments are presented separately by type of
contract such as interest rate contracts, foreign exchange contracts, equity
contracts, commodity contracts, and credit contracts.
The classification of the asset or liability in the fair value hierarchy also shall
affect the level of disaggregation because of the different degrees of uncertainty
and subjectivity involved in Level 1, Level 2, and Level 3 measurements. For
example, the number of classes may need to be greater for fair value
measurements using significant unobservable inputs (that is, Level 3
measurements) to achieve the disclosure objectives because Level 3
measurements have a greater degree of uncertainty and subjectivity.
820-10-50-3. For derivative assets and liabilities, the reporting entity shall present both
of the following:
a. The fair value disclosures required by paragraphs 820-10-50-2(a) through
(bb) (in this checklist) on a gross basis (which is consistent with the
requirement of paragraph 815-10-50-4B(a) in this checklist)
b. The reconciliation disclosure required by paragraph 820-10-50-2(c) through
(d) (in this checklist) on either a gross or a net basis.
820-10-50-4. Example 8, Cases A and B (see paragraphs 820-10-55-60 through 55-63)
illustrate disclosures about recurring measurements.
> Liability Issued with an Inseparable Third-Party Credit Enhancement
820-10-50-4A. For a liability issued with an inseparable third-party credit enhancement
that is measured or disclosed at fair value on a recurring basis and that is not (a)
a credit enhancement provided by a government or government agency (for
example, deposit insurance), (b) a credit enhancement provided between a parent
and its subsidiary, or (c) a credit enhancement provided between entities under
common control, an issuer shall disclose the existence of a third-party credit
enhancement on its issued liability. Paragraph 820-10-35-18A states that, for the
issuer, the unit of accounting for a liability measured or disclosed at fair value
does not include the third-party credit enhancement.
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> Nonrecurring Measurements
820-10-50-5. For assets and liabilities that are measured at fair value on a nonrecurring
basis in periods after initial recognition (for example, impaired assets), the
reporting entity shall disclose information that enables users of its financial
statements to assess the valuation techniques and inputs used to develop those
measurements. To meet that objective, the reporting entity shall disclose all of
the following information for each interim and annual period separately for each
class of assets and liabilities. The reporting entity shall determine classes of
assets and liabilities on the basis of the guidance in paragraph 820-10-50-2A.
a. The fair value measurement recorded during the period and the reasons for
the measurement
b. The level within the fair value hierarchy in which the fair value
measurement in its entirety falls, segregating the fair value measurement
using any of the following:
1
Quoted prices in active markets for identical assets or liabilities
(Level 1)
2
Significant other observable inputs (Level 2)
3
Significant unobservable inputs (Level 3).
c. [Not used]
d. For fair value measurements using significant other observable inputs
(Level 2) and significant unobservable inputs (Level 3), the disclosure
required by paragraph 820-10-50-2(e) (in this checklist).
820-10-50-6. Example 8, Case C (see paragraph 820-10-55-64) illustrates disclosures
about nonrecurring measurements.
> Fair Value Measurements of Investments in Certain Entities That Calculate Net
Asset Value per Share (or Its Equivalent)
820-10-50-6A. For investments that are within the scope of paragraphs 820-10-15-4
through 15-5 (in this checklist) (regardless of whether the practical expedient in
paragraph 820-10-35-59 has been applied) and measured at fair value on a
recurring or nonrecurring basis during the period, the reporting entity shall
disclose information that enables users of its financial statements to understand
the nature and risks of the investments and whether the investments are probable
of being sold at amounts different from net asset value per share (or its
equivalent, such as member units or an ownership interest in partners’ capital to
which a proportionate share of net assets is attributed). To meet that objective, to
the extent applicable, the reporting entity shall disclose all of the following
information for each interim and annual period separately for each class of
investment (class of investment shall be determined on the basis of the nature
and risks of the investments in a manner consistent with the guidance for major
security types in paragraph 320-10-50-1B in this checklist):
a. The fair value (as determined by applying paragraphs 820-10-35-59 through
35-62) of the investments in the class, and a description of the significant
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investment strategies of the investee(s) in the class.
b. For each class of investment that includes investments that can never be
redeemed with the investees, but the reporting entity receives distributions
through the liquidation of the underlying assets of the investees, the
reporting entity’s estimate of the period of time over which the underlying
assets are expected to be liquidated by the investees.
c. The amount of the reporting entity’s unfunded commitments related to
investments in the class.
d. A general description of the terms and conditions upon which the investor
may redeem investments in the class (for example, quarterly redemption
with 60 days’ notice).
e. The circumstances in which an otherwise redeemable investment in the class
(or a portion thereof) might not be redeemable (for example, investments
subject to a lockup or gate). Also, for those otherwise redeemable
investments that are restricted from redemption as of the reporting entity’s
measurement date, the reporting entity shall disclose its estimate of when
the restriction from redemption might lapse. If an estimate cannot be made,
the reporting entity shall disclose that fact and how long the restriction has
been in effect.
f.
Any other significant restriction on the ability to sell investments in the
class at the measurement date.
g. If a reporting entity determines that it is probable that it will sell an
investment(s) for an amount different from net asset value per share (or its
equivalent) as described in paragraph 820-10-35-62, the reporting entity
shall disclose the total fair value of all investments that meet the criteria in
paragraph 820-10-35-62 and any remaining actions required to complete the
sale.
h. If a group of investments would otherwise meet the criteria in paragraph
820-10-35-62 but the individual investments to be sold have not been
identified (for example, if a reporting entity decides to sell 20 percent of its
investments in private equity funds but the individual investments to be sold
have not been identified), so the investments continue to qualify for the
practical expedient in paragraph 820-10-35-59, the reporting entity shall
disclose its plans to sell and any remaining actions required to complete the
sale(s).
> Changes in Valuation Techniques or Their Application
820-10-50-7. As discussed in paragraph 250-10-50-5 (in this checklist), the disclosure
provisions of Topic 250 for a change in accounting estimate are not required for
revisions resulting from a change in a valuation technique or its application.
> Tabular Format Required
820-10-50-8 The quantitative disclosures required by this Subtopic shall be presented
using a tabular format. (See Example 8 [paragraph 820-10-55-60].)
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> Relation to Other Disclosure Requirements
820-10-50-9. The reporting entity is encouraged, but not required, to:
a. Combine the fair value information disclosed under this Subtopic with the
fair value information disclosed under other Subtopics (for example, Section
825-10-50) in the periods in which those disclosures are required, if
practicable
b. Disclose information about other similar measurements (for example,
inventories measured at market value under Topic 330), if practicable.
820-10-50-10. Plan assets of a defined benefit pension or other postretirement plan that
are accounted for under Topic 715 are not subject to the disclosure requirements
in paragraphs 820-10-50-1 through 50-9 (in this checklist). Instead, the
disclosures required in paragraphs 715-20-50-1(d) and 715-20-50-5(c) (in this
checklist) shall apply for fair value measurements of plan assets of a defined
benefit pension or other postretirement plan.
KPMG and Other Guidance
1
The SEC staff has provided guidance in a Dear CFO letter on disclosures related to
fair value measurements that may be appropriate in MD&A and an update of the
Dear CFO letter issued in September 2008.
2
Issues In-Depth 11-1 and Defining Issues 11-65. The SEC staff provided guidance
regarding management’s use of information from third-party pricing services to
assist in estimating and disclosing the fair value of financial instruments in
financial statements. The SEC staff stated that estimating the fair value of financial
instruments may be difficult for certain “Level 2” securities and may be subject to
significant judgments by management. However, management responsibilities
related to fair value measurements and disclosures include:
• Complying with U.S. GAAP, including disclosure requirements .
• Maintaining appropriate internal control over financial reporting (ICFR) to
prevent or detect material misstatements.
• Assessing ICFR.
The SEC staff stated that if management uses information from pricing services to
develop its estimates of fair value, they need to understand the valuation
techniques, assumptions, and other inputs that were used, to ensure that the
estimates comply with U.S. GAAP. A key component of a registrant’s assessment
of ICFR is the identification of and response to the risk of misstatement. The nature
and complexity of the securities involved, the level of market activity for securities,
and the availability of market data are useful considerations in making this
assessment for fair value measurements.
3
Issues In-Depth 12-2. Provides questions and interpretive responses on FASB ASC
Topic 820, Fair Value Measurement, as amended by ASU 2011-04, Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRSs.
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107
Subtopic 820-10: Fair Value Measurements and Disclosures—Overall, after the adoption of
ASU 2011-04
Note: This section is applicable for an entity with a December 31st year-end.
Note: The content of this Subtopic has been updated for FASB ASU No. 2011-04,
Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs. This ASU and IFRS 13, Fair Value
Measurement, were issued concurrently to provide largely identical guidance
about fair value measurement and disclosure requirements. The new standards do
not extend the use of fair value but, rather, provide guidance about how fair value
should be applied where it already is required or permitted under IFRS or U.S.
GAAP. For U.S. GAAP, most of the changes are clarifications of existing
guidance or wording changes to align with IFRS 13.
The ASU expands the disclosures about fair value measurements by requiring the
following disclosures:
•
All transfers between Level 1 and Level 2 of the fair value hierarchy.
Previous guidance required disclosure of significant transfers between Level
1 and Level 2.
•
For fair value measurements categorized within Level 3 of the fair value
hierarchy:
(a) Quantitative information about significant unobservable inputs for all
Level 3 measurements;
(b) The valuation processes used by the entity; and
(c) Qualitative discussion about the sensitivity of the fair value measurement
to changes in unobservable inputs and the interrelationships between those
unobservable inputs, if any.
•
An entity’s use of a nonfinancial asset in a way that differs from the asset’s
highest and best use when that asset is measured at fair value in the statement
of financial position or when its fair value is disclosed on the basis of its
highest and best use.
The categorization by level of the fair value hierarchy for items that are not
measured at fair value in the statement of financial position but for which the
fair value is required to be disclosed (e.g., a financial instrument that is
measured at amortized cost in the statement of financial position but for
which fair value is disclosed in accordance with ASC Topic 825, Financial
Instruments).
A public entity is required to apply the ASU prospectively for interim and
annual periods beginning after December 15, 2011. Both measurement and
disclosure requirements would be applicable for the fourth quarter for a
March year-end public entity. For example, an entity would be required to
apply the ASU 2011-04 requirements for activities during the quarter ended
March 31, 2012 and for any year-end fair value measurements recognized or
disclosed as of March 31, 2012. Because the new guidance is prospective,
comparative disclosures for prior years are NOT required in the year of adoption.
Additionally, because application is prospective, any changes in fair value
•
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measurements resulting from the application of this ASU will be recorded as a
change in estimate through the income statement in the first period of application.
However, in the period of adoption, a reporting entity will have to disclose the
change, if any, in the valuation techniques applied and related inputs resulting
from the application of this ASU and quantify the total effect, if practicable. Early
adoption is not permitted for a public entity. A nonpublic entity is required to
apply the ASU prospectively for annual periods beginning after December 15,
2011. A nonpublic entity may elect to adopt the requirements early, but no earlier
than interim periods beginning after December 15, 2011.
Note: The content of the Subtopic has been updated for ASU 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair
Value Measurements, which is effective for interim and annual reporting periods
beginning after December 15, 2009, except the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements (see subparagraph 820-10-50-2(c)(2)). Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. Early adoption is permitted.
In the initial adoption period, entities are not required to include disclosures for
ASU 2010-06 for previous comparative periods. In periods after the initial
adoption, comparative disclosures under ASU 2010-06 are required only for
periods ending after the initial adoption.
a.
Revisions resulting from a change in valuation technique or its application
shall be accounted for as a change in accounting estimate (see the guidance
beginning in paragraph 250-10-45-17).
b.
In the period of adoption, a reporting entity shall disclose a change, if any,
in valuation technique and related inputs resulting from the application of
ASU 2011-04 and quantify the total effect, if practicable.
Disclosure
> Recurring Measurements
820-10-50-1. A reporting entity shall disclose information that helps users of its
financial statements assesses both of the following:
a. For assets and liabilities that are measured at fair value on a recurring or
nonrecurring basis in the statement of financial position after initial
recognition, the valuation techniques and inputs used to develop those
measurements
b. For recurring fair value measurements using significant unobservable inputs
(Level 3), the effect of the measurements on earnings (or changes in net
assets) or other comprehensive income for the period.
820-10-50-1A. To meet the objectives in the preceding paragraph, a reporting entity
shall consider all of the following:
a. The level of detail necessary to satisfy the disclosure requirements
b. How much emphasis to place on each of the various requirements
c. How much aggregation or disaggregation to undertake
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d. Whether users of financial statements need additional information to evaluate
the quantitative information disclosed
If the disclosures provided in accordance with this Topic and other Topics are
insufficient to meet the objectives in the preceding paragraph, a reporting entity
shall disclose additional information necessary to meet those objectives.
820-10-50-2. To meet the objectives in paragraph 820-10-50-1, a reporting entity shall
disclose, at a minimum, the following information for each class of assets and liabilities
(see paragraph 820-10-50-2B for information on determining appropriate classes of
assets and liabilities) measured at fair value (including measurements based on fair
value within the scope of this Topic) in the statement of financial position after initial
recognition:
a. For recurring and nonrecurring fair value measurements, the fair value
measurement at the end of the reporting period, and for nonrecurring fair
value measurements, the reasons for the measurement. Recurring fair value
measurements of assets or liabilities are those that other Topics require or
permit in the statement of financial position at the end of each reporting
period. Nonrecurring fair value measurements of assets or liabilities are those
that other Topics require or permit in the statement of financial position in
particular circumstances (for example, when a reporting entity measures a
long-lived asset or disposal group classified as held for sale at fair value less
costs to sell in accordance with Topic 360 because the asset’s fair value less
costs to sell is lower than its carrying amount).
b. For recurring and nonrecurring fair value measurements, the level of the fair
value hierarchy within which the fair value measurements are categorized in
their entirety (Level 1, 2, or 3).
bb. For assets and liabilities held at the end of the reporting period that are
measured at fair value on a recurring basis, the amounts of any transfers
between Level 1 and Level 2 of the fair value hierarchy, the reasons for those
transfers, and the reporting entity’s policy for determining when transfers
between levels are deemed to have occurred (see paragraph 820-10-50-2C).
Transfers into each level shall be disclosed and discussed separately from
transfers out of each level.
A nonpublic entity is not required to disclose the information required by this
paragraph unless required by another Topic.
bbb. For recurring and nonrecurring fair value measurements categorized within
Level 2 and Level 3 of the fair value hierarchy, a description of the valuation
technique(s) and the inputs used in the fair value measurement. If there has
been a change in valuation technique (for example, changing from a market
approach to an income approach or the use of an additional valuation
technique), the reporting entity shall disclose that change and the reason(s) for
making it. For fair value measurements categorized within Level 3 of the fair
value hierarchy, a reporting entity shall provide quantitative information
about the significant unobservable inputs used in the fair value measurement.
A reporting entity is not required to create quantitative information to comply
with this disclosure requirement if quantitative unobservable inputs are not
developed by the reporting entity when measuring fair value (for example,
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when a reporting entity uses prices from prior transactions or third-party
pricing information without adjustment). However, when providing this
disclosure, a reporting entity cannot ignore quantitative unobservable inputs
that are significant to the fair value measurement and are reasonably available
to the reporting entity.
c. For recurring fair value measurements categorized within Level 3 of the fair
value hierarchy, a reconciliation from the opening balances to the closing
balances, disclosing separately changes during the period attributable to the
following:
1 Total gains or losses for the period recognized in earnings (or changes in
net assets), and the line item(s) in the statement of income (or activities)
in which those gains or losses are recognized
1a Total gains or losses for the period recognized in other comprehensive
income, and the line item(s) in other comprehensive income in which
those gains or losses are recognized
2 Purchases, sales, issues, and settlements (each of those types of changes
disclosed separately)
3 The amounts of any transfers into or out of Level 3 of the fair value
hierarchy, the reasons for those transfers, and the reporting entity’s policy
for determining when transfers between levels are deemed to have
occurred (see paragraph 820-10-50-2C). Transfers into Level 3 shall be
disclosed and discussed separately from transfers out of Level 3.
d. For recurring fair value measurements categorized within Level 3 of the fair
value hierarchy, the amount of the total gains or losses for the period in (c)(1)
included in earnings (or changes in net assets) that is attributable to the
change in unrealized gains or losses relating to those assets and liabilities held
at the end of the reporting period, and the line item(s) in the statement of
income (or activities) in which those unrealized gains or losses are
recognized.
e. [Not used].
f.
For recurring and nonrecurring fair value measurements categorized within
Level 3 of the fair value hierarchy, a description of the valuation processes
used by the reporting entity (including, for example, how an entity decides its
valuation policies and procedures and analyzes changes in fair value
measurements from period to period). See paragraph 820-10-55-105 for
further guidance.
g. For recurring fair value measurements categorized within Level 3 of the fair
value hierarchy, a narrative description of the sensitivity of the fair value
measurement to changes in unobservable inputs if a change in those inputs to
a different amount might result in a significantly higher or lower fair value
measurement. If there are interrelationships between those inputs and other
unobservable inputs used in the fair value measurement, a reporting entity
shall also provide a description of those interrelationships and of how they
might magnify or mitigate the effect of changes in the unobservable inputs on
the fair value measurement. To comply with that disclosure requirement, the
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narrative description of the sensitivity to changes in unobservable inputs shall
include, at a minimum, the unobservable inputs disclosed when complying
with paragraph 820-10-50-2(bbb).
A nonpublic entity is not required to disclose the information required by this
paragraph unless required by another Topic.
h. For recurring and nonrecurring fair value measurements, if the highest and
best use of a nonfinancial asset differs from its current use, a reporting entity
shall disclose that fact and why the nonfinancial asset is being used in a
manner that differs from its highest and best use.
820-10-50-2B. A reporting entity shall determine appropriate classes of assets and
liabilities on the basis of the following:
a. The nature, characteristics, and risks of the asset or liability
b. The level of the fair value hierarchy within which the fair value measurement
is categorized.
