Quarterly Accounting Standards Update
2014, 3rd Quarter
By Larry L. Perry, CPA
CPA Firm Support Services, LLC
Learning Objectives

To understand U.S. GAAP Accounting Standards Updates (ASUs)
commonly applicable to non-public, non-governmental entities

To be aware of trend-setting disclosure requirements in certain previous
ASUs

To recognize differences from U.S. GAAP in the AICPA’s Financial
Reporting Framework for Small- and Medium-sized Entities (Bonus
Section)
Introduction
The Financial Accounting Standards Board Accounting Standards Codification™
(FASB ASC) became effective September 15, 2009. In the future, the FASB will
issue Accounting Standards Updates (ASU) instead of the manner in which
previous changes to accounting standards were issued.
ASUs




Are not considered to be authoritative in their own right
Serve only to update the Codification,
Provide background information about the guidance, and
Provide the bases for conclusions on the change(s) in the Codification.
Standards included in this update presentation are those which are most
important and commonly applicable to financial statements and footnotes
of non-public, non-governmental entities. The content also includes a
presentation of certain ASUs from the preceding years that indicate
disclosure trends and practices for fair presentation frameworks. A fair
presentation framework includes all disclosures necessary for a user to
understand and evaluate an entity’s financial position and results of
operations.
Important Accounting Standards Updates
ASU No. 2010–20
ASU No. 2010–20, Receivables (Topic 310) Disclosures about the Credit
Quality of Financing Receivables and the Allowance for Credit Losses
Effective
1
For public entities (issuers),

The disclosures as of the end of a reporting period are effective for
interim and annual reporting periods ending on or after December 15,
2010.

The disclosures about activity that occurs during a reporting period are
effective for interim and annual reporting periods beginning on or after
December 15, 2010.

Therefore, for calendar year issuers, the year end information will be
presented for 2010, but activity for the year will not be presented until 1st
quarter 2011.
For nonpublic entities (non issuers),

The disclosures are effective for annual reporting periods ending on or
after December 15, 2011.
Comparative Disclosures

The amendments in this Update encourage, but do not require,
comparative disclosures for earlier reporting periods that ended before
initial adoption.

An entity should provide comparative disclosures for those reporting
periods ending after initial adoption.
Who Is Affected?
 Amendments in this Update apply to all entities, both public and
nonpublic.
 Amendments in this Update affect all entities with financing
receivables, excluding short-term trade accounts receivable or
receivables measured at fair value or lower of cost or fair value.
 The extent of the effect depends on the relative significance of
financing receivables to an entity’s operations and financial
position.
Example: Traditional banking-type institutions, that currently
measure a large number of financing receivables at amortized
cost, will be affected to a greater extent than brokers and dealers
in securities and investment companies that currently measure
most financing receivables at fair value. For many commercial and
industrial entities, whose financing receivables are primarily shortterm trade accounts receivable, the impact will be less significant.
2
Main Provisions
This Update requires an entity to provide disclosures that
facilitate financial statement users’ evaluation of the following:
 The nature of credit risk inherent in the entity’s
portfolio of financing receivables
 How that risk is analyzed and assessed in arriving
at the allowance for credit losses
 The changes and reasons for those changes in the
allowance for credit losses.
To achieve the above objective, an entity should provide
disclosures on a disaggregated basis. The amendments in this
Update defines two levels of disaggregation—portfolio
segment and class of financing receivable.

A portfolio segment is defined as the level at which an
entity develops and documents a systematic method for
determining its allowance for credit losses. See ASC 31010-55-21 through 55-22.
o

Examples of segments:

Type of financing receivable

Industry sector of borrower

Risk rates
Classes of financing receivables generally are a
disaggregation of a portfolio segment and are determined
on a facts and circumstances basis. See ASC 310-10-5522.
The Update provides additional implementation guidance to
determine the appropriate level of disaggregation of
information. Care must be taken to avoid providing so much
disaggregation that significant information is lost in
insignificant data versus aggregation at such a high level that
does not distinguish significant information.
Existing disclosures are amended to require an entity to
provide the following disclosures about its financing
receivables on a disaggregated basis:
 A rollforward schedule of the allowance for credit
losses from the beginning of the reporting period to
the end of the reporting period on a portfolio
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segment basis, with the ending balance further
disaggregated on the basis of the impairment
method
 For each disaggregated ending balance in item (1)
above, the related recorded investment in financing
receivables
 The nonaccrual status of financing receivables by
class of financing receivables
 Impaired financing receivables by class of financing
receivables.
This Update requires an entity to provide the following
additional disclosures about its financing receivables:
 Credit quality indicators of financing receivables at
the end of the reporting period by class of financing
receivables
 The aging of past due financing receivables at the
end of the reporting period by class of financing
receivables
 The nature and extent of troubled debt
restructurings that occurred during the period by
class of financing receivables and their effect on
the allowance for credit losses
 The nature and extent of financing receivables
modified as troubled debt restructurings within the
previous 12 months that defaulted during the
reporting period by class of financing receivables
and their effect on the allowance for credit losses
 Significant purchases and sales of financing
receivables during the reporting period
disaggregated by portfolio segment
ASU No. 2011–05
ASU 2011-05 Comprehensive Income (Topic 220) Presentation of
Comprehensive Income
Why Issued
The objective of ASU No. 2011–05 is
4

to improve the comparability, consistency, and transparency of financial
reporting and

to increase the prominence of items reported in other comprehensive
income.