The number of classes may need to be greater for fair value measurements
categorized within Level 3 of the fair value hierarchy because those
measurements have a greater degree of uncertainty and subjectivity. Determining
appropriate classes of assets and liabilities for which disclosures about fair value
measurements should be provided requires judgment. A class of assets and
liabilities will often require greater disaggregation than the line items presented in
the statement of financial position. However, a reporting entity shall provide
information sufficient to permit reconciliation to the line items presented in the
statement of financial position. If another Topic specifies the class for an asset or
a liability, a reporting entity may use that class in providing the disclosures
required in this Topic if that class meets the requirements in this paragraph.
820-10-50-2C. A reporting entity shall disclose and consistently follow its policy for
determining when transfers between levels of the fair value hierarchy are deemed
to have occurred in accordance with paragraph 820-10-50-2(bb) and (c)(3). The
policy about the timing of recognizing transfers shall be the same for transfers
into the levels as for transfers out of the levels. Examples of policies for
determining the timing of transfers include the following:
a. The date of the event or change in circumstances that caused the transfer
b. The beginning of the reporting period
c. The end of the reporting period.
820-10-50-2D. If a r eporting en tity m akes an acco unting p olicy d ecision to u se t he
exception in paragraph 820-10-35-18D, it shall disclose that fact.
820-10-50-2E. For each class of assets and liabilities not measured at fair value in the
statement of financial position but for which the fair value is disclosed, a
reporting entity shall disclose the information required by paragraph 820-10-502(b), (bbb), and (h). However, a reporting entity is not required to provide the
quantitative disclosures about significant unobservable inputs used in fair value
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measurements categorized within Level 3 of the fair value hierarchy required by
paragraph 820-10-50-2(bbb). For such assets and liabilities, a reporting entity
does not need to provide the other disclosures required by this Topic.
A nonpublic entity is not required to disclose the information required by this
paragraph unless required by another Topic.
820-10-50-3. For derivative assets and liabilities, the reporting entity shall present both
of the following:
a. The fair value disclosures required by paragraph 820-10-50-2(a) through (bb)
(in this checklist) on a gross basis (which is consistent with the requirement
of paragraph 815-10-50-4B(a) in this checklist)
b. The reconciliation disclosure required by paragraph 820-10-50-2(c) through
(d) (in this checklist) on either a gross or a net basis.
> Liability Issued with an Inseparable Third-Party Credit Enhancement
820-10-50-4A. For a liability measured at fair value and issued with an inseparable
third-party credit enhancement, an issuer shall disclose the existence of that credit
enhancement.
> Fair Value Measurements of Investments in Certain Entities That Calculate Net
Asset Value per Share (or Its Equivalent)
820-10-50-6A. For investments that are within the scope of paragraphs 820-10-15-4
through 15-5 (regardless of whether the practical expedient in paragraph 820-1035-59 has been applied) and measured at fair value on a recurring or nonrecurring
basis during the period, a reporting entity shall disclose information that helps
users of its financial statements to understand the nature and risks of the
investments and whether the investments are probable of being sold at amounts
different from net asset value per share (or its equivalent, such as member units or
an ownership interest in partners’ capital to which a proportionate share of net
assets is attributed). To meet that objective, to the extent applicable, a reporting
entity shall disclose, at a minimum, the following information for each class of
investment:
a. The fair value measurement (as determined by applying paragraphs 820-1035-59 through 35-62) of the investments in the class at the reporting date and
a description of the significant investment strategies of the investee(s) in the
class.
b. For each class of investment that includes investments that can never be
redeemed with the investees, but the reporting entity receives distributions
through the liquidation of the underlying assets of the investees, the reporting
entity’s estimate of the period of time over which the underlying assets are
expected to be liquidated by the investees.
c. The amount of the reporting entity’s unfunded commitments related to
investments in the class.
d. A general description of the terms and conditions upon which the investor
may redeem investments in the class (for example, quarterly redemption with
60 days’ notice).
e. The circumstances in which an otherwise redeemable investment in the class
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(or a portion thereof) might not be redeemable (for example, investments
subject to a lockup or gate). Also, for those otherwise redeemable investments
that are restricted from redemption as of the reporting entity’s measurement
date, the reporting entity shall disclose its estimate of when the restriction
from redemption might lapse. If an estimate cannot be made, the reporting
entity shall disclose that fact and how long the restriction has been in effect.
f. Any other significant restriction on the ability to sell investments in the class
at the measurement date.
g. If a reporting entity determines that it is probable that it will sell an
investment(s) for an amount different from net asset value per share (or its
equivalent) as described in paragraph 820-10-35-62, the reporting entity shall
disclose the total fair value of all investments that meet the criteria in
paragraph 820-10-35-62 and any remaining actions required to complete the
sale.
h. If a group of investments would otherwise meet the criteria in paragraph 82010-35-62 but the individual investments to be sold have not been identified
(for example, if a reporting entity decides to sell 20 percent of its investments
in private equity funds but the individual investments to be sold have not been
identified), so the investments continue to qualify for the practical expedient
in paragraph 820-10-35-59, the reporting entity shall disclose its plans to sell
and any remaining actions required to complete the sale(s).
> Changes in Valuation Techniques or Their Application
820-10-50-7. As discussed in paragraph 250-10-50-5 (in this checklist), the disclosures
required by Topic 250 for a change in accounting estimate are not required for
revisions resulting from a change in a valuation technique or its application.
> Tabular Format Required
820-10-50-8. A reporting entity shall present the quantitative disclosures required by
this Topic in a tabular format.
820-10-50-10. Plan assets of a defined benefit pension or other postretirement plan that
are accounted for in accordance with Topic 715 are not subject to the disclosure
requirements in paragraphs 820-10-50-1 through 50-9 (in this checklist). Instead,
the disclosures required in paragraphs 715-20-50-1(d)(iv) and 715-20-50-5(c)(iv)
shall apply for fair value measurements of plan assets of a defined benefit
pension or other postretirement plan.
108
Subtopic 825-10: Financial Instruments—Overall
Note: FASB ASU No. 2011-04, Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued
concurrently with IFRS 13, Fair Value Measurement, to provide largely identical
guidance about fair value measurement and disclosure requirements. The new
standards do not extend the use of fair value but, rather, provide guidance about
how fair value should be applied where it already is required or permitted under
IFRS or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of
existing guidance or wording changes to align with IFRS 13.
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A public entity is required to apply the ASU prospectively for interim and
annual periods beginning after December 15, 2011. Measurement and
disclosure requirements would be applicable for the fourth quarter for a
March year-end public entity. Early adoption is not permitted for a public entity.
A nonpublic entity is required to apply the ASU prospectively for annual periods
beginning after December 15, 2011. A nonpublic entity may elect to adopt the
requirements early, but no earlier than interim periods beginning after December
15, 2011.
For more information see “Pending Content” later in this section.
Note: For entities with a December 31st year-end, the pending content below is
applicable because ASU 2011-04 would be effective. See below.
Disclosure
> Applicability of this Subsection
> > Entities
825-10-50-3. For annual reporting periods, the disclosure guidance related to fair value
of financial instruments in paragraphs 825-10-50-10 through 50-19 applies to all
entities but is optional for an entity that meets all of the following criteria:
a. The entity is a nonpublic entity.
b. The entity’s total assets are less than $100 million on the date of the financial
statements.
c. The entity has no instrument that, in whole or in part, is accounted for as a
derivative instrument under Topic 815 other than commitments related to the
origination of mortgage loans to be held for sale during the reporting period.
825-10-50-4. The criteria in the preceding paragraph shall be applied to the most
recent year presented in comparative financial statements to determine
applicability of this Subsection.
825-10-50-5. If disclosures are not required in the current period, the disclosures for
previous years may be omitted if financial statements for those years are presented
for comparative purposes.
825-10-50-6. If disclosures are required in the current period, disclosures that have not
been reported previously need not be included in financial statements that are
presented for comparative purposes.
825-10-50-7. The following table clarifies the requirements for disclosures if prior
periods are presented in comparative financial statements.
If Disclosures for the
Current Period Are:
Optional
Optional
And Disclosures for
Prior Periods Were:
Optional
Required
Then Disclosures for
Prior Periods Presented
in Comparative
Statements Are:
Optional
Optional
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Required
Required
Optional
Required
Optional
Required
> Transactions
825-10-50-8. In part, this Subsection requires disclosures about fair value for all
financial instruments, whether recognized or not recognized in the statement of
financial position, except that the disclosures about fair value prescribed in
paragraphs 825-10-50-10 through 50-16 (in this checklist) are not required for any
of the following:
a. Employers’ and plans’ obligations for pension benefits, other postretirement
benefits including health care and life insurance benefits, postemployment
benefits, employee stock option and stock purchase plans, and other forms of
deferred compensation arrangements (see Topics 710; 712; 715; 718; and
960)
b. Substantively extinguished debt subject to the disclosure requirements of
Subtopic 405-20
c. Insurance contracts, other than financial guarantees (including financial
guarantee insurance contracts within the scope of Topic 944) and investment
contracts, as discussed in Subtopic 944-20
d. Lease contracts as defined in Topic 840 (A contingent obligation arising out
of a cancelled lease and a guarantee of a third-party lease obligation are not
lease contracts and are subject to the disclosure requirements in this
Subsection.)
e. Warranty obligations (see Topic 450) and the Product Warranties Subsections
of Topic 460.
f.
Unconditional purchase obligations as defined in paragraph 440-10-50-2 (in
this checklist)
g. Investments accounted for under the equity method in accordance with the
requirements of Topic 323
h. Noncontrolling interests and equity investments in consolidated subsidiaries
(see Topic 810)
i.
Equity instruments issued by the entity and classified in stockholders’ equity
in the statement of financial position (see Topic 505).
> Fair Value of Financial Instruments
Note: The following disclosure is required for entities that have not yet adopted ASU
2011-04. For entities that have adopted ASU 2011-04 should refer to the
following Pending Content.
825-10-50-10. An entity shall disclose all of the following:
a. Either in the body of the financial statements or in the accompanying notes,
the fair value of financial instruments for which it is practicable to estimate
that value
b. The method(s) and significant assumptions used to estimate the fair value of
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financial instruments
c. A description of the changes in the method(s) and significant assumptions
used to estimate the fair value of financial instruments, if any, during the
period.
For financial instruments recognized at fair value in the statement of financial
position, the disclosure requirements of Topic 820 also apply.
Pending Content
Note: This pending content is applicable for an entity with a December 31st year-end.
Note: The following disclosure is required for entities that have adopted ASU 2011-04.
825-10-50-10. A reporting entity shall disclose all of the following:
a. Either in the body of the financial statements or in the accompanying notes,
the fair value of financial instruments for which it is practicable to estimate
that value
b. The method(s) and significant assumptions used to estimate the fair value of
financial instruments consistent with the requirements of paragraph 820-1050-2(bbb) except that a reporting entity is not required to provide the
quantitative disclosures about significant unobservable inputs used in fair
value measurements categorized within Level 3 of the fair value hierarchy
required by that paragraph
c. A description of the changes in the method(s) and significant assumptions
used to estimate the fair value of financial instruments, if any, during the
period
d. The level of the fair value hierarchy within which the fair value measurements
are categorized in their entirety (Level 1, 2, or 3).
825-10-50-11. Fair value disclosed in the notes shall be presented together with the
related carrying amount in a form that clarifies both of the following:
a. Whether the fair value and carrying amount represent assets or liabilities
b. How the carrying amounts relate to what is reported in the statement of
financial position.
825-10-50-12. If the fair value of financial instruments is disclosed in more than a
single note, one of the notes shall include a summary table. The summary table
shall contain the fair value and related carrying amounts and cross-references to
the location(s) of the remaining disclosures required by this Section.
825-10-50-13. This Subtopic does not prohibit an entity from disclosing separately the
estimated fair value of any of its nonfinancial intangible and tangible assets and
nonfinancial liabilities.
825-10-50-14. For trade receivables and payables, no disclosure is required under this
Subtopic if the carrying amount approximates fair value.
825-10-50-15. In disclosing the fair value of a financial instrument, an entity shall not
net that fair value with the fair value of other financial instruments—even if those
financial instruments are of the same class or are otherwise considered to be
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related (for example, by a risk management strategy)—except to the extent that
the offsetting of carrying amounts in the statement of financial position is
permitted under either of the following:
a. The general principle in paragraph 210-20-45-1
b. The exceptions for master netting arrangements in paragraph 815-10-45-5 and
for amounts related to certain repurchase and reverse repurchase agreements
in paragraphs 210-20-45-11 through 45-17.
825-10-50-16. If it is not practicable for an entity to estimate the fair value of a
financial instrument or a class of financial instruments, both of the following shall
be disclosed:
a. Information pertinent to estimating the fair value of that financial instrument
or class of financial instruments (such as the carrying amount, effective
interest rate, and maturity)
b. The reasons why it is not practicable to estimate fair value.
Note: For the definition of “practicable” in the context of this Subtopic, please see
paragraphs 825-10-50-17 through 50-19.
> Concentrations of Credit Risk of All Financial Instruments
825-10-50-20. Except as indicated in paragraph 825-10-50-22 (in this checklist), an
entity shall disclose all significant concentrations of credit risk arising from all
financial instruments, whether from an individual counterparty or groups of
counterparties. Throughout paragraphs 825-10-50-20 and 50-21, the term
financial instruments includes derivative instruments accounted for under Topic
815. Group concentrations of credit risk exist if a number of counterparties are
engaged in similar activities and have similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly affected by
changes in economic or other conditions.
825-10-50-21. Except as indicated in the following paragraph, all of the following
shall be disclosed about each significant concentration:
a. Information about the (shared) activity, region, or economic characteristic that
identifies the concentration
b. The maximum amount of loss due to credit risk that, based on the gross fair
value of the financial instrument, the entity would incur if parties to the
financial instruments that make up the concentration failed completely to
perform according to the terms of the contracts and the collateral or other
security, if any, for the amount due proved to be of no value to the entity
c. With respect to collateral, all of the following:
1
The entity’s policy of requiring collateral or other security to support
financial instruments subject to credit risk
2
Information about the entity’s access to that collateral or other security
3
The nature and a brief description of the collateral or other security
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supporting those financial instruments.
d. With respect to master netting arrangements, all of the following:
1
The entity’s policy of entering into master netting arrangements to
mitigate the credit risk of financial instruments
2
Information about the arrangements for which the entity is a party
3
A brief description of the terms of those arrangements, including the
extent to which they would reduce the entity’s maximum amount of loss
due to credit risk.
825-10-50-22. The requirements of the preceding paragraph do not apply to the
following financial instruments, whether written or held:
a. The financial instruments described in paragraphs 825-10-50-8(a); (c); (e);
and (f) (in this checklist), except for reinsurance receivables and prepaid
reinsurance premiums
b. Financial instruments of a pension plan, including plan assets, if subject to
the accounting and reporting requirements of Topic 715.
> Market Risk of All Financial Instruments
825-10-50-23. An entity is encouraged, but not required, to disclose quantitative
information about the market risks of financial instruments that is consistent
with the way it manages or adjusts those risks. Appropriate ways of reporting
that quantitative information will differ for different entities and will likely
evolve over time as management approaches and measurement techniques
evolve. Possibilities include disclosing any of the following:
a. More details about current positions and perhaps activity during the period
b. The hypothetical effects on comprehensive income (or net assets), or annual
income, of several possible changes in market prices
c. A gap analysis of interest rate repricing or maturity dates
d. The duration of the financial instruments
e. The entity’s value at risk from derivatives and from other positions at the
end of the reporting period and the average value at risk during the year.
This list is not exhaustive, and an entity is encouraged to develop other ways of
reporting quantitative information.
109 Fair Value Option Subsection of Subtopic 825-10: Financial Instruments—Overall
Presentation
> Statement of Financial Position
825-10-45-1. Entities shall report assets and liabilities that are measured at fair value
pursuant to the fair value option in this Subtopic in a manner that separates those
reported fair values from the carrying amounts of similar assets and liabilities
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measured using another measurement attribute.
825-10-45-2. To accomplish that, an entity shall either:
a. Present the aggregate of fair value and non-fair-value amounts in the same
line item in the statement of financial position and parenthetically disclose
the amount measured at fair value included in the aggregate amount
b. Present two separate line items to display the fair value and non-fair-value
carrying amounts.
Disclosure
825-10-50-24. The principal objectives of the disclosures required by paragraphs 82510-50-28 through 50-32 (in this checklist) are to facilitate both of the following
comparisons:
a. Comparisons between entities that choose different measurement attributes
for similar assets and liabilities
b. Comparisons between assets and liabilities in the financial statements of an
entity that selects different measurement attributes for similar assets and
liabilities.
825-10-50-25. The disclosures below are not required for securities classified as trading
securities under Topic 320, life settlement contracts measured at fair value
pursuant to Subtopic 325-30, or servicing rights measured at fair value pursuant
to Subtopic 860-50. Those Subtopics include disclosure requirements not
affected by this Subtopic.
825-10-50-27. The disclosure requirements in paragraphs 825-10-50-28 through 50-30
(in this checklist) do not eliminate disclosure requirements included in other
Subtopics, including other disclosure requirements relating to fair value
measurement. Entities are encouraged but are not required to present the
disclosures required by this Subtopic in combination with related fair value
information required to be disclosed by other Subtopics (for example, the
General Subsection of this Section and Topic 820).
> Required Disclosures as of Each Date for Which an Interim or Annual
Statement of Financial Position Is Presented
825-10-50-28. As of each date for which a statement of financial position is presented,
entities shall disclose all of the following:
a. Management’s reasons for electing a fair value option for each eligible item
or group of similar eligible items
b. If the fair value option is elected for some but not all eligible items within a
group of similar eligible items, both of the following:
1
A description of those similar items and the reasons for partial election
2
Information to enable users to understand how the group of similar items
relates to individual line items on the statement of financial position.
c. For each line item in the statement of financial position that includes an item
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or items for which the fair value option has been elected, both of the
following:
1
Information to enable users to understand how each line item in the
statement of financial position relates to major categories of assets and
liabilities presented in accordance with the fair value disclosure
requirements of Topic 820. (Paragraph 825-10-50-11 (in this checklist)
also requires an entity to relate carrying amounts that are disclosed in
accordance with that paragraph to what is reported in the statement of
financial position.)