To meet this objective and to facilitate convergence of U.S. GAAP and
IFRS, the FASB decided to eliminate the option to present components of
other comprehensive income as part of the statement of changes in
stockholders’ equity, among other amendments in this Update.
The amendments require
o
all non-owner changes in stockholders’ equity be
presented either of two formats:

in a single continuous statement of comprehensive
income or

in two separate but consecutive statements.

In the two-statement approach, the
first statement should present total
net income and its components

The second statement should
present total other comprehensive
income, the components of other
comprehensive income, and the total
of comprehensive income.
Who Is Affected
All entities that report items of other comprehensive income, in any period
presented, will be affected by the changes in this Update.
Main Provisions

Under the amendments to Topic 220, Comprehensive Income,
in this Update, an entity has the option to present the total of
comprehensive income, the components of net income, and
the components of other comprehensive income either in a
single continuous statement of comprehensive income or in
two separate but consecutive statements.
In both choices, an entity is required to present:
o
each component of net income along with total net
income,
5
o
each component of other comprehensive income
along with a total for other comprehensive income, and a
total amount for comprehensive income.
Single Continuous Statement –In a single continuous statement,
the entity is required to present:
o
the components of net income and total net
income,
o
and
the components of other comprehensive income
o
a total for other comprehensive income, along with
the total of comprehensive income in that statement.
Two–Statement Approach –In the two-statement approach, an
entity is required to present
o
In the statement of net income, components of net
income and total net income
o
The statement of other comprehensive income
should immediately follow the statement of net income and
include

components of other comprehensive
income and

a total for other comprehensive income,
along with a total for comprehensive
income.
In either the single continuous statement or the two separate but
consecutive statements presentation, the entity is required to
o
present on the face of the financial statements
reclassification adjustment items that are reclassified from
other comprehensive income to net income in the
statement(s) where the components of net income and the
components of other comprehensive income are
presented.
The amendments in this Update do not change
o
the items that must be reported in other
comprehensive income or when an item of other
comprehensive income must be reclassified to net income.
o
the option for an entity to present components of
other comprehensive income either net of related tax
6
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.
In both cases, the tax effect for each component must be
disclosed in the notes to the financial statements or
presented in the statement in which other comprehensive
income is presented.
o
how earnings per share is calculated or presented.
Effective Date

The amendments in this Update should be applied
retrospectively.

For public entities, the amendments are effective for fiscal
years, and interim periods within those years, beginning after
December 15, 2011.

For nonpublic entities, the amendments are effective for fiscal
years ending after December 15, 2012, and interim and annual
periods thereafter.

Early adoption is permitted, because compliance with the
amendments is already permitted. The amendments do not
require any transition disclosures.
EXAMPLE (Continuous Statement)
ABD Reporting Entity
Statement of Comprehensive Income
For the Year Ending December 31, 20XX
Revenues
Expenses1
Gain on sale of securities
Unrealized gain on securities reclassified from
other comprehensive income1
Income from operations before income taxes
Income tax expense
Net income
$240,000
(50,000)
$
4,000
8,000
12,000
202,000
(51,000)
$151,000
Other comprehensive income, before taxes:
Unrealized gain on securities:
7
Increase in unrealized gain on securities, net of
amount reclassified to operating income1
Defined benefit pension plan:
Prior service costs arising during the year
Net gain arising during the period
Amortization of prior service cost included in
net periodic pension expense1
Other comprehensive income, before tax
$ 27,000
(8,000)
1,000
2,000
(5,000)
22,000
Tax on items in other comprehensive income2
Other comprehensive income, net of tax
Comprehensive income
(5,000)
$ 17,000
$168,000
ASU 2011-07
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
Why Issued
Health care entities may recognize revenue for which the ultimate collection of all
or a certain portion of the amount billed or billable is not reasonably assured at
the time the services are rendered.
Stakeholders raised concerns that such accounting practices result in a gross-up
of revenue for amounts that are not expected ultimately to be collected.
Additionally, because health care entities make their own judgments regarding
adjustments to revenue and bad debts, those judgments are different from one
another and comparability is impaired, making analysis difficult for financial
statement users.
The objective of this Update is to provide financial statement users with greater
transparency about a health care entity’s net revenue and allowance for doubtful
accounts. This Update provides information to assist financial statement users in
assessing an entity’s sources of net revenue and changes in its allowance for
doubtful accounts. The amendments require health care entities to report the
provision for bad debts as a reduction from revenue (net of contractual
allowances and discounts) on their statement of operations.
1
If separate statements are used for presentation of Net Income and Other Comprehensive Income, the
amounts reclassified from Other Comprehensive Income must be disclosed in each statement.
2
Individual components of other comprehensive income and the related tax effects must be disclosed in a
footnote if not separately presented on the Statement of Comprehensive Income. See ASC 220-10-55-8AB.
8
Who is Affected?
The amendments affect:
Entities within the scope of Topic 954, Health Care Entities that recognize
significant amounts of patient service revenue at the time services are rendered
even though the entities do not assess a patient’s ability to pay.
All other entities would continue to present the provision for bad debts (including
bad debts associated with patient service revenue) as an operating expense.
Main Provisions
The amendments would require:
Certain health care entities to change the presentation of their statement of
operations by reclassifying the provision for bad debts from an operating expense
to a reduction from revenue (net of contractual allowances and discounts).
Those health care entities are required to provide enhanced disclosure about their
policies for recognizing revenue and assessing bad debts.
Disclosures of revenue (net of contractual allowances and discounts) as well as
qualitative and quantitative information about changes in the allowance for
doubtful accounts.
EXAMPLE
Patient Services Revenue, net of contractual discounts
and allowances
Provision for uncollectible receivables
Net Patient Services Revenue
Other operating revenue
Total revenue
$75,000
(8,300)
66,700
15,400
$82,100
Effective Date