2
The aggregate carrying amount of items included in each line item in the
statement of financial position that are not eligible for the fair value
option, if any.
d. The difference between the aggregate fair value and the aggregate unpaid
principal balance of each of the following:
1
Loans and long-term receivables (other than securities subject to Topic
320) that have contractual principal amounts and for which the fair value
option has been elected
2
Long-term debt instruments that have contractual principal amounts and
for which the fair value option has been elected.
e. For loans held as assets for which the fair value option has been elected, all
of the following:
f.
1
The aggregate fair value of loans that are 90 days or more past due
2
If the entity’s policy is to recognize interest income separately from
other changes in fair value, the aggregate fair value of loans in
nonaccrual status
3
The difference between the aggregate fair value and the aggregate
unpaid principal balance for loans that are 90 days or more past due, in
nonaccrual status, or both.
For investments that would have been accounted for under the equity method
if the entity had not chosen to apply the fair value option, the information
required by paragraph 323-10-50-3 (excluding the disclosures in paragraph
323-10-50-3(a)(3); (b); and (d)).
825-10-50-29. The disclosure in paragraph 825-10-50-28(f) applies to investments in
common stock, investments in in-substance common stock, and other
investments (for example, partnerships and certain limited liability corporations)
that both:
a. Would otherwise be required to be accounted for under the equity method
under other generally accepted accounting principles (GAAP)
b. Would be required to satisfy the disclosure requirements of paragraph 32310-50-3 (in this checklist).
When applying paragraph 825-10-50-28(f), an entity shall apply the guidance
from paragraphs 323-10-50-2 and 323-10-50-3(a) and (c).
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> Required Disclosures for Each Period for Which an Interim or Annual Income
Statement Is Presented
825-10-50-30. For each period for which an income statement is presented, entities
shall disclose all of the following about items for which the fair value option has
been elected:
a. For each line item in the statement of financial position, the amounts of gains
and losses from fair value changes included in earnings during the period and
in which line in the income statement those gains and losses are reported.
This Subtopic does not preclude an entity from meeting this requirement by
disclosing amounts of gains and losses that include amounts of gains and
losses for other items measured at fair value, such as items required to be
measured at fair value.
b. A description of how interest and dividends are measured and where they are
reported in the income statement. This Subtopic does not address the
methods used for recognizing and measuring the amount of dividend income,
interest income, and interest expense for items for which the fair value
option has been elected.
c. For loans and other receivables held as assets, both of the following:
1
The estimated amount of gains or losses included in earnings during the
period attributable to changes in instrument-specific credit risk
2
How the gains or losses attributable to changes in instrument-specific
credit risk were determined.
d. For liabilities with fair values that have been significantly affected during the
reporting period by changes in the instrument-specific credit risk, all of the
following:
1
The estimated amount of gains and losses from fair value changes
included in earnings that are attributable to changes in the instrumentspecific credit risk
2
Qualitative information about the reasons for those changes
3
How the gains and losses attributable to changes in instrument-specific
credit risk were determined.
> Other Required Disclosures
825-10-50-31. In annual periods only, an entity shall disclose the methods and
significant assumptions used to estimate the fair value of items for which the fair
value option has been elected. For required disclosures about the method(s) and
significant assumptions used to estimate the fair value of financial instruments,
see paragraph 825-10-50-10(b) (in this checklist). Given the requirement in that
paragraph, the disclosure requirement in this paragraph is essentially limited to
instruments otherwise outside the scope of this Section (see paragraph 825-1050-2) (for example, certain insurance contracts) for which the fair value option
has been elected.
825-10-50-32. If an entity elects the fair value option at the time one of the events in
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paragraph 825-10-25-4(d) through (e) occurs, the entity shall disclose both of the
following in financial statements for the period of the election:
a. Qualitative information about the nature of the event
b. Quantitative information by line item in the statement of financial position
indicating which line items in the income statement include the effect on
earnings of initially electing the fair value option for an item.
110
Subtopic 825-20: Financial Instruments—Registration Payment Arrangements
Disclosure
825-20-50-1. The issuer of a registration payment arrangement shall disclose all of the
following information about each registration payment arrangement or each
group of similar arrangements:
a. The nature of the registration payment arrangement, including all of the
following:
1
The approximate term of the arrangement
2
The financial instrument(s) subject to the arrangement
3
The events or circumstances that would require the issuer to transfer
consideration under the arrangement.
b. Any settlement alternatives contained in the terms of the registration
payment arrangement, including the party that controls the settlement
alternatives
c. The maximum potential amount of consideration, undiscounted, that the
issuer could be required to transfer under the registration payment
arrangement (including the maximum number of shares that may be required
to be issued)
d. If the terms of the arrangement provide for no limitation to the maximum
potential consideration (including shares) to be transferred, that fact shall be
disclosed
e. The current carrying amount of the liability representing the issuer’s
obligations under the registration payment arrangement
f.
The income statement classification of any gains or losses resulting from
changes in the carrying amount of the liability representing the issuer’s
obligations under the registration payment arrangement.
825-20-50-2. These disclosures are incremental to the disclosures that may be required
under other applicable generally accepted accounting principles (GAAP) and are
required even if the likelihood of the issuer having to make any payments under
the arrangement is remote.
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111 Subtopic 830-20: Foreign Currency Matters—Foreign Currency Transactions; Subtopic
830-740: Foreign Currency Matters—Income Taxes
Presentation
> Aggregate Transaction Gain or Loss
830-20-45-1. The aggregate transaction gain or loss included in determining net income
for the period shall be disclosed in the financial statements or notes thereto.
830-20-45-2. Certain entities, primarily banks, are dealers in foreign exchange.
Although certain gains or losses from dealer transactions may fit the definition of
transaction gains or losses in this Subtopic, they may be disclosed as dealer gains
or losses rather than as transaction gains or losses.
Disclosure
> Subsequent Rate Changes
830-20-50-2. Disclosure of a rate change that occurs after the date of the reporting
entity’s financial statements and its effects on unsettled balances pertaining to
foreign currency transactions, if significant, may be necessary. If disclosed, the
disclosure shall include consideration of changes in unsettled transactions from
the date of the financial statements to the date the rate changed. In some cases it
may not be practicable to determine these changes; if so, that fact shall be stated.
> Effects of Rate Changes on Results of Operations
830-20-50-3. Management is encouraged to supplement the disclosures required by this
Subtopic with an analysis and discussion of the effects of rate changes on the
reported results of operations. This type of disclosure might include the
mathematical effects of translating revenue and expenses at rates that are
different from those used in a preceding period as well as the economic effects of
rate changes, such as the effects on selling prices, sales volume, and cost
structures. The purpose is to assist financial report users in understanding the
broader economic implications of rate changes and to compare recent results
with those of prior periods.
Income Taxes
830-740-45-1. As indicated in paragraph 830-20-45-3, when the reporting currency
(not the foreign currency) is the functional currency, remeasurement of an
entity's deferred foreign tax liability or asset after a change in the exchange rate
will result in a transaction gain or loss that is recognized currently in determining
net income. Paragraph 830-20-45-1 (in this checklist) requires disclosure of the
aggregate transaction gain or loss included in determining net income but does
not specify how to display that transaction gain or loss or its components for
financial reporting. Accordingly, a transaction gain or loss that results from
remeasuring a deferred foreign tax liability or asset may be included in the
reported amount of deferred tax benefit or expense if that presentation is
considered to be more useful. If reported in that manner, that transaction gain or
loss is still included in the aggregate transaction gain or loss for the period to be
disclosed as required by that paragraph.
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KPMG and Other Guidance
> Considerations Related to Recent Changes in the Currency Rate Environment
in Venezuela
1
Financial statement preparers should consider that presentation within current
assets may not be appropriate if BSF-denominated asset accounts cannot be
settled within the newly regulated parallel rate market during the normal
operating cycle of the business as a result of the volume limitations if those BSFdenominated asset accounts will not be used to pay BSF-denominated liabilities.
In addition, current classification of USD-denominated receivables from
Venezuelan third-parties may not be appropriate. Entities should, if material,
disclose any changes to the current or non-current classification along with their
overall policy and rationale for any changes.
112 Subtopic 830-30: Foreign Currency Matters—Translation of Financial Statements
Disclosure
> Analysis of Changes in Cumulative Translation Adjustment
830-30-50-1. If not provided in a separate financial statement or as part of a statement
of changes in equity, an analysis of the changes during the period in the
accumulated amount of translation adjustments reported in equity shall be
provided in notes to financial statements. At a minimum, the analysis shall
disclose the items enumerated in paragraph 830-30-45-20. That paragraph
requires the following items:
a. Beginning and ending amount of cumulative translation adjustments
b. The aggregate adjustment for the period resulting from translation
adjustments (see paragraph 830-30-45-12) and gains and losses from certain
hedges and intra-entity balances (see paragraph 830-20-35-3).
c. The amount of income taxes for the period allocated to translation
adjustments (see paragraph 830-30-45-21)
d. The amounts transferred from cumulative translation adjustments and
included in determining net income for the period as a result of the sale or
complete or substantially complete liquidation of an investment in a foreign
entity (see paragraph 830-30-40-1).
> Subsequent Rate Change
830-30-50-2. Disclosure of a rate change that occurs after the date of the reporting
entity's financial statements or after the date of the foreign currency statements of
a foreign entity if they are consolidated, combined, or accounted for by the
equity method in the financial statements of the reporting entity and its effects on
unsettled balances pertaining to foreign currency transactions, if significant, may
be necessary.
SEC Guidance
1.
SEC Observer Comment. The SEC staff observed that some entities may be
reporting U.S. dollar denominated balances held at foreign subsidiaries (for
example, in Venezuela) in their consolidated financial statements at amounts that
differ from their actual U.S. dollar denominated balances (as a result of using
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multiple exchange rates in accordance with Topic 830, Foreign Currency
Matters). In those circumstances:
a.
The staff believes a registrant should make disclosures that inform users of
the financial statements as to the nature of these differences. When
material, the disclosures should, at a minimum, consist of the following:
1.
Disclosure of the rates used for remeasurement and translation
2.
3.
4.
5.
113
A description of why the actual U.S. dollar denominated balances
differ from the amounts reported for financial reporting purposes,
including the reasons for using two different rates with respect to
remeasurement and translation
Disclosure of the relevant line items (e.g., cash, accounts payable) on
the financial statements for which the amounts reported for financial
reporting purposes differ from the underlying U.S. dollar
denominated values
For each relevant line item, the difference between the amounts
reported for financial reporting purposes versus the underlying U.S.
dollar denominated values
Disclosure of the amount that was recognized through the income
statement (as well as the impact on the other financial statements) as
part of highly inflationary accounting beginning in 2010.
Subtopic 835-20: Interest—Capitalization of Interest
Disclosure
835-20-50-1. An entity shall disclose the following information with respect to interest
cost in the financial statements or related notes:
a. For an accounting period in which no interest cost is capitalized, the amount of
interest cost incurred and charged to expense during the period
b. For an accounting period in which some interest cost is capitalized, the total
amount of interest cost incurred during the period and the amount thereof that
has been capitalized.
114
Lessees and Real Estate Subsections of Topic 840: Leases
Subtopic 840-10 Leases—Overall
Presentation
840-10-45-1. The accounts of subsidiaries (regardless of when organized or acquired)
whose principal business activity is leasing property or facilities to the parent or
other affiliated entities shall be consolidated. The equity method is not adequate
for fair presentation of those subsidiaries because their assets and liabilities are
significant to the consolidated financial position of the entity.
Disclosure
840-10-50-1. The nature and extent of leasing transactions with related parties shall be
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disclosed.
840-10-50-2. The lessee shall disclose, in its financial statements or footnotes thereto, a
general description of its leasing arrangements including, but not limited to, all of
the following:
a.
The basis on which contingent rental payments are determined
b. The existence and terms of renewal or purchase options and escalation clauses
c.
Restrictions imposed by lease agreements, such as those concerning
dividends, additional debt, and further leasing.
SEC Guidance
1
SEC-Current Accounting and Disclosure Issues in the Division of Corporation
Finance, November 30, 2006. Disclose rent holidays, rent concessions, leasehold
improvement incentives and unusual provisions or conditions.
2
SEC-Current Accounting and Disclosure Issues in the Division of Corporation
Finance, November 30, 2006. Disclose the specific period used to amortize material
leasehold improvements made at the inception of the lease or during the lease term.
Subtopic 840-20 Leases—Operating Leases
Presentation
840-20-45-1 Rental costs shall be included in the lessee's income from continuing
operations.
Disclosure
840-20-50-1. For all operating leases, the lessee shall disclose rental expense for each
period for which an income statement is presented, with separate amounts for
minimum rentals, contingent rentals, and sublease rentals. Rental payments under
leases with terms of a month or less that were not renewed need not be included.
840-20-50-2. For operating leases having initial or remaining noncancelable lease terms
in excess of one year, the lessee shall disclose both of the following:
a. Future minimum rental payments required as of the date of the latest balance
sheet presented, in the aggregate and for each of the five succeeding fiscal
years
b. The total of minimum rentals to be received in the future under noncancelable
subleases as of the date of the latest balance sheet presented.
840-20-50-3. Example 1 (see paragraph 840-10-55-40) illustrates a lessee's application
of the disclosure requirements of Subtopic 840-10 for an operating lease.
KPMG and Other Guidance
1
See Issues In-Depth 11-1 for discussion of SEC Staff’s views on effect of default
covenants on lease classification. The SEC Staff reminded registrants that
nonperformance-related default provisions can result in capital lease classification.
Subtopic 840-30 Leases—Capital Leases
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Presentation
840-30-45-1. Assets recorded under capital leases and the accumulated amortization
thereon shall be separately identified in the lessee's balance sheet or in footnotes
thereto.
840-30-45-2. Obligations under capital leases shall be separately identified as such in
the lessee's balance sheet and shall be subject to the same considerations as other
obligations in classifying them with current and noncurrent liabilities in classified
balance sheets.
840-30-45-3. An entity is not required to classify interest expense or amortization of
leased assets as separate items in the income statement. However, unless the
charge to income resulting from amortization of assets recorded under capital
leases is included by the lessee with depreciation expense and the fact that it is so
included is disclosed, the amortization charge shall be separately disclosed by the
lessee in the financial statements or footnotes thereto.
Disclosure
840-30-50-1. A ll o f t he following i nformation w ith respect to cap ital l eases shall b e
disclosed in the lessee's financial statements or the footnotes thereto:
a. The gross amount of assets recorded under capital leases as of the date of each
balance sheet presented by major classes according to nature or function. This
information may be combined with the comparable information for owned
assets.
b. Future minimum lease payments as of the date of the latest balance sheet
presented, in the aggregate and for each of the five succeeding fiscal years,
with separate deductions from the total for the amount representing executory
costs, including any profit thereon, included in the minimum lease payments
and for the amount of the imputed interest necessary to reduce the net
minimum lease payments to present value (see paragraphs 840-30-30-1
through 30-4).
c. The total of minimum sublease rentals to be received in the future under
noncancelable subleases as of the date of the latest balance sheet presented.
d. Total contingent rentals actually incurred for each period for which an income
statement is presented.
840-30-50-3. Example 1 (see paragraph 840-10-55-40) illustrates certain disclosures.
Subtopic 840-40 Leases—Sale-Leaseback Transactions
Disclosure
840-40-50-1. In addition to the disclosure requirements of Subtopics 360-20 and 840-10,
the financial statements of a seller-lessee shall include a description of the terms
of the sale-leaseback transaction, including future commitments, obligations,
provisions, or circumstances that require or result in the seller-lessee's continuing
involvement.
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Real Estate
> Transactions that Do Not Qualify for Sale-Leaseback Accounting
840-40-50-2. The financial statements of a seller-lessee that has accounted for a saleleaseback transaction by the deposit method or as a financing according to the
guidance in this Subtopic also shall disclose both of the following:
a.
The obligation for future minimum lease payments as of the date of the latest
balance sheet presented in the aggregate and for each of the five succeeding
fiscal years
b. The total of minimum sublease rentals, if any, to be received in the future
under noncancelable subleases in the aggregate and for each of the five
succeeding fiscal years.
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Lessors Subsections of Topic 840: Leases
Subtopic 840-10 Leases—Overall
Presentation
840-10-45-4. Leases of a manufacturing entity's equipment sold to a leasing subsidiary
that are accounted for as direct financing leases on the subsidiary's financial
statements normally would be sales-type capital leases in the consolidated
financial statements.
Disclosure
840-10-50-1. The nature and extent of leasing transactions with related parties shall be
disclosed.
840-10-50-4. If leasing, exclusive of leveraged leasing, is a significant part of the
lessor's business activities in terms of revenue, net income, or assets, a lessor shall
disclose in the financial statements or footnotes thereto a general description of
the lessor's leasing arrangements.
840-10-50-5. The lessor shall disclose its accounting policy for contingent rental
income. If a lessor accrues contingent rental income before the lessee's
achievement of the specified target (provided achievement of that target is
considered probable), disclosure of the impact on rental income shall be made as
if the lessor's accounting policy was to defer contingent rental income until the
specified target is met. [Note: SEC registrants may not recognize contingent rental
income before the lessee’s achievement of the specified target. (SAB 13.A.4(c))]
SEC Guidance
1
SEC-Current Accounting and Disclosure Issues in the Division of Corporation
Finance, November 30, 2006. Disclose rent holidays, rent concessions, or leasehold
improvement incentives and unusual provisions or conditions.
2
SEC-Current Accounting and Disclosure Issues in the Division of Corporation
Finance, November 30, 2006. Disclose the specific period used to amortize material
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leasehold improvements made at the inception of the lease or during the lease term.
Subtopic 840-20 Leases—Operating Leases
Presentation
840-20-45-2. The leased property shall be included by the lessor with or near property,
plant, and equipment in the balance sheet.
840-20-45-3. Accumulated depreciation shall be deducted by the lessor from the
investment in the leased property.