For public entities, the amendments in this Update are effective for fiscal years
and interim period within those fiscal years beginning after December 15, 2011.
Early adoption is permitted. The amendments related to the presentation of the
provision for bad debts in the statement of operations would be applied
retrospectively to all prior periods presented.

For nonpublic entities, the amendments are effective for the first annual
period ending after December 15, 2012, and interim and annual periods
thereafter. Early adoption is permitted.
The amendments to the presentation of the provision for bad debts related to
patient service revenue in the statement of operations should be applied
retrospectively to all prior periods presented. The disclosures required by the
9
amendments in this Update should be provided for the period of adoption and
subsequent reporting periods.
ASU 2011-08
ASU 2011-08 Intangibles—Goodwill and Other (Topic 350) Testing Goodwill for
Impairment
Why Issued
Preparers of private company financial statements expressed concerns to the
Board about the cost and complexity of performing the first step of the two-step
goodwill impairment test required under Topic 350, Intangibles—Goodwill and
Other.
Some financial statement preparers recommended, among other suggestions, that
the Board allow an entity to use a qualitative approach to test goodwill for
impairment.
Objective of this Update is to simplify how entities, both public and nonpublic,
test goodwill for impairment by:

Permitting an entity to first assess qualitative
factors to determine whether it is more likely than
not that the fair value of a reporting unit is less than
its carrying amount as a basis for determining
whether it is necessary to perform the two-step
goodwill impairment test described in Topic 350.

The more-likely-than-not threshold is defined as
having a likelihood of more than 50 percent.
Previous guidance under Topic 350

Required an entity to test goodwill for impairment,
on at least an annual basis, by comparing the fair
value of a reporting unit with its carrying amount,
including goodwill (step one).

If the fair value of a reporting unit is less than its
carrying amount, then the second step of the test
must be performed to measure the amount of the
impairment loss, if any.
Under the amendments in this Update, an entity is not required to calculate the
fair value of a reporting unit unless the entity determines that it is more likely than
not that its fair value is less than its carrying amount.
Who Is Affected
10
Applies to all entities, both public and nonpublic, that have goodwill reported in their
financial statements.
Main Provisions
Options:

An entity has the option to first assess qualitative
factors to determine whether the existence of
events or circumstances leads to a determination
that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount.

If, after assessing the totality of events or
circumstances, an entity determines it is not more
likely than not that the fair value of a reporting unit
is less than its carrying amount, then performing
the two-step impairment test is unnecessary.

If an entity concludes otherwise, then it is required
to perform the first step of the two-step impairment
test by calculating the fair value of the reporting unit
and comparing the fair value with the carrying
amount of the reporting unit, as described in
paragraph 350-20-35-4.

If the carrying amount of a reporting unit exceeds
its fair value, then the entity is required to perform
the second step of the goodwill impairment test to
measure the amount of the impairment loss, if any,
as described in paragraph 350-20-35-9.

An entity has the option to bypass the qualitative
assessment for any reporting unit in any period and
proceed directly to performing the first step of the
two-step goodwill impairment test.

An entity may resume performing the qualitative
assessment in any subsequent period.

This Update include examples of events and
circumstances that an entity should consider in
evaluating whether it is more likely than not that the
fair value of a reporting unit is less than its carrying
amount.

The examples of events and circumstances are not
intended to be all-inclusive, and an entity may
identify other relevant events or circumstances to
Examples
11
consider in determining whether to perform the first
step of the two-step impairment test.

None of the individual examples of events and
circumstances are intended to represent
standalone events or circumstances that
necessarily would require an entity to perform the
first step of the goodwill impairment test.

In reaching its conclusion about whether it is more
likely than not that the fair value of a reporting unit
is less than its carrying amount, an entity should
consider the extent to which each of the adverse
events or circumstances identified could affect the
comparison of a reporting unit’s fair value with its
carrying amount.

An entity should:
o
place more weight on the events and
circumstances that most affect a reporting unit’s
fair value or the carrying amount of its net assets.
o
consider positive and mitigating events and
circumstances that may affect its determination of
whether it is more likely than not that the fair
value of a reporting unit is less than its carrying
amount.

If an entity has a recent fair value calculation for a
reporting unit, it also should include as a factor in
its consideration the difference between the fair
value and the carrying amount in deciding whether
the first step of the impairment test is necessary.