Disclosure
840-20-50-4. If leasing, exclusive of leveraged leasing, is a significant part of the
lessor's business activities in terms of revenue, net income, or assets, all of the
following information with respect to operating leases shall be disclosed in the
financial statements or footnotes thereto:
a. The cost and carrying amount, if different, of property on lease or held for
leasing by major classes of property according to nature or function, and the
amount of accumulated depreciation in total as of the date of the latest balance
sheet presented
b. Minimum future rentals on noncancelable leases as of the date of the latest
balance sheet presented, in the aggregate and for each of the five succeeding
fiscal years
c. Total contingent rentals included in income for each period for which an
income statement is presented.
840-20-50-4A. Example 1 (see paragraph 840-10-55-47) illustrates the application of the
preceding paragraph.
Subtopic 840-30 Leases—Sales-Type Leases and Direct Financing Leases
Presentation
> Sales-Type Leases and Direct Financing Leases
840-30-45-4. The net investment in a sales-type or direct financing leases shall be
subject to the same considerations as other assets in classification as current or
noncurrent assets in a classified balance sheet.
> Leveraged Leases
840-30-45-5. For purposes of presenting the investment in a leveraged lease in the
lessor's balance sheet, the amount of related deferred taxes shall be presented
separately (from the remainder of the net investment). In the income statement or
the notes thereto, separate presentation (from each other) shall be made of pretax
income from the leveraged lease, the tax effect of pretax income, and the amount
of investment tax credit recognized as income during the period.
Disclosure
> Sales-Type Leases and Direct Financing Leases
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840-30-50-4. If leasing, exclusive of leveraged leasing, is a significant part of the
lessor’s business activities in terms of revenue, net income, or assets, all of the
following information with respect to sales-type and direct financing leases shall
be disclosed in the financial statements or footnotes:
a.
All of the following components of the net investment in sales-type and direct
financing leases as of the date of each balance sheet presented:
1
Future minimum lease payments to be received, with separate deductions
for both of the following:
a. Amounts representing executory costs (including any profit thereon)
included in the minimum lease payments
b. The accumulated allowance for uncollectible minimum lease
payments receivable.
2
The unguaranteed residual values accruing to the benefit of the lessor
3
For direct financing leases only, initial direct costs
4
Unearned income (see paragraphs 840-30-30-9 and 840-30-30-13).
b. Future minimum lease payments to be received for each of the five
succeeding fiscal years as of the date of the latest balance sheet presented
c.
Total contingent rentals included in income for each period for which an
income statement is presented.
Example 1 (see paragraph 840-10-55-47) illustrates certain disclosures.
840-30-50-4A. For guidance on disclosures about financing receivables, which include
receivables relating to a lessor’s rights to payments from sales-type and direct
financing leases, see the guidance beginning in paragraphs 310-10-50-5A, 31010-50-11A, 310-10-50-27, and 310-10-50-31 (all in this checklist).
> Leveraged Leases
840-30-50-5. If leveraged leasing is a significant part of the lessor’s business activities
in terms of revenue, net income, or assets, the components of the net investment
balance in leveraged leases as set forth in paragraph 840-30-25-8 shall be
disclosed in the footnotes to financial statements. Those components are:
a.
Rentals receivable
b. Investment-tax-credit receivable
c.
Estimated residual value of the leased asset
d. Unearned and deferred income
840-30-50-5A. For guidance on disclosures about financing receivables, which include
receivables relating to a lessor’s rights to payments from leveraged leases, see the
guidance beginning in paragraphs 310-10-50-5A, 310-10-50-11A, 310-10-50-27,
and 310-10-50-31 (all in this checklist).
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840-30-50-6. If accounting for the effect on leveraged leases of the change in tax rates
results in a significant variation from the customary relationship between income
tax expense and pretax accounting income and the reason for that variation is not
otherwise apparent, the lessor shall disclose the reason for that variation.
SEC Guidance
1
116
SEC Staff Announcement: Lessor Consideration of Third-Party Value Guarantees.
The SEC staff has been asked for its views on situations in which a lessor had not
obtained a residual value guarantee at inception, yet had assumed such a guarantee
existed when determining the minimum lease payments. The staff would view that
situation as an error, which would require restatement as described in paragraphs
250-10-45-23 and 250-10-50-7 ( in this checklist), regardless of whether a residual
value guarantee is subsequently obtained.
Subtopic 845-10: Nonmonetary Transactions—Overall
Disclosure
845-10-50-1. An entity that engages in one or more nonmonetary transactions during a
period shall disclose in financial statements for the period all of the following:
a.
The nature of the transactions
b. The basis of accounting for the assets transferred
c.
Gains or losses recognized on transfers.
845-10-50-2. Entities shall disclose, in each period's financial statements, the amount of
gross operating revenue recognized as a result of nonmonetary transactions. See
Subtopic 505-50.
117 Purchase and Sales of Inventory Subsection of Subtopic 845-10: Nonmonetary
Transactions--Overall
Disclosure
845-10-50-3. An entity shall disclose the amount of revenue and costs (or gains and
losses) associated with inventory exchanges recognized at fair value.
118
Subtopic 850-10: Related Party Disclosures--Overall
Disclosure
> Related Party Transactions
850-10-50-1. Financial statements shall include disclosures of material related party
transactions, other than compensation arrangements, expense allowances, and
other similar items in the ordinary course of business. However, disclosure of
transactions that are eliminated in the preparation of consolidated or combined
financial statements is not required in those statements. The disclosures shall
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include:
a.
The nature of the relationship(s) involved
b. A description of the transactions, including transactions to which no amounts
or nominal amounts were ascribed, for each of the periods for which income
statements are presented, and such other information deemed necessary to an
understanding of the effects of the transactions on the financial statements
c.
The dollar amounts of transactions for each of the periods for which income
statements are presented and the effects of any change in the method of
establishing the terms from that used in the preceding period
d. Amounts due from or to related parties as of the date of each balance sheet
presented and, if not otherwise apparent, the terms and manner of settlement
e.
The information required by paragraph 740-10-50-17 (in this checklist),
which is as follows for an entity that issues separate financial statements and
is a member of a group that files a consolidated tax return:
1
The aggregate amount of current and deferred tax expense for each
statement of earnings presented and the amount of any tax-related
balances due to or from affiliates as of the date of each statement of
financial position presented
2
The principal provisions of the method by which the consolidated amount
of current and deferred tax expense is allocated to members of the group
and the nature and effect of any changes in that method (and in
determining related balances to or from affiliates) during the years for
which the above disclosures are presented.
850-10-50-2. Notes or accounts receivable from officers, employees, or affiliated
entities must be shown separately and not included under a general heading such
as notes receivable or accounts receivable.
850-10-50-3. In some cases, aggregation of similar transactions by type of related party
may be appropriate. Sometimes, the effect of the relationship between the parties
may be so pervasive that disclosure of the relationship alone will be sufficient. If
necessary to the understanding of the relationship, the name of the related party
shall be disclosed.
850-10-50-4. It is not necessary to duplicate disclosures in a set of separate financial
statements that is presented in the financial report of another entity (the primary
reporting entity) if those separate financial statements also are consolidated or
combined in a complete set of financial statements and both sets of financial
statements are presented in the same financial report.
> Disclosures About Arm's-Length Bases of Transactions
850-10-50-5. Transactions involving related parties cannot be presumed to be carried
out on an arm's-length basis, as the requisite conditions of competitive, freemarket dealings may not exist. Representations about transactions with related
parties, if made, shall not imply that the related party transactions were
consummated on terms equivalent to those that prevail in arm's-length
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transactions unless such representations can be substantiated.
> Control Relationships
850-10-50-6. If the reporting entity and one or more other entities are under common
ownership or management control and the existence of that control could result in
operating results or financial position of the reporting entity significantly different
from those that would have been obtained if the entities were autonomous, the
nature of the control relationship shall be disclosed even though there are no
transactions between the entities.
SEC Guidance
> Receivables Arising from the Issuance of Capital Stock to Officers or Other
Employees
1
SAB Topic 4.E. The amount recorded as a receivable arising from the issuance of
capital stock to officers of other employees should be presented in the balance sheet
as a deduction from stockholder’s equity.
2
SAB Topic 4.E. Generally all amounts receivable from officers and directors
resulting from sales of stock or from other transactions (other than expense advances
or sales on normal trade terms) should be separately stated in the balance sheet
irrespective of whether such amounts may be shown as assets or are required to be
reported as deductions from stockholders' equity.
> Notes or Other Receivables from a Parent or Another Affiliate
3
SAB Topic 4.G. Notes or other receivable from a parent or another affiliate must be
treated as a deduction from stockholders' equity in the balance sheet of a corporate
general partner.
> Related Party Transactions
4
Regulation S-X Rule 4-08(k).
a. Related party transactions should be identified and the amounts stated on the
face of the balance sheet, income statement, or statement of cash flows.
b. In cases where separate financial statements are presented for the registrant,
certain investees, or subsidiaries, separate disclosure shall be made in such
statements of the amounts in the related consolidated financial statements which
are (i) eliminated and (ii) not eliminated. Also, any intercompany profits or
losses resulting from transactions with related parties and not eliminated and the
effects thereof shall be disclosed.
119 Subtopic 852-10: Reorganizations—Overall
Presentation
> Financial Reporting During Reorganization Proceedings
852-10-45-2. The financial statements for periods including and after filing the Chapter
11 petition shall distinguish transactions and events that are directly associated
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with the reorganization from the ongoing operations of the business.
852-10-45-3. Example 1 (see paragraph 852-10-55-2) provides an illustration of
financial statements and notes thereto for an entity operating under Chapter 11.
>> Balance Sheet
852-10-45-4. The balance sheet of an entity in Chapter 11 shall distinguish prepetition
liabilities subject to compromise from those that are not (such as fully secured
liabilities that are expected not to be compromised) and postpetition liabilities.
852-10-45-5. Claims not subject to reasonable estimation are required to be disclosed in
the notes to financial statements.
852-10-45-7. Liabilities not subject to compromise shall be further segregated into
current and noncurrent classifications if the entity presents a classified balance
sheet.
>> Statement of Operations
852-10-45-9. Revenues, expenses (including professional fees), realized gains and
losses, and provisions for losses resulting from the reorganization and
restructuring of the business shall be reported separately as reorganization items,
except for those required to be reported as discontinued operations and
extraordinary items in conformity with Subtopics 205-20 and 225-20.
852-10-45-10. Professional fees and similar types of expenditures directly relating to the
Chapter 11 proceeding shall be expensed as incurred and reported as
reorganization items.
852-10-45-11. Interest expense is not a reorganization item.
852-10-45-12. Interest income earned by an entity in Chapter 11 that it would not have
earned but for the proceeding, normally all interest income, shall be reported as a
reorganization item.
>>>Statement of Cash Flows
852-10-45-13. Reorganization items shall be disclosed separately within the operating,
investing, and financing categories of the statement of cash flows. If the indirect
method is used, details of operating cash receipts and payments resulting from the
reorganization shall be disclosed in a supplementary schedule or in the notes to
financial statements.
>> Condensed Combined Financial Statements
852-10-45-14. Consolidated financial statements that include one or more entities in
reorganization proceedings and one or more entities not in reorganization
proceedings shall include condensed combined financial statements of the entities
in reorganization proceedings.
>> EPS
852-10-45-16. Earnings per share (EPS) shall be reported, if required, in conformity
with Topic 260.
> Financial Reporting When Entities Emerge from Chapter 11 Reorganization
>> Fresh-Start Reporting
>>> Comparative Financial Statements
852-10-45-26. Fresh-start financial statements prepared by entities emerging from
Chapter 11 will not be comparable with those prepared before their plans were
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confirmed because they are, in effect, those of a new entity. Thus, comparative
financial statements that straddle a confirmation date shall not be presented.
>> Reporting by Entities Not Qualifying for Fresh-Start Reporting
852-10-45-29. Forgiveness of debt, if any, shall be reported as an extinguishment of
debt and classified in accordance with Subtopic 225-20.
Disclosure
> Financial Reporting During Reorganization Proceedings
852-10-50-2. The notes to financial statements of an entity in Chapter 11 shall disclose
both of the following:
a. Claims not subject to reasonable estimation based on the provisions of
Subtopic 450-20
b. The principal categories of the claims subject to compromise.
852-10-50-3. The extent to which reported interest expense differs from stated
contractual interest shall be disclosed. It may be appropriate to disclose this
parenthetically on the face of the statement of operations.
852-10-50-4. Intra-entity receivables and payables of entities in reorganization
proceedings shall be disclosed in the condensed combined financial statements
referred to in paragraph 852-10-45-14 (in this checklist).
852-10-50-5. If it is probable that the reorganization plan will require the issuance of
common stock or common stock equivalents, thereby diluting current equity
interests, that fact shall be disclosed.
852-10-50-6. Example 1 (see paragraph 852-10-55-2) provides an illustration of
financial statements and notes thereto for an entity operating under Chapter 11.
> Financial Reporting When Entities Emerge from Chapter 11 Reorganization and
Adopt Fresh-Start Reporting
852-10-50-7. Paragraph 852-10-45-21 requires additional information to be disclosed in
the notes to the initial fresh-start financial statements when fresh-start reporting is
adopted. That additional information consists of all of the following (see Example
2 at 852-10-55-4):
a. Adjustments to the historical amounts of individual assets and liabilities
b. The amount of debt forgiveness
c. Significant matters relating to the determination of reorganization value,
including all of the following:
1 The method or methods used to determine reorganization value and
factors such as discount rates, tax rates, the number of years for which
cash flows are projected, and the method of determining terminal value
2 Sensitive assumptions—that is, assumptions about which there is a
reasonable possibility of the occurrence of a variation that would have
significantly affected measurement of reorganization value
3 Assumptions about anticipated conditions that are expected to be different
from current conditions, unless otherwise apparent.
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120
Subtopic 852-20: Reorganizations—Quasi-Reorganizations
Disclosure
852-20-50-2. After a quasi-reorganization, retained earnings previously accumulated
cannot properly be carried forward under that title. A new retained earnings
account shall be established, dated to show that it runs from the effective date of
the readjustment, and this dating shall be disclosed in financial statements until
such time as the effective date is no longer deemed to possess any special
significance. The dating of retained earnings following a quasi-reorganization
would rarely, if ever, be of significance after a period of 10 years. There may be
exceptional circumstances in which the discontinuance of the dating of retained
earnings could be justified at the conclusion of a period less than 10 years.
However, SEC registrants are required to indicate the point in time from which
the new retained earnings dates for a period of at least 10 years subsequent to the
effective date of a quasi-reorganization (Regulation S-X Rule 5-02.30(b)).
SEC Guidance
Other Stockholders’ Equity
1 For a period of at least three years from effective date of quasi-reorganization, the
total amount of deficit eliminated should be disclosed on the balance sheet.
121
Subtopic 855-10: Subsequent Events--Overall
Note: For purposes of applying the disclosure provisions of Subtopic 855, the
following definition of an SEC filer should be used:
An entity that is required to file or furnish its financial statements with either
of the following:
a. The Securities and Exchange Commission (SEC)
b. With respect to an entity subject to Section 12(i) of the Securities Exchange
Act of 1934, as amended, the appropriate agency under that Section.
Financial statements for other entities that are not otherwise SEC filers
whose financial statements are included in a submission by another SEC filer
are not included within this definition.
Disclosure
> Date through Which Subsequent Events Have Been Evaluated
855-10-50-1. If an entity is not an SEC filer, then the entity shall disclose both of the
following:
a.
The date through which subsequent events have been evaluated
b.
Whether that date is either of the following:
1.
The date the financial statements were issued
2.
The date the financial statements were available to be issued.
> Nonrecognized Subsequent Events
855-10-50-2. Some nonrecognized subsequent events may be of such a nature that they
must be disclosed to keep the financial statements from being misleading. For
such events, an entity shall disclose the following:
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a.
The nature of the event
b. An estimate of its financial effect, or a statement that such an estimate cannot
be made.
855-10-50-3. An entity also shall consider supplementing the historical financial
statements with pro forma financial data. Occasionally, a nonrecognized
subsequent event may be so significant that disclosure can best be made by
means of pro forma financial data. Such data shall give effect to the event as if it
had occurred on the balance sheet date. In some situations, an entity also shall
consider presenting pro forma statements, usually a balance sheet only, in
columnar form on the face of the historical statements.
> Revised Financial Statements
855-10-50-4. Unless the entity is an SEC filer, an entity shall disclose in the revised
financial statements the dates through which subsequent events have been
evaluated in both of the following:
a.
The issued or available to be issued financial statements
b.
The revised financial statements.
855-10-25-4. An entity may need to reissue financial statements, for example, in
reports filed with the SEC or other regulatory agencies. After the original
issuance of the financial statements, events or transactions may have occurred
that require disclosure in the reissued financial statements to keep them from
being misleading. An entity shall not recognize events occurring between the
time the financial statements were issued or were available to be issued and the
time the financial statements were reissued unless the adjustment is required by
GAAP or regulatory requirements. Similarly, an entity shall not recognize events
or transactions occurring after the financial statements were issued or were
available to be issued in financial statements that are later reissued in
comparative form along with financial statements of subsequent periods unless
the adjustment meets the criteria stated in this paragraph.
855-10-50-5. Revised financial statements are considered reissued financial statements.
For guidance on the recognition of subsequent events in reissued financial
statements, see paragraph 855-10-25-4.
SEC Guidance
1
2
SAB Topic 1.B.3. Dividends declared by a subsidiary after the balance sheet date
should be given retroactive effect in the balance sheet with appropriate footnote
disclosure, or reflected in a pro forma balance sheet. In addition, when the
dividends are to be paid from the proceeds of an offering, the staff believes it is
appropriate to include pro forma per share data (for the latest year and interim
period only) giving effect to the number of shares whose proceeds were to be used
to pay the dividend. A similar presentation is appropriate when dividends exceed
earnings in the current year, even though the stated use of proceeds is other than for
the payment of dividends. In these situations, pro forma per share data should give
effect to the increase in the number of shares which, when multiplied by the
offering price, would be sufficient to replace the capital in excess of earnings being
withdrawn.
SEC Staff Announcement. Generally, the staff believes that financial statements are
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3
"issued" as of the date they are distributed for general use and reliance in a form
and format that complies with generally accepted accounting principles (GAAP)
and, in the case of annual financial statements, that contain an audit report that
indicates that the auditors have complied with generally accepted auditing
standards (GAAS) in completing their audit. Issuance of financial statements then
would generally be the earlier of when the annual or quarterly financial statements
are widely distributed to all shareholders and other financial statement users or filed
with the Commission. Furthermore, the issuance of an earnings release does not
constitute issuance of financial statements because the earnings release would not
be in a form and format that complies with GAAP and GAAS.
SEC Observer Comment. At the September 9-10, 2009 EITF meeting, the SEC
Observer indicated that the SEC staff modified the definition of the date of issuance
for financial statements of public companies from the date the financial statements
are filed with the SEC to the date the financial statements are posted on a
registrant’s Web site. The change revises the meaning of wide distribution of
financial statements to allow posting of financial statements to a registrant’s Web
site to be considered wide distribution to all shareholders and other financial
statement users if the registrant uses its Web site to disclose information to the
public under Regulation FD (Fair Disclosure). Accordingly, the SEC will now
consider a registrant’s financial statements to be issued under ASC Topic 855 when
they are posted to the registrant’s Web site. The announcement supersedes footnote
4 to paragraph 855-10-S99-2 of ASC Topic 855, which formerly was included in
EITF Topic No. D-86, “Issuance of Financial Statements.”
122 Subtopic 860-10: Transfers and Servicing--Overall
Note: ASU 2011-03, Transfers and Servicing (Topic 860): Reconsideration of
Effective Control for Repurchase Agreements, was issued in April 2011. This
ASU applies to all entities that enter into agreements to transfer financial assets
that both entitle and obligate the transferor to repurchase or redeem the financial
assets before their maturity (repo arrangements). It focuses the transferor’s
assessment of effective control on its contractual rights and obligations by
removing the requirement to assess its ability to exercise those rights or honor
those obligations. Many entities are likely to account for more types of repo
agreements as secured borrowings rather than sales under the new guidance in
the ASU. The ASU is effective for the first interim or annual period
beginning on or after December 15, 2011. It is effective prospectively for
transactions or modifications of existing transactions that occur on or after the
effective date. Early adoption is prohibited. This ASU does not include any
incremental disclosure requirements.
Note: For entities with a December 31st year-end, ASU 2011-03 would be effective.
Disclosure
860-10-50-1. If it is not practicable to estimate the fair value of certain assets obtained
or liabilities incurred in transfers of financial assets during the period, the entity
shall disclose a description of those items and the reasons why it is not
practicable to estimate their fair value.
> General
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860-10-50-3. The principal objectives of the disclosure requirements of this Topic are
to provide financial statement users with an understanding of all of the
following:
a. A transferor’s continuing involvement, if any, with transferred financial
assets
b. The nature of any restrictions on assets reported by an entity in its statement
of financial position that relate to a transferred financial asset, including the
carrying amounts of those assets
c. How servicing assets and servicing liabilities are reported under Subtopic
860-50
d. For both of the following, how the transfer of financial assets affects an
entity’s financial position, financial performance, and cash flows:
1. Transfers accounted for as sales, if a transferor has continuing
involvement with the transferred financial assets
2. Transfers of financial assets accounted for as secured borrowings.
860-10-50-4. The objectives in the preceding paragraph apply regardless of whether
this Topic requires specific disclosures. The specific disclosures required by this
Topic are minimum requirements, and an entity may need to supplement the
required disclosures depending on any of the following:
a. The facts and circumstances of a transfer
b. The nature of an entity’s continuing involvement with the transferred
financial assets
c. The effect of an entity’s continuing involvement on the transferor’s financial
position, financial performance, and cash flows.
Disclosures required for a particular form of continuing involvement shall be
considered when determining whether the disclosure objectives of this Topic
have been met.
>> Aggregation of Certain Disclosures
860-10-50-4A. Disclosures required by this Topic may be reported in the aggregate for
similar transfers if separate reporting of each transfer would not provide more
useful information to financial statement users. A transferor shall both:
a. Disclose how similar transfers are aggregated
b. Distinguish between transfers that are accounted for as secured borrowings
and transfers that are accounted for as sales.
860-10-50-5. In determining whether to aggregate the disclosures for multiple
transfers, the reporting entity shall consider quantitative and qualitative
information about the characteristics of the transferred financial assets, including
all of the following:
a. The nature of the transferor’s continuing involvement
b. The types of financial assets transferred
c. Risks related to the transferred financial assets to which the transferor
continues to be exposed after the transfer and the change in the transferor’s
risk profile as a result of the transfer
d. The guidance in paragraph 310-10-50-25 (for risks and uncertainties) and
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paragraphs 825-10-55-1 through 55-2 (for concentrations involving loan
product terms).
860-10-50-6. The disclosures shall be presented in a manner that clearly and fully
explains to financial statement users the transferor’s risk exposure related to the
transferred financial assets and any restrictions on the assets of the entity. An
entity shall determine, in light of the facts and circumstances, how much detail it
must provide to satisfy disclosure requirements of this Topic and how it
aggregates information for assets with different risk characteristics. The entity
shall strike a balance between obscuring important information as a result of too
much aggregation and excessive detail that may not assist financial statement
users to understand the entity’s financial position. For example, an entity shall
not obscure important information by including it with a large amount of
insignificant detail. Similarly, an entity shall not disclose information that is so
aggregated that it obscures important differences between the different types of
involvement or associated risks.
860-10-50-7. To apply the disclosures required in this Topic, a public entity shall
consider all involvements by the transferor, its consolidated affiliates included in
the financial statements being presented, or its agents to be involvements by the
transferor.
KPMG and Other Guidance
1
123
In October 2010, the SEC staff has also provided guidance in a Dear CFO letter on
disclosures related to potential risks and costs associated with mortgage and
foreclosure-related activities or exposures.
Subtopic 860-20: Transfers and Servicing—Sales of Financial Assets
Disclosure
> All Entities within Scope of this Subtopic
860-20-50-2. Paragraphs 860-20-50-3 through 50-4 address disclosures for
securitizations, asset-backed financing arrangements, and similar transfers that
have both of the following characteristics:
a. The transfer is accounted for as a sale
b. The transferor has continuing involvement with the transferred financial
assets.
>> Disclosures for Each Income Statement Presented
860-20-50-3. For each income statement presented, the entity shall disclose all of the
following:
a. [Not Used]
b. The characteristics of the transfer including all of the following:
1. A description of the transferor’s continuing involvement with the
transferred financial assets
2. The nature and initial fair value of both of the following:
i.
The asset obtained as proceeds
ii.
The liabilities incurred in the transfer.
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3 The gain or loss from sale of transferred financial assets.
bb. For the initial fair value measurements in item (b)(2), the level within the fair
value hierarchy in Topic 820 in which the fair value measurements fall,
segregating fair value measurements using each of the following:
1. Quoted prices in active markets for identical assets or liabilities (Level 1)
2. Significant other observable inputs (Level 2)
3. Significant unobservable inputs (Level 3).
c. For the initial fair value measurements in item (b)(2), the key inputs and
assumptions used in measuring the fair value of assets obtained and
liabilities incurred as a result of the sale that relate to the transferor’s
continuing involvement, including quantitative information about all of the
following:
1. Discount rates.
2. Expected prepayments including the expected weighted-average life of
prepayable financial assets. The weighted-average life of prepayable
assets in periods (for example, months or years) can be calculated by
multiplying the principal collections expected in each future period by
the number of periods until that future period, summing those products,
and dividing the sum by the initial principal balance.
3. Anticipated credit losses, including expected static pool losses.
If an entity has aggregated transfers during a period in accordance with the
guidance beginning in paragraph 860-10-50-5 (in this checklist), it may
disclose the range of assumptions.
cc. For the initial fair value measurements in item (b)(2), the valuation
technique(s) used to measure fair value.
d. Cash flows between a transferor and transferee, including all of the
following:
1. Proceeds from new transfers
2. Proceeds from collections reinvested in revolving-period transfers
3. Purchases of previously transferred financial assets
4. Servicing fees
5. Cash flows received from a transferor’s interests.
>> Disclosures for Each Statement of Financial Position Presented
860-20-50-4. For each statement of financial position presented, regardless of when the
transfer occurred, an entity shall disclose all of the following:
a. Qualitative and quantitative information about the transferor’s continuing
involvement with transferred financial assets that provides financial
statement users with sufficient information to assess the reasons for the
continuing involvement and the risks related to the transferred financial
assets to which the transferor continues to be exposed after the transfer and
the extent that the transferor’s risk profile has changed as a result of the
transfer (including, but not limited to, credit risk, interest rate risk, and other
risks), including all of the following:
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1. The total principal amount outstanding
2. The amount that has been derecognized
3. The amount that continues to be recognized in the statement of financial
position
4. The terms of any arrangements that could require the transferor to
provide financial support (for example, liquidity arrangements and
obligations to purchase assets) to the transferee or its beneficial interest
holders, including both of the following:
i. A description of any events or circumstances that could expose the
transferor to loss
ii. The amount of the maximum exposure to loss.
5. Whether the transferor has provided financial or other support during the
periods presented that it was not previously contractually required to
provide to the transferee or its beneficial interest holders, including—
when the transferor assisted the transferee or its beneficial interest
holders in obtaining support—both of the following:
i. The type and amount of support
ii. The primary reasons for providing the support.
An entity also is encouraged to disclose information about any liquidity
arrangements, guarantees, or other commitments by third parties related
to the transferred financial assets that may affect the fair value or risk of
the related transferor’s interest.
aa. The entity’s accounting policies for subsequently measuring assets or
liabilities that relate to the continuing involvement with the transferred
financial assets.
b. The key inputs and assumptions used in measuring the fair value of assets or
liabilities that relate to the transferor’s continuing involvement including, at
a minimum, but not limited to, quantitative information about all of the
following:
1. Discount rates
2. Expected prepayments including the expected weighted-average life of
prepayable financial assets (see paragraph 860-20-50-3(c)(2) in this
checklist)
3 Anticipated credit losses, including expected static pool losses, if
applicable. Expected static pool losses can be calculated by summing the
actual and projected future credit losses and dividing the sum by the
original balance of the pool of assets.
If an entity has aggregated transfers during a period in accordance with the
guidance beginning in paragraph 860-10-50-5 (in this checklist), it may
disclose the range of assumptions.
c. For the transferor’s interest in the transferred financial assets, a sensitivity
analysis or stress test showing the hypothetical effect on the fair value of
those interests (including any servicing assets or servicing liabilities) of two
or more unfavorable variations from the expected levels for each key
assumption that is reported under item (b) of this paragraph independently
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from any change in another key assumption.
d. A description of the objectives, methodology, and limitations of the
sensitivity analysis or stress test.
e. Information about the asset quality of transferred financial assets and any
other financial assets that it manages together with them. This information
shall be separated between assets that have been derecognized and assets that
continue to be recognized in the statement of financial position. This
information is intended to provide financial statement users with an
understanding of the risks inherent in the transferred financial assets as well
as in other financial assets and liabilities that it manages together with
transferred financial assets. For example, information for receivables shall
include, but is not limited to both of the following:
1. [Not Used]
2. [Not Used]
3. [Not Used]
4. Delinquencies at the end of the period
5. Credit losses, net of recoveries, during the period.
> > Sales of Loans and Trade Receivables
860-20-50-5. The aggregate amount of gains or losses on sales of loans or trade
receivables (including adjustments to record loans held for sale at the lower of
cost or fair value) shall be presented separately in the financial statements or
disclosed in the notes to financial statements. See Topic 310 (in this checklist)
for a full discussion of disclosure requirements for loans and trade receivables.
860-20-55-18. If a securitization transaction meets the criteria for sale treatment and
the transferor has continued to recognize receivables for accrued fee and finance
charge income (i.e., accrued interest receivable, or AIR) that is subordinated
either because it has been isolated from the transferor or because of the operation
of the cash flow distribution (or “waterfall”) through the securitization trust, the
total AIR asset should be accounted for as a transferor’s interest, not as loans
receivable or other terminology implying that it has not been subordinated to the
senior interests in the securitization.
> > Financial Assets Subject to Prepayment
860-20-35-2. Financial assets, except for instruments that are within the scope of
Subtopic 815-10, that can be contractually prepaid or otherwise settled in such a
way that the holder would not recover substantially all of its recorded investment
shall be subsequently measured like investments in debt securities classified as
available for sale or trading. Examples of such financial assets include, but are
not limited to, interest-only strips, other beneficial interests, loans, or other
receivables.
SEC Guidance
1 SEC-2002 AICPA National Conference on Current SEC Developments; SEC
Speech by Eric Schuppenhauer. For a transfer of receivables with recourse,
Registrants should actively monitor the value of the obligation throughout its life
and disclose any material changes.
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124
Subtopic 860-30: Transfers and Servicing—Secured Borrowing and Collateral
Presentation
860-30-45-1. If the secured party (transferee) has the right by contract or custom to
sell or repledge the collateral, then the obligor (transferor) shall reclassify that
asset and report that asset in its statement of financial position separately (for
example, as security pledged to creditors) from other assets not so encumbered.
860-30-45-2. Liabilities incurred by either the secured party or obligor in securities
borrowing or resale transactions shall be separately classified.
Disclosure
860-30-50-1A. An entity shall disclose all of the following for collateral:
a. If the entity has entered into repurchase agreements or securities lending
transactions, it shall disclose its policy for requiring collateral or other
security.
b. As of the date of the latest statement of financial position presented, both of
the following:
1. The carrying amount and classifications of both of the following:
i. Any assets pledged as collateral that are not reclassified and
separately reported in the statement of financial position in
accordance with paragraph 860-30-25-5(a)
ii. Associated liabilities.
2. Qualitative information about the relationship(s) between those assets
and associated liabilities; for example, if assets are restricted solely to
satisfy a specific obligation, a description of the nature of restrictions
placed on those assets.
c. If the entity has accepted collateral that it is permitted by contract or custom
to sell or repledge, it shall disclose all the following:
1. The fair value as of the date of each statement of financial position
presented of that collateral
2. The fair value as of the date of each statement of financial position
presented of the portion of that collateral that it has sold or repledged
3. Information about the sources and uses of that collateral.
SEC Guidance
> Assets Subject to Lien
1 Regulation S-X Rule 4-08(b). Assets subject to lien. Assets mortgaged, pledged,
or otherwise subject to lien, and the approximate amounts thereof, shall be
designated and the obligations collateralized briefly identified.
125
Subtopic 860-50: Transfers and Servicing—Servicing Assets and Liabilities
Presentation
860-50-45-1. An entity shall report recognized servicing assets and servicing liabilities
that are subsequently measured using the fair value measurement method in a
manner that separates those carrying amounts on the face of the statement of
financial position from the carrying amounts for separately recognized servicing
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assets and servicing liabilities that are subsequently measured using the
amortization method.
860-50-45-2. To accomplish that separate reporting, an entity may do either of the
following:
a. Display separate line items for the amounts that are subsequently measured
using the fair value measurement method and amounts that are subsequently
measured using the amortization method.
b. Present the aggregate of those amounts that are subsequently measured at
fair value and those amounts that are subsequently measured using the
amortization method (see paragraphs 860-50-35-9 through 35-11) and
disclose parenthetically the amount that is subsequently measured at fair
value that is included in the aggregate amount.
Disclosure
> All Entities within the Scope of Subtopic
> > All Servicing Assets and Servicing Liabilities
860-50-50-2. For all servicing assets and servicing liabilities, all of the following shall
be disclosed:
a. Management's basis for determining its classes of servicing assets and
servicing liabilities.
b. A description of the risks inherent in servicing assets and servicing
liabilities and, if applicable, the instruments used to mitigate the income
statement effect of changes in fair value of the servicing assets and
servicing liabilities.
c. The amount of contractually specified servicing fees, late fees, and ancillary
fees earned for each period for which results of operations are presented,
including a description of where each amount is reported in the statement of
income.
d. Quantitative and qualitative information about the assumptions used to
estimate fair value (for example, discount rates, anticipated credit losses,
and prepayment speeds).
Disclosure of quantitative information about the instruments used to manage the
risks inherent in servicing assets and servicing liabilities, including the fair
value of those instruments at the beginning and end of the period, is encouraged
but not required.
An entity that provides such quantitative information is also encouraged, but not
required, to disclose quantitative and qualitative information about the
assumptions used to estimate the fair value of those instruments.
Section 235-10-50 (in this checklist) provides guidance on disclosures of
accounting policies.
> > Servicing Assets and Servicing Liabilities Subsequently Measured at Fair
Value
860-50-50-3. For servicing assets and servicing liabilities subsequently measured at
fair value, both of the following shall be disclosed:
a. For each class of servicing assets and servicing liabilities, the activity in the
balance of servicing assets and the activity in the balance of servicing
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liabilities (including a description of where changes in fair value are
reported in the statement of income for each period for which results of
operations are presented), including, but not limited to, the following:
1. The beginning and ending balances
2. Additions through any of the following:
i. Purchases of servicing assets
ii. Assumptions of servicing obligations
iii. Recognition of servicing obligations that result from transfers of
financial assets.
3. Disposals
4. Changes in fair value during the period resulting from either of the
following:
i. Changes in valuation inputs or assumptions used in the valuation
model
ii. Other changes in fair value and a description of those changes.
5. Other changes that affect the balance and a description of those
changes.
See Example 2 (paragraph 860-50-55-27) for an illustration of the
disclosure requirement in paragraph 860-50-50-3(a) (in this checklist).
b. [Not Used]
> > Servicing Assets and Servicing Liabilities Subsequently Amortized
860-50-50-4. For servicing assets and servicing liabilities measured subsequently
under the amortization method in paragraph 860-50-35-1(a), all of the following
shall be disclosed:
a. For each class of servicing assets and servicing liabilities, the activity in the
balance of servicing assets and the activity in the balance of servicing
liabilities (including a description of where changes in the carrying amount
are reported in the statement of income for each period for which results of
operations are presented), including, but not limited to, the following:
1. The beginning and ending balances
2. Additions through any of the following:
i. Purchases of servicing assets
ii. Assumptions of servicing obligations
iii. Recognition of servicing obligations that result from transfers of
financial assets.
3. Disposals
4. Amortization
5. Application of valuation allowance to adjust carrying value of servicing
assets
6. Other-than-temporary impairments
7. Other changes that affect the balance and a description of those
changes.