The examples of events and circumstances that an
entity should consider in performing its qualitative
assessment about whether to proceed to the first
step of the goodwill impairment test supersede the
previous examples in paragraph 350-20-35-30 of
events and circumstances that an entity should
consider when testing goodwill for impairment
between annual tests.

The examples of events and circumstances also
supersede the previous examples of events and
circumstances that an entity having a reporting unit
with a zero or negative carrying amount should
consider in determining whether to perform the
second step of the impairment test, used to
measure the amount of the loss, if any.
12
An entity no longer is permitted to carry forward its detailed calculation of a
reporting unit’s fair value from a prior year as previously permitted by paragraph
350-20-35-29.
Effective Date
Effective for annual and interim goodwill impairment tests performed for fiscal
years beginning after December 15, 2011.
Early adoption is permitted, including for annual and interim goodwill impairment
tests performed as of a date before September 15, 2011, if an 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.
ASU 2011-09
ASU 2011-09 Compensation—Retirement Benefits—Multiemployer Plans (Subtopic
715-80) Disclosure about an Employer’s Participation in a Multiemployer Plan
Why Issued
The FASB received comments from various constituents on the perceived lack of
transparency about an employer’s participation in a multiemployer plan.
The amendments in this Update requires additional disclosures of an employer’s
participation in a multiemployer postretirement plan (for example, pension or
retiree healthcare).
Who is Affected
The amendments in this Update apply to all nongovernmental entities that
participate in multiemployer plans.
The amendments in this Update do not apply to plans that do not meet the
definition of a multiemployer plan as defined in the Master Glossary, including
multiple-employer plans that are, in substance, aggregations of single-employer
plans combined to allow participating employers to pool plan assets for
investment purposes or to reduce the costs of plan administration. Those plans
ordinarily do not involve collective-bargaining agreements.
Main Provisions
Under the amendments in this Update, an employer would be required to
provide, separately for multiemployer pension and multiemployer other
postretirement benefit plans, additional quantitative and qualitative disclosures
about its participation in a multiemployer plan as defined in the Master Glossary.
One aspect of a multiemployer plan, among many others, is that assets
contributed by one participating employer may be used to provide benefits to
13
employees of other participating employers because assets contributed by an
employer are not segregated in a separate account or restricted to provide
benefits only to employees of that employer. The proposed amendments on
disclosure are intended to provide information about the following:

The multiemployer plans with which the employer is
involved

The employer’s participation in the multiemployer
plan(s)

Any effects on the employer’s cash flows from its
participation in the multiemployer plan(s).
The proposed amendments would not change

The current recognition and measurement
guidance for an employer’s participation in a
multiemployer plan, which requires that an
employer recognize as pension or other
postretirement benefit cost its required contribution
to the plan for the period and recognize a liability
for any unpaid contributions.

The requirement that an employer apply the
provisions for contingencies in Topic 450 if an
obligation due to withdrawal from a multiemployer
plan is either probable or reasonably possible.

effective for annual periods for fiscal years ending
after December 15, 2011.

early adoption permitted.

effective for annual periods for fiscal years ending
after December 15, 2012,

early adoption permitted.
Effective Date
For public entities,
For nonpublic entities,
ASU No. 2011–11
ASU No. 2011–11 Accounting Standards Update Balance Sheet (Topic 210) Offsetting
was issued December 2011.
14
Main Proposals
An entity is required to offset (that is, present as a single net amount in the
statement of financial position) a recognized eligible asset and a recognized
eligible liability when

it has an unconditional and legally enforceable right
of setoff and

intends either to settle the asset and liability on a
net basis or to realize the asset and settle the
liability simultaneously (the “offsetting criteria”).
Objective of the Requirements
The proposals:

clarify that the offsetting criteria would apply
whether the right of setoff arises from a bilateral
arrangement or from a multilateral arrangement
(that is, between three or more parties).

clarify that a right of setoff must be legally
enforceable in all circumstances (including default
or bankruptcy of a counterparty) and that its
exercisability must not be contingent on a future
event.

require an entity to disclose information about
offsetting and related arrangements (such as
collateral agreements) to enable users of its
financial statements to understand the effect of
those arrangements on its financial position.
The requirements establish a principle for offsetting eligible assets and eligible
liabilities that ensures that a recognized eligible asset and a recognized eligible
liability are offset only if:

On the basis of the rights and obligations
associated with the eligible asset and eligible
liability, the entity has, in effect, a right to or
obligation for only the net amount (that is, the entity
has, in effect, a single net eligible asset or eligible
liability); and

The amount, resulting from offsetting the eligible
asset and eligible liability, reflects an entity’s
expected future cash flows from settling two or
more separate eligible instruments.
15
In all other circumstances, an entity’s recognized eligible assets and recognized
eligible liabilities are presented in the statement of financial position separately
from each other, according to their nature as assets or liabilities.
Eligible assets and eligible liabilities will be presented in the financial statements
in a manner that provides information that is useful for assessing:

The entity’s ability to generate cash in the future
(the prospects for future net cash flows)

The nature and amounts of the entity’s economic
resources and claims against the entity