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See Example 2 (paragraph 860-50-55-27) for an illustration of the
disclosure requirement in paragraph 860-50-50-4(a) (in this checklist).
b. For each class of servicing assets and servicing liabilities, the fair value of
recognized servicing assets and servicing liabilities at the beginning and end
of the period.
c. [Not Used]
d. The risk characteristics of the underlying financial assets used to stratify
recognized servicing assets for purposes of measuring impairment in
accordance with paragraph 860-50-35-9. If the predominant risk
characteristics and resulting stratums are changed, that fact and the reasons
for those changes shall be included in the disclosures about the risk
characteristics of the underlying financial assets used to stratify the
recognized servicing assets in accordance with this paragraph.
e. For each period for which results of operations are presented, the activity by
class in any valuation allowance for impairment of recognized servicing
assets, including all of the following:
1. Beginning and ending balances
2. Aggregate additions charged and recoveries credited to operations
3. Aggregate write-downs charged against the allowance.
> > Servicing Assets and Servicing Liabilities for Which Subsequent
Measurement at Fair Value Is Elected as of the Beginning of the Fiscal Year
860-50-50-5. If an entity (whether public or nonpublic) elects under paragraph 86050-35-3(d) to subsequently measure a class of servicing assets and servicing
liabilities at fair value at the beginning of the fiscal year, the amount of the
cumulative-effect adjustment to retained earnings shall be separately disclosed.
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Section IV—Index to the Accounting Disclosure Checklist –
Industry Guidance
Index to Checklist
Page
Ref.
Category of Disclosure Considerations
273
1
Topic 905: Agriculture
274
2
Topic 908: Airlines
274
3
Topic 910: Contractors—Construction
277
4
Topic 912: Contractors—Federal Government
283
5
Topic 915: Development Stage Entities
283
6
Topic 920: Entertainment—Broadcasters
284
7
Topic 924: Entertainment—Casinos
285
8
Topic 926: Entertainment—Films
287
9
Topic 928: Entertainment—Music
287
10 Topic 930 Extractive Activities—Mining
288
11 Topic 952: Franchisors
289
12 Topic 970: Real Estate—General
290
13 Topic 972: Real Estate—Common Interest Realty Associations
295
14 Topic 974: Real Estate—Real Estate Investment Trusts
296
15 Topic 976: Real Estate—Retail Land
297
16 Topic 978: Real Estate—Time-Sharing Activities
298
17 Topic 985: Software
298
18 Topic 995: U.S. Steamship Entities
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1
Topic 905: Agriculture
Cooperatives Subsection of Subtopic 905-205: Agriculture---Presentation of
Financial Statements
Presentation
905-205-45-1. Cooperatives may use other terms for earnings, such as margins, net
proceeds, or savings.
Cooperatives—Patrons Subsection of Subtopic 905-325: Agriculture--Investments--Other
Presentation
905-325-45-1. If retains are not to be redeemed in the current year by the producer (that
is, the patron), the retains shall be classified as noncurrent.
Disclosure
905-325-50-1. If a patron is economically dependent on a cooperative for sale of all or a
significant portion of annual production, the extent of such transactions shall be
disclosed in the financial statements.
Cooperatives Subsection of Subtopic 905-330: Agriculture--Inventory
Disclosure
905-330-50-1. The method used and the dollar amounts assigned to members' products
shall be disclosed.
Subtopic 905-360: Agriculture—Property, Plant, and Equipment
Disclosure
> Intermediate-Life Plants
905-360-50-1. Financial statement disclosure of the accumulated costs for intermediatelife plants and estimated useful lives shall be made.
Cooperatives Subsection of Subtopic 905-505: Agriculture—Equity
Presentation
905-505-45-1. Generally, the earnings of cooperatives are classified as either patronage
or nonpatronage. The excess of revenues over costs resulting from transactions for
or with patrons shall be classified as patronage source earnings. Nonpatronage
earnings result from transactions other than those with or for patrons. Examples
are nonpatronage income from investments in securities, rental income from
nonpatronage activities, and income earned on sales or purchases made on a
nonpatronage basis.
905-505-45-4. If the retained patronage allocations and per-unit retains have no fixed
maturity dates and are subordinated to all debt instruments, they shall be treated as
equity with appropriate disclosure of face value, dividend rate, negotiability,
subordination agreements, and any revolving or retirement plan.
905-505-45-5. Allocated equities are usually paid, or revolved, over a number of years.
The timing may be specified in the cooperative's bylaws, but it is usually at the
discretion of its board of directors. The amounts shall not be classified as current
liabilities until the board has formally acted to revolve the equities.
905-505-45-6. Certain transactions of cooperatives may result in unallocated equities.
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For example, cooperatives may derive earnings from nonpatronage business and
account for these earnings as other entities do. Nonpatronage earnings are
frequently not allocated and shall be classified as retained earnings in the equity
section. In addition, a cooperative may elect at times not to allocate patronage
earnings or losses.
Cooperatives—Patrons Subsection of Subtopic 905-605: Agriculture—Revenue
Recognition
Presentation
905-605-45-2. A cooperative patron shall record the allocation of patronage refunds in
either of the followings ways:
a. The classification of the allocations to patrons in their financial statements
shall follow the recording of the costs or proceeds.
b. The allocations shall be presented separately.
2
Topic 908: Airlines
Subtopic 908-330: Airlines—Inventory
Presentation
908-330-45-1. Expendable parts are classified as current assets.
Subtopic 908-360: Airlines—Property, Plant and Equipment
Presentation
> Rotable Parts
908-360-45-1. Rotable parts and assemblies of significant value are classified along with
flight equipment as fixed assets.
3
Topic 910: Contractors—Construction
See also Subtopic 605-35 (in this checklist), Revenue Recognition—Construction-Type
and Production-Type Contracts.
Subtopic 910-20: Contractors—Construction—Construction Costs
Disclosure
910-20-50-1. Both of the following amounts included in contract costs shall be
disclosed:
a. The aggregate amount included in contract costs representing unapproved
change orders, claims, or similar items subject to uncertainty concerning their
determination or ultimate realization, plus a description of the nature and
status of the principal items comprising such aggregate amounts and the basis
on which such items are recorded (for example, cost or realizable value)
b. The amount of progress payments netted against contract costs at the date of
the balance sheet.
Subtopic 910-235: Contractors—Construction—Notes to Financial Statements
Disclosure
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> Accounting Policies
910-235-50-1. Construction contractors shall follow the general disclosure requirements
of Subtopic 235-10. Significant accounting policy disclosures relating to
construction contractors include both of the following:
a. Information relating to the method of reporting by affiliated entities shall be
disclosed.
b. If the operating cycle exceeds one year, the range of contract durations shall
be disclosed.
> Liquidity Characteristics
910-235-50-2. An entity shall disclose liquidity characteristics of specific assets and
liabilities if either of the following conditions is met:
a. The entity's operating cycle exceeds one year.
b. The entity uses an unclassified balance sheet.
Subtopic 910-310: Contractors—Construction—Receivables
Presentation
910-310-45-1. The portion of retainages not collectible within one year, or within the
operating cycle if it is longer than one year, shall be classified as noncurrent in a
classified balance sheet.
Disclosure
910-310-50-1. For billed or unbilled amounts under contracts representing unapproved
change orders, claims, or similar items subject to uncertainty concerning their
determination or ultimate realization, the balance sheet, or a note to the financial
statements, shall disclose all of the following:
a. The amount
b. A description of the nature and status of the principal items comprising the
amount
c. The portion, if any, expected to be collected after one year.
910-310-50-2. For amounts representing the recognized sales value of performance
under contracts that have not been billed and were not billable at the date of the
balance sheet, all of the following shall be disclosed:
a. The amounts
b. A general description of the prerequisites for billings
c. The portion, if any, expected to be collected after one year.
910-310-50-3. Both of the following shall be disclosed for receivable amounts maturing
after one year:
a. The amount maturing after one year and, if practicable, the amounts maturing
in each year
b. Interest rates on major receivable items, or on classes of receivables, maturing
after one year or an indication of the average interest rate or the range of rates
on all receivables.
910-310-50-4. If receivables include amounts representing balances billed but not paid
by customers under contract retainage provisions, a contractor shall disclose,
either in the balance sheet or in a note to the financial statements, all of the
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following:
a. The amounts
b. The portion, if any, expected to be collected after one year
c. If practicable, the years in which the amounts are expected to be collected.
Subtopic 910-340: Contractors—Construction—Other Assets and Deferred Costs
Disclosure
910-340-50-1. For costs deferred either in anticipation of future sales (precontract costs
that are not within the scope of Subtopic 720-15) or as a result of an unapproved
change order, the policy of deferral and the amounts involved shall be disclosed.
Subtopic 910-405: Contractors—Construction—Liabilities
Presentation
> Advances on Cost-Plus Contracts
910-405-45-1. An advance received on a cost-plus contract shall not be offset against
accumulated costs unless it is a payment on account of work in progress. Such
advances are made to provide a revolving fund and are not applied as partial
payment until the contract is nearly or fully completed.
910-405-45-2. Advances that are payments on account of work in progress shall be
shown as a deduction from the related asset.
Disclosure
910-405-50-1. Information relating to accounts and retentions payable shall be
disclosed, including the amounts of retentions to be paid after one year and, if
practicable, the year in which the amounts are expected to be paid.
910-405-50-2. The amounts of advances that are payments on account of work in
progress shall be disclosed.
Subtopic 910-605: Contractors—Construction—Revenue Recognition
Disclosure
910-605-50-1. The method of recognizing income (percentage of completion or
completed contract) shall be disclosed.
910-605-50-2. If the completed-contract method is used, the reason for selecting that
method shall be indicated, for example, either of the following:
a. Numerous short-term contracts for which financial position and results of
operations reported on the completed-contract basis would not vary materially
from those resulting from use of the percentage-of-completion method
b. Inherent hazards or undependable estimates that cause forecasts to be doubtful
Subtopic 910-810: Contractors—Construction—Consolidation
Presentation
910-810-45-1. Paragraph 810-10-45-14 (in this checklist) explains that a proportionate
gross financial statement presentation is not appropriate for an investment in an
unincorporated legal entity accounted for by the equity method of accounting
unless the investee is in either the construction industry (as discussed in this
Topic) or an extractive industry (see paragraphs 930-810-45-1 (in this checklist)
and 932-810-45-1).
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4
Topic 912: Contractors—Federal Government
See also Subtopic 605-35 (in this checklist), Revenue Recognition—Construction-Type
and Production-Type Contracts.
Subtopic 912-20: Contractors—Federal Government--Contract Costs
Disclosure
> Default Terminations
912-20-50-1. A loss on termination of a contract for default that is not reported as a
separate item in the income statement shall be disclosed in the notes to financial
statements in conformity with Subtopic 450-20.
Subtopic 912-210: Contractors—Federal Government—Balance Sheet
Presentation
> Cost-Plus-Fixed-Fee Contracts
> > Offsetting
912-210-45-1. Offsetting of government advances on cost-plus-fixed-fee contracts by, or
against, amounts due from the government on such contracts is acceptable only to
the extent that the advances may under the terms of the agreement be offset in
settlement, and only if that is the treatment anticipated in the normal course of
business transactions under the contract.
912-210-45-3. An advance received on a contract may not be offset against contract
work in progress unless it is a payment on account of the contract work in
progress. In such a circumstance the advance is deducted from the related asset.
Advances on cost-plus-fixed-fee contracts are usually made for the purpose of
providing a revolving fund and are not applied as partial payments until the
contract is completed or nears completion.
912-210-45-4. Accordingly, offsetting advances on cost-plus-fixed-fee contracts against
receivables in connection with the contracts is appropriate only if it is expected
that the advances will be applied in payment of those particular charges.
> Current Assets and Current Liabilities
912-210-45-6. Contractors whose operating cycle exceeds one year shall classify all
contract-related assets and liabilities as current under the operating cycle concept
and follow the more specific guidance in Section 210-10-45 in classifying other
assets and liabilities.
> Contract-Related Assets and Liabilities
912-210-45-7. The following, while not all-inclusive, is a list of assets generally
considered to be contract-related and classified as current under the operating
cycle concept:
a. Accounts receivable on contracts (including retentions)
b. Unbilled contract receivables
c. Costs in excess of billings and estimated earnings
d. Other deferred contract costs
e. Equipment and tooling specifically purchased for, and expected to be used
solely on, an individual contract or group of related contracts.
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912-210-45-8. The following, while not all-inclusive, is a list of liabilities generally
considered to be contract-related and classified as current under the operating
cycle concept:
a. Accounts payable on contracts (including retentions)
b. Accrued contract costs
c. Billings in excess of cost and estimated earnings
d. Advance payments on contracts
e. Obligations for equipment specifically purchased for, and expected to be used
solely on, an individual contract or group of related contracts—regardless of
the payment terms of the obligations
f. Provisions for losses on contracts (see paragraph 605-35-45-2 in this
checklist).
Disclosure
> Amounts Offset
912-210-50-1. Amounts offset in accordance with paragraph 912-210-45-1 (in this
checklist) shall be disclosed.
Subtopic 912-225: Contractors—Federal Government—Income Statement
Presentation
> Contracts Subject to Renegotiation
912-225-45-1. Renegotiation refunds are commonly referred to as involving a refund of
excessive profits, however, renegotiation involves an adjustment of the original
contract or selling price. Because a provision for renegotiation refund indicates
that the collection, or retention, of the selling price is not reasonably assured, the
provision should preferably be treated in the income statement as a deduction
from sales.
912-225-45-2. If a renegotiation refund applicable to a particular year is materially
different from the provision made in the financial statements originally issued for
such year, the difference between the renegotiation refund and the provision shall
be shown as a separate item in the current income statement.
> Terminated Contracts
912-225-45-3. Any items the contractor retains without claim for cost or loss shall
remain as inventory or deferred charges in the contractor's accounts.
912-225-45-4. Sales related to terminated contracts shall be separately presented in the
income statement.
Subtopic 912-235: Contractors—Federal Government—Notes to Financial
Statements
Disclosure
> Accounting Policies
912-235-50-1. Disclosures by government contractors pursuant to Subtopic 235-10 shall
include a description of all of the following accounting policies, among others:
a. Basis for stating amounts related to contracts in progress, including policies
with respect to accounting for indirect costs
b. Methods of determining revenues and related costs, including the policies
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with respect to combining and segmenting contracts and the recognition of
contract incentives
c. Methods of measuring extent of progress toward completion if the
percentage-of-completion method is used
d. Specific criteria used to determine when a contract is substantially complete if
the completed-contract method is used.
Subtopic 912-255: Contractors—Federal Government—Changing Prices
Disclosure
> Financial Reporting and Changing Prices
For those contractors electing to disclose supplementary information on the effects of
changing prices, see paragraph 912-255-50-1.
Subtopic 912-275: Contractors—Federal Government—Risks and Uncertainties
Disclosure
> Contracts Subject to Renegotiation
912-275-50-1. Renegotiation uncertainties, their significance, the basis used in
determining the amount of the provision (such as the prior years' experience of the
contractor or of similar contractors if their experience is available and is used),
and renegotiation discussions relating to the current year shall be disclosed.
> Termination Claims
912-275-50-2. In some circumstances it will be impossible to make a reasonable
estimate of a termination claim in time for inclusion in the financial statements of
the period in which the termination occurs. Effect may then be given in the
statements to those parts of the termination claim that are determinable with
reasonable certainty and disclosure made, by footnote or otherwise, of the status
of the remainder.
912-275-50-3. If the contractor's claim includes items of known controversial nature it
shall be stated at the amount estimated to be collectible. If a particular termination
claim or part thereof is so uncertain in amount that it cannot be reasonably
estimated, it is preferable not to give effect to that part of the claim in the financial
statements. If the total of such undeterminable elements is material, the
circumstances shall be disclosed in statements issued or available to be issued (as
discussed in Section 855-10-25) before the removal of the uncertainty. In an
extreme circumstance involving undeterminable claims, consideration shall be
given to delaying the issuance of financial statements until necessary data are
available.
912-275-50-4. The effect of a contract termination shall be reflected in the financial
statements of the contractor in the period in which the termination occurs, or
earlier if the termination is a subsequent event occurring before the financial
statements are issued or are available to be issued (as discussed in Section 855-1025) and attributable to conditions that existed at the date of the balance sheet. If
sufficient information is not available to predict the effect of a very recent
termination, then the best information available shall be disclosed in the notes to
financial statements in conformity with Topic 450. Paragraph 912-605-25-22
addresses the effective date of termination.
912-275-50-5. Significant items of a known controversial nature also shall be disclosed
in the notes to financial statements, although estimates of ultimate amounts to be
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realized may not be determinable.
912-275-50-6. The government contractor is subject to a degree of risk different from its
commercial counterpart because of the unilateral contract right of the government
to terminate a contract. If there are indications that a contract termination may
occur and the termination would have a material effect on the contractor's
operations, disclosure of the circumstances and the potential effects shall be made
in the notes to financial statements. Indicators of a potential contract termination
include notice of a possible termination, contract performance problems,
procurement cutbacks, and so forth.
912-275-50-7. Paragraph 420-10-50-1 (in this checklist) provides guidance on
information about contract terminations to be disclosed in notes to financial
statements.
Subtopic 912-310: Contractors—Federal Government—Receivables
Presentation
> Balance Sheet
>> Government Contract Receivables
912-310-45-1. Government contract receivables usually are shown separately from other
receivables in the balance sheet (or otherwise disclosed).
>> Cost-Plus-Fixed-Fee Contracts
912-310-45-2. There is a difference in character between billed items and unbilled costs
and such amounts shall be presented separately on the balance sheet.
>> Termination Claims
912-310-45-4. Advance payments received before termination may be shown in
financial statements after termination as a deduction from the claim receivable.
912-310-45-5. A termination claim shall be classified as a current asset, unless there is
an indication of extended delay, such as serious disagreement pointing to probable
litigation, which would exclude it from this classification.
912-310-45-6. Although a claim may be composed of several elements representing
reimbursable items of special equipment, deferred charges, inventories, and other
items, as well as claims for profit, it is preferable to record the claim in one
account.
The total of termination claims shall be presented separately from other
receivables.
Claims directly against the government shall be segregated from claims against
other contractors.
912-310-45-7. Partial payments shall be recorded as reductions of the termination claim
receivable.
912-310-45-8. The costs and expenses chargeable to the termination claim are given
their usual classification in the accounts.
> > Unbilled Amounts
912-310-45-9. Unbilled amounts (net of unliquidated progress payments) shall be stated
separately if the amounts constitute a significant portion of the U.S. government
contract receivables.
> Cash Flow Statement
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912-310-45-11. In reporting cash flows from operating activities, progress, and advance
payments received on contracts shall be reported gross, regardless of whether
those payments have been applied against unbilled contract receivables or
accumulated costs of contracts in progress in the balance sheet. The manner of
reporting depends on whether the entity uses the direct method or indirect method
as follows:
a. Direct method. Entities that use the direct method in reporting cash flows
from operating activities shall show progress and advance payments received
on contracts as a separate major class of cash receipts.
b. Indirect method. Entities that use the indirect method shall show progress and
advance payments as a separate adjustment in reconciling net income to net
cash provided for operating activities.
Disclosure
> Termination Claims
912-310-50-1. For those parts of the termination claim that are included in financial
statements after termination, full disclosure of the essential facts shall be made.
912-310-50-2. The termination claim shall be separately disclosed.
> Progress Payments
912-310-50-3. The amount of progress payments offset against unbilled receivables
shall be disclosed.
> Advance Payments
912-310-50-4. Advance payments received on the contract before its termination shown
as a deduction from the claim receivable in accordance with paragraph 912-31045-4 (in this checklist) shall be explained in a footnote disclosure.
Subtopic 912-330: Contractors—Federal Government--Inventory
Disclosure
> Contract Inventory
912-330-50-1. A contractor's accounting policies with respect to costs included in
inventory shall be disclosed.
Subtopic 912-405: Contractors—Federal Government—Liabilities
Presentation
> Balance Sheet
>> Contracts Subject to Renegotiation
912-405-45-1. If government contracts and subcontracts subject to renegotiation
constitute a substantial part of the business done, the uncertainties resulting from
the possibilities of renegotiation are usually such that separate presentation shall
be given in the financial statements.
912-405-45-2. Provisions for renegotiation refunds shall be classified as current
liabilities.
>> Fixed-Price Contract Terminations
912-405-45-3. Loans negotiated on the security of the termination claim shall be shown
as current liabilities.
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912-405-45-4. Termination loans are liabilities to third parties, even though guaranteed
in whole or in part by the government, and shall be presented in the balance sheet
as liabilities, with appropriate cross-reference to the related claim or claims.
912-405-45-6. Advance payments received in excess of unbilled receivables and
accumulated costs of contracts in progress shall be classified as a liability with
captions such as advance payments on U.S. government contracts or amounts
received in excess of costs incurred under U.S. government contracts.
> Cash Flow Statement—Progress and Advance Payments
912-405-45-7. If progress and advance payments are accounted for as borrowings, such
amounts shall be reported as cash received from financing activities.
Disclosure
> Contracts Subject to Renegotiation
912-405-50-1. If a reasonable estimate cannot be made, for example, the effect of a new
or amended renegotiation act cannot be predicted within reasonable limits, or if an
entity is facing renegotiation for the first time and no reliable precedent is
available, disclosure of these circumstances and the consequent uncertainties is
required.
> Termination Claims
912-405-50-2. Financial statements issued before the termination claim is recorded shall
disclose, by footnote or otherwise, the relationship of advance payment or
guaranteed loan liabilities to a possible termination claim receivable.
912-405-50-3. To the extent that the amounts of subcontractors' claims are not
reasonably determinable, disclosure shall be made by footnote or otherwise in the
financial statements.
Subtopic 912-605: Contractors—Federal Government—Revenue Recognition
Disclosure
> Convenience Terminations
912-605-50-1 All of the contractor's own cost and profit elements included in the
termination claim shall be separately disclosed.
Subtopic 912-705: Contractors—Federal Government—Cost of Sales and Services
Disclosure
> Costs Excluded from Both Sales and Costs of Sales
912-705-50-1. If subcontract costs or the cost of special equipment to perform the
contract are excluded from sales and cost of sales, the general nature of the related
transactions and the accounting policy applied thereto shall be disclosed in the
notes to the financial statements.
Subtopic 912-715: Contractors—Federal Government—Compensation—
Retirement Benefits
Disclosure
> Contractors' Compensation and Postretirement Employee Benefit Costs
912-715-50-1. Contractors shall consider disclosing the effect, if any, of the
government's rights with respect to any excess pension plan assets in the event of
a plan termination.
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5
Topic 915: Development Stage Entities
Presentation
915-205-45-4. The financial statements shall be identified as those of a development
stage entity.
915-210-45-1, 915-215-45-1, 915-225-45-1, and 915-230-45-1. Include the following
additional information on the face of the financial statements.
a. Cumulative net losses with a descriptive caption such as “deficit
accumulated during the development stage” in the equity section.
b. Cumulative amounts of revenues and expenses from inception of
development stage.
c. Cumulative amounts of cash inflows and outflows from inception.
d. A statement of stockholders’ equity showing from inception for each
issuance:
1 The date and number of equity securities issued for cash and other
consideration.
2 The dollar amount (per share and in total) assigned to the consideration
received for equity securities (whether cash or not).
3 For noncash issuances, the nature of the consideration and the basis for
assigning the amounts.
Disclosure
915-235-50-1. The financial statements shall include a description of the nature of the
development stage activities in which the entity is engaged. For disclosure
guidance on items that comprise shareholders' equity, see Topic 505 (in this
checklist), Equity.
915-235-50-2. The financial statements for the first fiscal year in which an entity is no
longer considered to be in the development stage shall disclose that in prior years
it had been in the development stage.
6
Topic 920: Entertainment—Broadcasters
Subtopic 920-350: Entertainment—Broadcasters—Intangibles—Goodwill and
Other
Presentation
>> License Agreements for Program Material
920-350-45-1. The asset recorded for the rights acquired under a license agreement for
program material shall be segregated on the balance sheet between current and
noncurrent based on estimated time of usage.
>> Network Affiliation Agreements
920-350-45-2. Network affiliation agreements and other such items ordinarily are
presented in the balance sheet of a broadcaster as intangible assets.
Subtopic 920-405: Entertainment—Broadcasters—Liabilities
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Presentation
>> License Agreement for Program Material
920-405-45-1. The liability recorded for the obligation incurred under a license
agreement for program material shall be segregated between current and
noncurrent based on the payment terms.
Subtopic 920-440: Entertainment—Broadcasters—Commitments
Disclosure
> License Agreements for Program Material Where Criteria for Recognition
Have Not Been Met
920-440-50-1. Broadcasters shall disclose commitments for license agreements that
have been executed but were not reported because they do not meet the
conditions for recording a liability as specified in paragraph 920-350-25-2.
7
Topic 924: Entertainment—Casinos
Note: The FASB issued Accounting Standards Update No. 2010-16, Entertainment—
Casinos (Topic 924): Accruals for Casino Jackpot Liabilities (EITF 09-F). A
base jackpot is a fixed, minimum amount of a slot machine payout for a specific
combination. Progressive jackpots are larger incentive jackpots paid out for a
particular reel combination on a slot machine.
Under this ASU, if an entity can avoid payment of the jackpot because there is
no legal or regulatory requirement for payment if no one wins (as is the case for
base jackpots in many jurisdictions), a liability should not be recorded. ASU
2010-16 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2010. Entities following an
accounting policy that is inconsistent with the ASU will be expected to apply
the guidance prospectively with a cumulative-effect adjustment to retained
earnings as of the beginning of the fiscal year in which the ASU is initially
applied. Early adoption is permitted. In the period of adoption, an entity shall
provide the disclosures required by paragraphs 250-10-50-1 through 50-3 (in
this checklist).
> Subtopic 924-10: Entertainment—Casinos—Overall
SEC Guidance
> Income Statement Presentation of Expenses
1 SAB Topic 11.L. Registrants having casino-hotel operations present separately
within the income statement amounts of revenue attributable to casino, hotel and
restaurant operations, respectively. The Staff believes that the expenses
attributable to each of the separate revenue producing activities of casino, hotel
and restaurant operations also should be separately presented on the face of the
income statement.
Subtopic 924-280: Entertainment—Casinos—Segment Reporting
Disclosure
> Geographic Segments
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924-280-50-1. Operations of a nonpublic business entity with a casino property that
also includes a hotel, restaurant, parking garage, and the like are generally
considered as one industry segment. The operating revenues of each are
generally separately determinable. However, because of the natural
interdependence of such operations, an allocation of costs among them to
determine relative contributions to income (operating profit) would be largely
arbitrary and, therefore, not meaningful. However, nonpublic casino business
entities operating in various legal jurisdictions may have geographic segments
and shall therefore report such information.
Subtopic 924-605: Entertainment—Casinos—Revenue Recognition
Presentation
> Promotional Allowances
924-605-45-1. Promotional allowances (complimentaries, or comps) represent goods
and services, which would be accounted for as revenue if sold, that a casino
gives to customers as an inducement to gamble at that establishment. Examples
are rooms, food, beverages, entertainment, and parking.
924-605-45-2. The retail amount of promotional allowances shall not be included in
gross revenues and charged to operating expenses because that would overstate
both revenues and expenses. However, the retail amount of promotional
allowances may be included in gross revenues and offset by deducting it from
gross revenues on the face of the income statement.
8
Topic 926: Entertainment—Films
Note: The FASB issued ASU No. 2012-07, Entertainment – Films (Topic 926):
Accounting for Fair Value Information That Arises after the Measurement Date
and Its Inclusion in the Impairment Analysis of Unamortized Film Costs (a
consensus of the FASB Emerging Issues Task Force), which eliminates the
rebuttable presumption that the conditions leading to an underperforming film
released after the balance sheet date, but before issuing the financial statements,
existed at the balance sheet date. As a result, fair value measurements performed
as of the balance sheet date will be based on market participant assumptions as
of the measurement date. A company should consider information that arises
after the balance sheet date to determine whether that information would affect
the company’s assumptions about market participant views as of the
measurement date. For public entities, the ASU is effective for impairment
assessments performed on or after December 15, 2012. For private entities,
the ASU is effective for impairment assessments performed on or after
December 15, 2013. The ASU will be applied prospectively and early adoption
is permitted.
Although the ASU does not contain additional disclosure requirements, the
transition disclosures in paragraphs 250-10-50-1 through 50-3 (in this checklist)
are required.
Subtopic 926-20: Entertainment—Films—Other Assets
Presentation
> Film Costs
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926-20-45-1. If an entity presents a classified balance sheet, it shall classify film costs
as noncurrent on the face of the balance sheet.
Disclosure
> Film Costs
926-20-50-1. Regardless of whether it presents a classified or unclassified balance
sheet, an entity shall disclose in the notes to financial statements the portion of
the costs of its completed films that are expected to be amortized during the
upcoming operating cycle. An operating cycle is presumed to be 12 months. An
entity shall disclose its operating cycle if it is other than 12 months.
926-20-50-2. An entity shall disclose the components of film costs (including
released, completed and not released, in production, or in development or
preproduction) separately for theatrical films and direct-to-television product.
926-20-50-3. An entity shall disclose the percentage of unamortized film costs for
released films, excluding acquired film libraries, that it expects to amortize
within three years from the date of the balance sheet. If that percentage is less
than 80 percent, an entity shall provide additional information, including the
period required to reach an amortization level of 80 percent.
926-20-50-4. An entity shall disclose its methods of accounting for film costs.
> Film Libraries
926-20-50-5. For acquired film libraries, an entity shall disclose the amount of
remaining unamortized costs, the method of amortization, and the remaining
amortization period.
Subtopic 926-230: Entertainment—Films—Statement of Cash Flows
Presentation
> Reporting Cash Flows
926-230-45-1. An entity shall report cash outflows for film costs, participation costs,
exploitation costs, and manufacturing costs as operating activities in the
statement of cash flows, and it shall include the amortization of film costs in the
reconciliation of net income to net cash flows from operating activities.
Subtopic 926-405: Entertainment—Films—Liabilities
Disclosure
> Accrued Participation Liabilities
926-405-50-1. An entity shall disclose the amount of accrued participation liabilities
that it expects to pay during the upcoming operating cycle.
> Participation Costs
926-405-50-2. An entity shall disclose its methods of accounting for participation
costs.
Subtopic 926-605: Entertainment—Films—Revenue Recognition
Disclosure
> Revenue
926-605-50-1. An entity shall disclose its methods of accounting for revenue.
Subtopic 926-720: Entertainment—Films—Other Expenses
Disclosure
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> Exploitation Costs
926-720-50-1. A n e ntity s hall di sclose its m ethods of a ccounting f or exploitation
costs.
9
Topic 928: Entertainment—Music
Subtopic 928-340: Entertainment—Music—Other Assets and Deferred Costs
Presentation
> Licensor Accounting
> > Artist Compensation Costs—Advance Royalties
928-340-45-1. Advance royalties shall be classified as current and noncurrent assets,
as appropriate.
Disclosure
> Licensor Accounting
>> Record Master Costs
928-340-50-1. The portion of the record master cost borne by the record company that
is recorded as assets shall be disclosed separately.
Subtopic 928-440: Entertainment—Music—Commitments
Disclosure
> Licensor Accounting
> > Commitments for Artist Advances and Royalty Guarantees
928-440-50-1. Commitments for artist advances payable in future years and future
royalty guarantees shall be disclosed.
10 Topic 930: Extractive Activities—Mining
Other Presentation Matters
> Subtopic 930-715: Extractive Activities—Mining—Compensation—Retirement
Benefits
930-715-45-1. If an entity accounts for its obligation under the Coal Industry Retiree
Health Benefit Act of 1992 as a loss (see paragraph 930-715-25-1) in
accordance with Subtopic 450-20, the estimated loss should be reported as an
extraordinary item.
Disclosure
930-715-50-1. An entity shall disclose the impact of the Act, including the estimated
amount of its total obligation and the method of accounting adopted.
Subtopic 930-810: Extractive Activities—Mining—Consolidation
Presentation
> Proportionate Consolidation
930-810-45-1. Paragraph 810-10-45-14 (in this checklist) explains that a proportionate
gross financial statement presentation is not appropriate for an investment in an
unincorporated legal entity accounted for by the equity method of accounting
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unless the investee is in either the construction industry (see paragraph 910-81045-1 in this checklist) or an extractive industry (as discussed in this Topic and
paragraph 932-810-45-1). As indicated in that paragraph, an entity is in an
extractive industry only if its activities are limited to the extraction of mineral
resources (such as oil and gas exploration and production) and not if its
activities involve related activities such as refining, marketing, or transporting
extracted mineral resources.
11 Topic 952: Franchisors
Subtopic 952-440: Franchisors—Commitments
Disclosure
952-440-50-1. The nature of all significant commitments and obligations resulting
from franchise agreements, including a description of the services that the
franchisor has agreed to provide for agreements that have not yet been
substantially performed, shall be disclosed.
Subtopic 952-605: Franchisors—Revenue Recognition
Other Presentation Matters
952-605-45-1. Revenue and costs related to franchisor-owned outlets shall be
distinguished from revenue and costs related to franchised outlets when
practicable. That may be done by segregating revenue and costs related to
franchised outlets.
Disclosure
952-605-50-1. If no basis for estimating the collectibility of specific franchise fees
exists, the notes to the financial statements shall disclose whether the
installment or cost recovery method is being used to account for the related
franchise fee revenue. Furthermore, the sales price of such franchises, the
revenue and related costs deferred (both currently and on a cumulative basis),
and the periods in which such fees become payable by the franchisee shall be
disclosed. Any amounts originally deferred but later recognized because
uncertainties regarding the collectibility of franchise fees are resolved also shall
be disclosed.
952-605-50-2. Initial franchise fees shall be segregated from other franchise fee
revenue if they are significant. If it is probable that initial franchise fee revenue
will decline in the future because sales predictably reach a saturation point,
disclosure of that fact shall be made. Disclosure of the relative contribution to
net income of initial franchise fees also is required if not apparent from the
relative amounts of revenue.
952-605-50-3. If there are significant changes in franchisor-owned outlets or
franchised outlets during the period, the number of the following shall be
disclosed:
a. Franchises sold
b. Franchises purchased during the period
c. Franchised outlets in operation
d. Franchisor-owned outlets in operation.
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12 Topic 970: Real Estate—General
Subtopic 970-10: Real Estate—General—Overall
SEC Guidance
> Supplemental Schedules
1 Regulation S-X, Rule 12-29. See paragraph 948-310-S99-1 for the required
supplemental schedule disclosing mortgage loans on real estate.
2 SAB Topic 7.C. Although Rules 14a-3 and 14c-3 permit the omission of financial
statement schedules from annual reports to shareholders, the staff is of the view
that the information required by these schedules is of such significance within the
real estate industry that the information should be included in the financial
statements in the annual report to shareholders.
Subtopic 970-230: Real Estate—General—Statement of Cash Flows
Presentation
970-230-45-1. If real estate is acquired by a real estate developer to be subdivided,
improved, and sold in individual lots, then the cash payment to purchase that
real estate would be classified as an operating cash flow because the real estate
is acquired specifically for resale and is similar to inventory in other businesses.
Subtopic 970-360: Real Estate—General—Property, Plant, and Equipment
SEC Guidance
> Supplemental Schedules
1 Regulation S-X Rule 5-04(c). Schedule III—Real estate and accumulated
depreciation. The schedule prescribed by § 210.12–28 shall be filed for real estate
(and the related accumulated depreciation) held by persons a substantial portion of
whose business is that of acquiring and holding for investment real estate or
interests in real estate, or interests in other persons a substantial portion of whose
business is that of acquiring and holding real estate or interests in real estate for
investment. Real estate used in the business shall be excluded from the schedule.
See paragraph 970-360-S99-1, Regulation S-X Rule 12-28, for the requirements
of Schedule III—Real Estate and Accumulated Depreciation.