The entity’s liquidity and solvency.
Effective Date
An entity is required to apply the amendments for annual reporting periods beginning on
or after January 1, 2013, and interim periods within those annual periods. An entity
should provide the disclosures required by those amendments retrospectively for all
comparative periods presented.
ASU 2012-02
Accounting Standards Update 2012-02 Intangibles—Goodwill and Other (Topic
350)Testing Indefinite-Lived Intangible Assets for Impairment was issued July 2012.
Why Issued
The objective of the amendments in this Update is to reduce the cost and
complexity of performing an impairment test for indefinite-lived intangible assets
by simplifying how an entity tests those assets for impairment and to improve
consistency in impairment testing guidance among long-lived asset categories.
The amendments permit:

An entity first to assess qualitative factors to
determine whether it is more likely than not that an
indefinite-lived intangible asset is impaired as a
basis for determining whether it is necessary to
perform the quantitative impairment test in
accordance with Subtopic 350-30, Intangibles—
Goodwill and Other—General Intangibles Other
than Goodwill.
The more-likely-than-not threshold is defined as having a
likelihood of more than 50 percent.
Previous guidance in Subtopic 350-30 required an entity to test
indefinite-lived intangible assets for impairment, on at least an
16
annual basis, by comparing the fair value of the asset with its
carrying amount.

If the carrying amount of the intangible asset
exceeds its fair value, an entity should recognize an
impairment loss in the amount of that excess.

In accordance with the amendments in this Update,
an entity will have an option to forgo annual
calculation of the fair value of an indefinite-lived
intangible asset if the entity determines that it is not
more likely than not that the asset is impaired.
Permitting an entity to assess qualitative factors when testing
indefinite-lived intangible assets for impairment results in guidance
that is similar to the goodwill impairment testing guidance in
Update 2011-08.
Who Is Affected
The amendments in this Update apply to all entities, both public and
nonpublic, that have indefinite-lived intangible assets, other than goodwill,
reported in their financial statements.
Main Provisions
An entity has the option first to assess qualitative factors to determine whether
the existence of events and circumstances indicates that it is more likely than not
that the indefinite-lived intangible asset is impaired.
If, after assessing the totality of events and circumstances, an entity concludes
that it is not more likely than not that the indefinite-lived intangible asset is
impaired, then the entity is not required to take further action.
If an entity concludes otherwise, then it is required to determine the fair value of
the indefinite-lived intangible asset and perform the quantitative impairment test
by comparing the fair value with the carrying amount in accordance with Subtopic
350-30.



An entity also has the option to bypass the qualitative assessment
for any indefinite-lived intangible asset in any period and proceed
directly to performing the quantitative impairment test.
An entity will be able to resume performing the qualitative
assessment in any subsequent period.
In conducting a qualitative assessment, an entity should:

consider the extent to which relevant events and
circumstances, both individually and in the
17


aggregate, could have affected the significant
inputs used to determine the fair value of the
indefinite-lived intangible asset since the last
assessment.
consider whether there have been changes to the
carrying amount of the indefinite-lived intangible
asset when evaluating whether it is more likely than
not that the indefinite-lived intangible asset is
impaired.
consider positive and mitigating events and
circumstances that could affect its determination of
whether it is more likely than not that the indefinitelived intangible asset is impaired.
Refer to the examples in paragraph 350-30-35-18B(a)
through (f) for guidance about the types of events and
circumstances that it should consider in evaluating whether
it is more likely than not that an indefinite-lived intangible
asset is impaired. If an entity has made a recent fair value
calculation that indicated a difference between the fair
value and the then carrying amount of an indefinite-lived
intangible asset, that difference also should be included as
a factor in considering whether it is more likely than not
that the indefinite-lived intangible asset is impaired.
The examples referred to above include:
 Cost factors that may impact future cash flows and
affect significant inputs for fair value measurement.
 Financial performance such as negative or
declining cash flows.
 Legal, regulatory, contractual, political, business or
other factors, including specific-asset factors used
to determine fair value.
 Other relevant entity-specific events (e.g., changes
in management, key personnel, strategy,
customers, litigation or potential bankruptcy.)
18
Industry and market considerations
Macro economic conditions such as deterioration of general economic conditions,
limitations on accessing capital or other developments in equity or credit markets.
Effective Date
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.
ASU No. 2012–05
Accounting Standards Update Statement of Cash Flows (Topic 230) Not- for-Profit
Entities: Classification of the Sale of Donated Securities in the Statement of Cash Flows
was issued October 2012.
Why Issued
The objective is to address the diversity in practice in classification of cash
receipts arising from the sale of certain donated securities in the statement of
cash flows of not-for-profit entities (NFPs).

Some NFPs classify the cash receipts arising from
the sale of donated securities as investing cash
inflows.

Other entities classify the cash receipts from the
sale of donated securities as either operating cash
inflows or financing cash inflows, consistent with
their treatment of inflows arising from cash
contributions.
Who is Affected
The amendments would affect any entity within the scope of Topic 958,
Not-for-Profit Entities, that accepts donated securities.
Main Provisions
An NFP would be required to classify cash receipts from the sale of donated
securities consistently with cash donations received in the statement of cash
flows if those cash receipts were from the sale of donated securities:

that upon receipt are directed for sale and
19

for which the NFP has the ability to avoid significant
investment risks and rewards through near
immediate conversion into cash.

Accordingly the cash receipts from the sale of those
securities would be classified as cash inflows from
operating activities,
Alternatively, if the donor restricted the use of the contributed resources to longterm purposes, those cash receipts would be classified as cash flows from
financing activities.
Otherwise, receipts from the sale of donated securities would be classified as
cash flows from investing activities by the NFP.
Effective Date
Effective prospectively for fiscal years, and interim periods within those years,
beginning after June 15, 2013.
Retrospective application to all prior periods presented upon the date of adoption
is permitted.
Early adoption from the beginning of the fiscal year of adoption is permitted.
For fiscal years beginning before October 22, 2012, early adoption is permitted
only if an NFP’s financial statements for those fiscal years and interim periods
within those years have not yet been made available for issuance.
ASU 2013-02 (Topic 825)
ASU 2013-02 Comprehensive Income (Topic 220) Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income was issued
February 2013
Why Issued
 The objective of this Update is to improve the reporting of
reclassifications out of accumulated other comprehensive
income by requiring an entity to report the effect of significant
reclassifications out of accumulated other comprehensive
income on the respective line items in net income if the amount
being reclassified is required under U.S. GAAP to be
reclassified in its entirety to net income.
 For other amounts that are not required under U.S. GAAP to be
reclassified in their entirety to net income in the same reporting
period, an entity is required to cross-reference other
20
disclosures required under U.S. GAAP that provide additional
detail about those amounts.
Who Is Affected
 The amendments in this Update apply to all entities that issue
financial statements that are presented in conformity with U.S.
GAAP and that report items of other comprehensive income.
 Public companies are required to comply with these
amendments for all reporting periods presented, including interim
periods.
 Nonpublic entities are required to comply with all the
requirements of the amendments for annual reporting periods.

Not-for-profit entities that report under the requirements of
Subtopic 958-205, Not-for-Profit Entities—Presentation of
Financial Statements, are excluded from the scope of
these amendments.
Main Provisions
 The amendments do not change the current requirements for
reporting net income or other comprehensive income in financial
statements.
 The amendments require an entity

to provide information about the amounts reclassified out
of accumulated other comprehensive income by
component.

to present, either on the face of the statement where net
income is presented or in the notes, significant amounts
reclassified out of accumulated other comprehensive
income by the respective line items of net income but only
if the amount reclassified is required under U.S. GAAP to
be reclassified to net income in its entirety in the same
reporting period.
Effective
 For public entities, the amendments are effective prospectively for
reporting periods beginning after December 15, 2012.
 For nonpublic entities, the amendments are effective prospectively
for reporting periods beginning after December 15, 2013.
 Early adoption is permitted.
21
ASU 2013-06 (Topic 958)
Accounting Standards Update 2013-06 Services Received from Personnel
of an Affiliate issued April 2013.
Why Issued?
The objective of this Update is to specify the guidance that not-for-profit entities
apply for recognizing and measuring services received from personnel of an
affiliate.
Who is Affected?
This Update applies to not-for-profit entities, including not-for-profit, businessoriented health care entities, that receive services from personnel of an affiliate
that directly benefit the recipient entity and for which the affiliate does not charge.
Main Provisions
 This Update requires a recipient not-for-profit entity to recognize all
services received from personnel of an affiliate that directly benefit the
entity.
 Those services should be measured at the cost recognized by the
affiliate.
 If such cost over-states or understates the value of such services, the
recipient entity may use either the cost or the fair value of the services.
Effective
 This amendment is effective for fiscal years beginning after June 15,
2014.
 Early adoption is permitted.
ASU No. 2013-07
ASU No. 2013-07 Presentation of Financial Statements (Topic 205)
Liquidation Basis of Accounting was issued April 2013.
22
Main Provisions
The amendments:
 Require an entity to prepare its financial statements using the
liquidation basis of accounting when liquidation is imminent. The ASU
says that liquidation is imminent when the likelihood is remote that the
entity will return from liquidation and either





a plan for liquidation is approved by the person or persons with
the authority to make such a plan effective and the likelihood is
remote that the execution of the plan will be blocked by other
parties or
a plan for liquidation is being imposed by other forces (for
example, involuntary bankruptcy).
If a plan for liquidation was specified in the entity’s governing
documents from the entity’s inception (for example, limited-life
entities), the entity should apply the liquidation basis of accounting
only if the approved plan for liquidation differs from the plan for
liquidation that was specified at the entity’s inception.
Requires financial statements prepared using the liquidation basis of
accounting to present relevant information about an entity’s expected
resources in liquidation by measuring and presenting assets at the
amount of the expected cash proceeds from liquidation.

The entity should include in its presentation of assets any
items it had not previously recognized under U.S.GAAP but
that it expects to either sell in liquidation or use in settling
liabilities (for example, trademarks).