Subtopic 970-810: Real Estate—General—Consolidation
Presentation
> Undivided Interests
970-810-45-1. An investment in real property may be presented by recording the
undivided interest in the assets, liabilities, revenue, and expenses of the venture
if all of the following conditions are met:
a. The real property is owned by undivided interests.
b. The approval of two or more of the owners is not required for decisions
regarding the financing, development, sale, or operations of real estate
owned.
c. Each investor is entitled to only its pro rata share of income.
d. Each investor is responsible to pay only its pro rata share of expenses.
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e. Each investor is severally liable only for indebtedness it incurs in
connection with its interest in the property.
13 Topic 972: Real Estate—Common Interest Realty Associations
Subtopic 972-205: Real Estate—Common Interest Realty Associations—
Presentation of Financial Statements
Presentation
> Fund Reporting
972-205-45-1. Assets transferred to the common interest realty association by the
developer and recognized in the balance sheet shall be reported as additions to
the operating fund balance (or property fund, if such a fund is established). A
common interest realty association may not need to use fund reporting if it does
not assess for future major repairs and replacements.
972-205-45-2. Common interest realty associations that assess owners annually for
portions of future major repairs and replacements shall report those assessed
amounts separately from amounts assessed for normal operations. If a common
interest realty association uses fund reporting, amounts assessed for future
major repairs and replacements shall be reported in the major repair and
replacement fund separately from transactions in the operating fund.
Transfers between funds that are not part of the current-period operating
revenues shall be presented only in a statement of changes in fund balances or
in a statement of changes in members' equity, if a nonfund reporting approach is
used.
972-205-45-3. Some common interest realty associations may also conduct
commercial operations or separate business activities, such as rental operations,
in addition to their primary activities. Such activities may be reported on as one
or more additional funds.
> Nonfund Reporting
972-205-45-4. Nonfund reporting is an acceptable alternative to fund reporting.
However, fund reporting is considered more informative to users.
972-205-45-5. Because this Subtopic primarily addresses the fund reporting approach,
readers should substitute the term members' equity for the term fund balance if
financial statements using nonfund reporting are presented. Furthermore, the
fund for major repairs and replacements would be presented as an appropriation
of retained earnings in such financial statements.
> Financial Statement Requirements
972-205-45-6. Full presentations of financial statements for common interest realty
associations presented in conformity with generally accepted accounting
principles (GAAP) shall include all of the following:
a. A balance sheet
b. A statement of revenues and expenses
c. A statement of changes in fund balances or a statement of changes in
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members' equity if nonfund reporting is used
d. A statement of cash flows
e. Notes to financial statements.
972-205-45-7. Information about the operating fund shall present assets, liabilities,
and the fund balance specifically associated with the common interest realty
association's normal maintenance and service activities. For example, the
operating fund shall include information about cash, assessments receivable,
prepaid expenses, and trade payables. Property and equipment, if reported as
assets, are generally reported in the operating fund.
If the amount of property and equipment held by a common interest realty
association is significant, the common interest realty association may account
for it in a separate fund.
972-205-45-8. The presentation of information about the fund for major repairs and
replacements (the replacement fund) shall include information about assets,
liabilities, and the fund balance specifically associated with the common interest
realty association's long-term major repair and replacement activities. The fund
includes all assets that are held, for example, for the future replacement of
roofs, roads, and furniture (some common interest realty associations may have
a deferred maintenance fund which is used for painting or refinishing of
building exteriors). Those assets usually consist of cash, marketable securities,
and short-term investments. Liabilities in that fund generally are for work done
on contracts for major repairs and replacements.
972-205-45-9. The statement of revenues and expenses shall present information
about all assessments, other revenues, and expenses. All common interest realty
association activities, except for replacement fund activities, shall be presented
in the operating fund in the statement of revenues and expenses unless the
common interest realty association has other funds such as a deferred
maintenance fund or a capital improvement fund, and so forth. Depreciation
shall be reported as an expense of the fund in which the asset is reported.
972-205-45-10. The financial statements shall include a statement of changes in fund
balances, which reconciles beginning and ending fund balances with results of
operations for the period. The statement may be presented separately or may be
combined with the statement of revenues and expenses.
Permanent transfers between funds shall be presented as interfund transfers in
the statement of changes in fund balances, not as revenues.
> Interfund Receivables and Payables
972-205-45-12. Corresponding interfund receivables and payables shall be presented
to highlight the transactions resulting in those balances and to provide
information about amounts assessed and collected that were not used in
accordance with the budget.
> Unclassified Balance Sheets
972-205-45-13. Common interest realty associations can generally present
unclassified balance sheets. Common interest realty associations having
significant commercial operations, however, should consider presenting
classified balance sheets.
> Cooperatives
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972-205-45-14. Cooperatives shall present all of the following:
a. A balance sheet
b. A statement of operations
c. A statement of changes in shareholders' equity
d. A statement of cash flows
e. Notes to financial statements
f. The supplementary information required by paragraph 972-235-50-3 (in this
checklist).
972-205-45-15. Statements of operations of cooperatives shall present information
about all revenues and expenses. Reported revenues shall include all charges to
tenant-shareholders and other income. If per-share data are deemed useful, they
shall be considered for disclosure in the notes to the financial statements.
972-205-45-16. A statement of retained earnings (deficit) may be combined with the
statement of operations. If there is activity in paid-in capital, a separate
statement of shareholders' equity should be prepared.
Disclosure
> Cooperatives
972-205-50-1. Components of retained earnings or deficit shall not be disclosed.
Allocating a portion of retained earnings to an amount equal to accumulated
depreciation is an unacceptable practice.
Subtopic 972-235: Real Estate—Common Interest Realty Associations—Notes to
Financial Statements
Disclosure
972-235-50-1. In addition to disclosures required by generally accepted accounting
principles (GAAP) for other entities, the notes to a common interest realty
association's financial statements shall also include disclosures about all of the
following:
a. The common interest realty association's legal form (corporation or
association) and that of the entity for which it provides services (for
example, condominium, homeowners association, cooperative), areas it
controls, and the number of units.
In place of the number of units, cooperative housing corporations may
disclose the number of shares, and time-share associations may disclose the
number of weeks.
b. Services (such as maintenance) and subsidies provided by the developer
c. The number of units (shares for cooperative housing corporations and
weeks for time-share associations) owned by the developer.
> Future Major Repairs and Replacements
972-235-50-2. A common interest realty association shall disclose information in its
notes to financial statements about its funding for future major repairs and
replacements. Disclosures about such funding shall include all of the following:
a. Requirements, if any, in statutes or the common interest realty association's
documents (or mortgage or governmental bodies funding requirements, for
example, Federal Housing Administration often has such requirements) to
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accumulate funds for future major repairs and replacements and the
common interest realty association's compliance or lack of compliance with
them
b. A description of the common interest realty association's funding policy, if
any, and compliance with that policy
c. A statement that funds, if any, are being accumulated based on estimated
future (or current) costs, that actual expenditures may vary from these
estimates, and that the variations may be material
d. Amounts assessed for major repairs and replacements in the current period,
if any
e. A statement indicating whether a study was conducted to estimate the
remaining useful lives of common property components and the costs of
future major repairs and replacements.
Common interest realty associations that fund future major repairs and
replacements by special assessments or borrowings when needs occur shall
disclose that information.
> Required Supplementary Information
972-235-50-3. Common interest realty associations shall disclose the following as
unaudited supplementary information:
a. Estimates of current or future costs of future major repairs and replacements
of all existing components, such as roofs, including:
1. Estimated amounts required
2. Methods used to determine the costs
3. The basis for calculations (including assumptions, if any, about interest
and inflation rates)
4. Sources used
5. The dates of studies, made for this purpose, if any.
There is no requirement for common interest realty associations to obtain
studies prepared by professional engineers. The estimates may be made by
the board of directors or estimates obtained from licensed contractors.
b. A presentation of components to be repaired and replaced, estimates of the
remaining useful lives of those components, estimates of current or future
replacement costs, and amounts of funds accumulated for each to the extent
designated by the board.
Subtopic 972-360: Real Estate—Common Interest Realty Associations—
Property, Plant, and Equipment
Disclosure
> General Information
972-360-50-1. All of the following information about a common interest realty
association's common property shall be disclosed in the notes to its financial
statements:
a. The accounting policy for recognition and measurement of common
property
b. A description of common property recognized as assets in the common
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interest realty association's balance sheet
c. A description of common property to which the common interest realty
association has title, or other evidence of ownership, that is not recognized
as assets in the common interest realty association's balance sheet
d. The common interest realty association's responsibility to preserve and
maintain the common property
e. Terms and conditions of existing land or recreation leases
f. Restrictions on the use or disposition of the common property.
972-360-50-2. All property owned by a cooperative shall be presented on its balance
sheets.
> Depreciation
972-360-50-3. For property and equipment recognized as assets by common interest
realty associations the following information shall be disclosed:
a. Depreciation expense for the period
b. Balances of major classes of depreciable assets, by nature or function, at the
reporting date
c. Accumulated depreciation, either by major classes of depreciable assets or
in total, at the reporting date
d. A general description of the method or methods used in computing
depreciation for major classes of depreciable assets.
Subtopic 972-605: Real Estate—Common Interest Realty Associations—Revenue
Recognition
Presentation
972-605-45-1. Periodic assessments for funding future major repairs and replacements
shall be reported in the replacement fund in statements of revenues and
expenses in the periods in which they are assessed, regardless of whether they
have been collected or expended.
972-605-45-2. Information about revenues shall include amounts for regular and
special assessments from members and amounts for such items as assessments
charged to the developer, developer contributions and subsidies, lawsuit
settlements, interest income, laundry and vending machine income, or specialuse charges from members and nonmembers. Individual categories of revenues
may be combined if not material. Interest earned shall be presented as revenue
of the appropriate fund unless the common interest realty association has a
specific policy to treat it otherwise.
Disclosure
972-605-50-1. In addition to disclosures required by generally accepted accounting
principles (GAAP) for other entities, the notes to a common interest realty
association's financial statements shall also include disclosures about both of the
following:
a. The proposed use for funds collected in special assessments
b. Assessments that were used for purposes other than those for which they
were designated.
> Significant Sources of Revenue
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972-605-50-2. The developer or other parties may provide the common interest realty
association with some of its revenues. If 10 percent or more of a common
interest realty association's revenues are derived from any one source, that fact
and the amount of revenue from each source shall be disclosed.
Subtopic 972-740: Real Estate—Common Interest Realty Associations—Income
Taxes
Presentation
972-740-45-1. Because income taxes are generally not related to the excess of
revenues over expenses as in commercial entities, they may be presented in the
same manner as other operating expenses in the statement of revenue and
expenses. Common interest realty associations should follow the guidance in
Topic 740.
Disclosure
972-740-50-1. In addition to disclosures required by generally accepted accounting
principles (GAAP) for other entities, the notes to a common interest realty
association's financial statements shall include disclosures about both of the
following:
a. The common interest realty association's income tax filing status and its
liability for income taxes
b. Credits from taxing authorities that will be phased out in future reporting
periods.
Subtopic 972-850: Real Estate—Common Interest Realty Associations—Related
Party Disclosures
Disclosure
972-850-50-1. Some individual board members, officers, or developers may provide
common interest realty associations with insurance, maintenance, or
management services. Such services may require disclosure in conformity with
Topic 850.
14 Topic 974: Real Estate—Real Estate Investment Trusts
Subtopic 974-10: Real Estate—Real Estate Investment Trusts—Overall
SEC Guidance
> Income Statement Presentation
1 Regulation S-X Rule 3-15(a)(1). The income statement prepared pursuant to §
210.5–03 shall include the following additional captions between those required
by § 210.5–03.15 and 16:
a. income or loss before gain or loss on sale of properties, extraordinary items
and cumulative effects of accounting changes, and
b. gain or loss on sale of properties, less applicable income tax.
> Balance Sheet Presentation
2 Regulation S-X Rule 3-15(a)(2). The balance sheet required by § 210.5–02 shall
set forth in lieu of the captions required by § 210.5–02.31(a)(3):
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a. The balance of undistributed income from other than gain or loss on sale of
properties and
b. accumulated undistributed net realized gain or loss on sale of properties. The
information specified in §210.3–04 shall be modified similarly.
The trust's status as a real estate investment trust under applicable provisions
of the Internal Revenue Code as amended shall be stated in a note referred to
in the appropriate statements. Such note shall also indicate briefly the
principal present assumptions on which the trust has relied in making or not
making provisions for Federal income taxes.
The tax status of distributions per unit shall be stated (e. g., ordinary income,
capital gain, return of capital).
Subtopic 974-605: Real Estate—Real Estate Investment Trusts—Revenue
Recognition
Presentation
> Operating Support of the Real Estate Investment Trust by the Adviser
974-605-45-1. The effect of the operating support transactions described in
paragraphs 974-605-25-2 and 974-605-50-1 (in this checklist) shall be reported
separately in the income statement.
Disclosure
> Operating Support of the Real Estate Investment Trust by the Adviser
974-605-50-1. A real estate investment trust with operating support from its adviser
shall make full disclosure of the relationship between the parties and the nature
and amount of the transactions.
15 Topic 976: Real Estate—Retail Land
Subtopic 976-310: Real Estate—Retail Land—Receivables
Disclosure
976-310-50-1. Disclosures by entities with retail land sales operations shall include all
of the following:
a. Maturities of accounts receivable for each of the five years following the
date of the financial statements
b. Delinquent accounts receivable and the method(s) for determining
delinquency
c. The weighted average and range of stated interest rates of receivables.
Subtopic 976-330: Real Estate—Retail Land—Inventory
Disclosure
976-330-50-1. Disclosures by entities with retail land sales operations shall include
both of the following:
a. Estimated total costs and estimated dates of expenditures for improvements
for major areas from which sales are being made over each of the five years
following the date of the financial statements
b. Recorded obligations for improvements.
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16 Topic 978: Real Estate—Time Sharing Activities
Subtopic 978-230: Real Estate—Time-Sharing Activities—Statement of Cash
Flows
Presentation
978-230-45-1. Changes in time-sharing notes receivable, including sales of the notes,
shall be reported in the statement of cash flows as cash flows from operating
activities.
Subtopic 978-310: Real Estate—Time Sharing Activities—Receivables
Presentation
978-310-45-1. A time-share seller’s balance sheet shall include gross notes receivable
from time-sharing sales, a deduction from notes receivable for the allowance for
uncollectibles (see paragraphs 978-310-35-5 through 35-6), and a deduction
from notes receivable for any profit deferred under Subtopic 360-20.
Disclosure
978-310-50-1. As noted in paragraph 978-330-35-1, the effects of changes in estimate
in the relative sales value method shall be disclosed in accordance with Topic
250. In addition to the information otherwise required by generally accepted
accounting principles (GAAP), the financial statements of entities with timesharing transactions shall disclose all of the following:
a. Maturities of notes receivable for each of the five years following the date
of the financial statements and in the aggregate for all years thereafter. The
total of the notes receivable balances displayed with the various maturity
dates shall be reconciled to the balance-sheet amount of notes receivable.
b. The weighted average and range of stated interest rates of notes receivable.
c. The estimated cost to complete improvements and promised amenities.
d. The activity in the allowance for uncollectibles, including the balance in the
allowance at the beginning and end of each period, additions associated
with current-period sales, direct writeoffs charged against the allowance,
and changes in estimate associated with prior-period sales. If the developer
sells receivables with recourse, the seller shall provide the same disclosure
of activity on receivables sold.
e. The seller’s policies with respect to meeting the criteria for buyer’s
commitment and collectibility of sales prices in paragraphs 360-20-40-5(b)
and 360-20-40-50(b), respectively.
Subtopic 978-330: Real Estate—Time Sharing Activities—Inventory
Disclosure
978-330-50-1. The effects of changes in estimates used to perform the relative sales
value method shall be disclosed in accordance with paragraph 250-10-50-4 (in
this checklist).
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17 Topic 985: Software
Subtopic 985-20: Software—Costs of Software to Be Sold, Leased, or Marketed
Presentation
985-20-45-1. Because amortization expense of capitalized software costs relates to a
software product that is marketed to others, the expense shall be charged to cost
of sales or a similar expense category.
985-20-45-2. In an entity's balance sheet, capitalized software costs having a life of
more than one year or one operating cycle shall be presented as an other asset
because the costs are an amortizable intangible asset.
Disclosure
985-20-50-1. Both of the following shall be disclosed in the financial statements:
a. Unamortized computer software costs included in each balance sheet
presented.
b. The total amount charged to expense in each income statement presented
for both of the following:
1 Amortization of capitalized computer software costs
2 Amounts written down to net realizable value.
The amortization and write-down amounts may be combined with only the total
of the two expenses being disclosed.
985-20-50-2. Paragraph 350-30-15-3 requires that an entity apply the disclosure
requirements of paragraphs 350-30-50-1 through 50-3 (in this checklist) (relates
to general intangible assets other than goodwill) to capitalized software costs.
Paragraph 730-10-50-1 (in this checklist) requires that disclosure be made in the
financial statements of the total research and development costs charged to
expense in each period for which an income statement is presented and states
that such disclosure shall include research and development costs incurred for a
computer software product to be sold, leased, or otherwise marketed.
Subtopic 985-605: Software—Revenue Recognition
Disclosure
985-605-50-1. For multiple-element arrangements that include deliverables within the
scope of this Subtopic and deliverables that are not within the scope of this
Subtopic, a vendor shall provide the disclosures included in the pending content
in paragraphs 605-25-50-1 through 50-2 (in this checklist).
18 Topic 995: U.S. Steamship Entities
Subtopic 995-740: U.S. Steamship Entities—Income Taxes
Disclosure
995-740-50-2. All of the following information shall be disclosed whenever a deferred
tax liability is not recognized because of the exception to comprehensive
recognition of deferred taxes for deposits in statutory reserve funds by U.S.
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steamship entities:
a. A description of the types of temporary differences for which a deferred tax
liability has not been recognized and the types of events that would cause
those temporary differences to become taxable.
b. The cumulative amount of each type of temporary difference.
c. The amount of the deferred tax liability for temporary differences
attributable to the statutory reserve funds of a U.S. steamship entity that is
not recognized in accordance with paragraph 995-740-25-2.
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