An entity should recognize and measure its liabilities in
accordance with U.S. GAAP that otherwise applies to those
liabilities.
The entity:


Should not anticipate that it will be legally released from being
the primary obligor under those liabilities, either judicially or by
creditor(s).
Is required to accrue and separately present the costs that it
expects to incur and the income that it expects to earn during
the expected duration of the liquidation, including any costs
associated with sale or settlement of those assets and
liabilities.
Effective

The amendments are effective for entities that determine liquidation is
imminent during annual reporting periods beginning after December
15, 2013, and interim reporting periods therein. Entities should apply
23
the requirements prospectively from the day that liquidation becomes
imminent.

Early adoption is permitted.

Entities that use the liquidation basis of accounting as of the effective
date in accordance with other Topics (for example, terminating
employee benefit plans) are not required to apply the amendments.
Instead, those entities should continue to apply the guidance in those
other Topics until they have completed liquidation.
ASU 2013-11
ASU 2013–11 Income Taxes (Topic 740) Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax
Credit Carryforward Exists ( a consensus of the FASB Emerging Issues Task
Force)
Why Issued
Topic 740, Income Taxes, before this amendment, did not include explicit
guidance on the presentation in the statement of financial position of an
unrecognized tax benefit when a net operating loss carryforward or a tax
credit carryfoward exists. There is diversity in practice in the presentation
of unrecognized tax benefits in those instances.
The objective of the amendments in Update is to eliminate that diversity in
practice.
Main Provisions
An unrecognized tax benefit, or a portion of an unrecognized tax benefit,
would be presented in the statement of financial position as a reduction to
a deferred tax asset for a net operating loss carryforward or a tax credit
carryforward, except as follows:
 To the extent that a net operating loss carryforward or tax credit
carryforward at the reporting date is not available under the tax
law of the applicable jurisdiction to settle any additional income
taxes that would result from the disallowance of a tax position,
the unrecognized tax benefit would be presented in the
statement of financial position as a liability.
 No new recurring disclosures would be required.
Effective
 Effective for fiscal years, and interim periods within those
years, beginning after December 15, 2013.
24
 For nonpublic entities, the amendments are effective for fiscal
years, and interim periods within those years, beginning after
December 15, 2014.
 Early adoption is permitted.
 The amendments should be applied prospectively to all
unrecognized tax benefits that exist at the effective date.
Retrospective application is permitted.
ASU 2014-02
Intangibles—Goodwill and Other (Topic 350), Accounting for Goodwill
Why Issued
The Private Company Council (PCC) obtained feedback from private company
stakeholders that the benefits of current accounting for goodwill after initial recognition
did not justify the related costs of application. This ASU, therefore, focuses on userrelevance and cost-benefit considerations as justification for alternative accounting
treatment.
Who is Affected
The amendments apply to all entities except for public business entities, non-profit
entities and employee benefit plans. Future projects will focus on application to these
other entities.
Main Provisions
A non-public entity may elect an accounting alternative to amortize goodwill on a
straight-line basis over ten years, or less if another useful life is more appropriate (such
as when the original reasons for acquiring goodwill change causing limits on its value
and recovery).
An entity electing this alternative must also elect an accounting policy to test goodwill for
impairment whenever a triggering event occurs that indicates the fair value of the
reporting entity or component unit may be below its carrying amount. The qualitative
method in ASU 2011-08 may be used when a triggering event occurs.
Effective
When this alternative is elected it should be applied prospectively to goodwill at the
beginning of the period it is adopted and new goodwill acquired in annual periods
beginning after December 15, 2015. Early application is permitted in any annual or
interim period for which financial statements have not been made available for issue.
25
ASU 2014-03
Derivatives and Hedging (Topic 815), Accounting for Certain ReceiveVariable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting
Approach
Why Issued
Because private companies may find it difficult to obtain fixed-rate borrowing, some
enter into receive-variable, pay-fixed interest rate swaps to economically convert
variable-rate borrowing into fixed-rate borrowing. Interest rate swaps are derivatives for
which assets and liabilities are required to be presented at fair values on an entity’s
balance sheet. Hedge accounting can be elected to mitigate the volatility of income
statement effects. Because of the difficulty of applying hedge accounting, many
companies do not utilize the election, thereby causing income statement volatility. This
amendment provides an additional hedge accounting alternative for certain types of
swaps entered into for the purpose of converting variable-rate borrowing to fixed-rate
borrowing.
Who is Affected
This amendment applies to all entities, except for public business entities, non-profit
entities and employee benefit plans.
Main Provisions
Under this approach, interest expense will be similar to an amount from fixed-rate
borrowing. An entity may assume no ineffectiveness for qualifying swaps in a hedging
relationship under Topic 815. Under this simplified hedge accounting approach, a private
company may elect to measure the designated swap at settlement value instead of fair
value, the primary difference being non-performance risk is not considered in
determining settlement value. One way of determining present value is to use a present
value calculation of the swap’s estimated cash flows not adjusted for non-performance
risk.
Effective
The simplified hedge accounting approach will be effective for annual periods beginning
after December 15, 2014. Early adoption is permitted.
ASU 2014-07
Consolidation (Topic 810): Applying Variable Interest Entities Guidance to
Common Control Leasing Arrangements
Why Issued?
26
The Private Company Council (PCC) added this Issue to its agenda in response to
feedback from private company stakeholders indicating that the benefits of applying
variable interest entities (VIE) guidance to a lessor entity under common control do not
justify the related costs. Private company stakeholders stated that, generally, a common
owner establishes a lessor entity separate from the private company lessee for tax,
estate-planning, and legal-liability purposes—not to structure off-balance-sheet debt
arrangements.
Who Is Affected?
The amendments under the heading “Accounting Alternative” apply to all entities other
than a public business entity, a not-for-profit entity, or an employee benefit plan within
the scope of Topics 960 through 965 on plan accounting.
What Are the Main Provisions?
The amendments permit a private company lessee (the reporting entity) to elect
an alternative not to apply VIE guidance to a lessor entity if
(a) the private company lessee and the lessor entity are under common control,
(b) the private company lessee has a lease arrangement with the lessor entity,
(c) substantially all of the activities between the private company lessee and the
lessor entity are related to leasing activities (including supporting leasing
activities) between those two entities, and
(d) if the private company lessee explicitly guarantees or provides collateral for
any obligation of the lessor entity related to the asset leased by the private
company, then the principal amount of the obligation at inception of such
guarantee or collateral arrangement does not exceed the value of the asset
leased by the private company from the lessor entity.
The accounting alternative is an accounting policy election that, when elected, should be
applied by a private company lessee to all current and future lessor entities under
common control that meet the criteria for applying this approach.
Under the alternative, a private company lessee would not be required to provide the
VIE disclosures about the lessor entity. Rather, the private company lessee would
disclose
(1) the amount and key terms of liabilities recognized by the lessor entity that
expose the private company lessee to providing financial support to the lessor
entity and
(2) a qualitative description of circumstances not recognized in the financial
statements of the lessor entity that expose the private company lessee to
providing financial support to the lessor entity.
Effective
If elected, the accounting alternative should be applied retrospectively to all periods
presented. The alternative will be effective for annual periods beginning after December
15, 2014, and interim periods within annual periods beginning after December 15, 2015.
27
Early application is permitted, including application to any period for which the entity’s
annual or interim financial statements have not yet been made available for issuance.
ASU 2014-08
Presentation of Financial Statements (Topic 205) and Property, Plant, and
Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity
Why Issued?
This amendment clarifies the businesses and activities that qualify for discontinued
operations presentation by changing the criteria for reporting discontinued operations
and enhancing convergence of the FASB’s and the International Accounting Standard
Board’s (IASB) reporting requirements for discontinued operations.
Who Is Affected?
The amendments in this Update affect an entity that has either of the following:


A component of an entity that either is disposed of or meets the criteria in
paragraph 205-20-45-1E to be classified as held for sale.
A business or nonprofit activity that, on acquisition, meets the criteria in
paragraph 205-20-45-1E to be classified as held for sale.
What Are the Main Provisions?
The amendments in this Update change the requirements for reporting discontinued
operations in Subtopic 205-20. A discontinued operation may include a component of an
entity or a group of components of an entity, or a business or nonprofit activity.
A disposal of a component of an entity or a group of components of an entity is required
to be reported in discontinued operations if the disposal represents a strategic shift that
has (or will have) a major effect on an entity’s operations and financial results when any
of the following occurs:



The component of an entity or group of components of an entity meets the
criteria in paragraph 205-20-45-1E to be classified as held for sale.
The component of an entity or group of components of an entity is disposed of by
sale.
The component of an entity or group of components of an entity is disposed of
other than by sale (for example, by abandonment or in a distribution to owners in
a spinoff).
Examples of a strategic shift that has (or will have) a major effect on an entity’s
operations and financial results could include a disposal of a major geographical area, a
major line of business, a major equity method investment, or other major parts of an
entity (see paragraphs 205-20-55-83 through 55-101 for examples). A business or
28
nonprofit activity that, on acquisition, meets the criteria in paragraph 205-20-45-1E to be
classified as held for sale also is a discontinued operation.
A component of an entity comprises operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the rest of the
entity. A component of an entity may be a reportable segment or an operating segment,
a reporting unit, a subsidiary, or an asset group. A business is an integrated set of
activities and assets that is capable of being conducted and managed for the purpose of
providing a return in the form of dividends, lower costs, or other economic benefits
directly to investors or other owners, members, or participants.
A nonprofit activity is an integrated set of activities and assets that is capable of being
conducted and managed for the purpose of providing benefits, other than goods or
services at a profit or profit equivalent, as a fulfillment of an entity’s purpose or mission
(for example, goods or services to beneficiaries, customers, or members). As with a notfor-profit entity, a nonprofit activity possesses characteristics that distinguish it from a
business or a for-profit entity.
The amendments in this Update require an entity to present, for each comparative
period, the assets and liabilities of a disposal group that includes a discontinued
operation separately in the asset and liability sections of the statement of financial
position and certain additional disclosures about the pre-tax profit or loss for periods
presented, information about operating and investing cash flows, profit or loss
attributable to non-controlling interests and other reconciliations of disclosed amounts to
financial statement classifications.
Effective
Non-public and non-profit entities should apply the amendments in this Update
prospectively to both of the following:


All disposals (or classifications as held for sale) of components of an entity that
occur within annual periods beginning on or after December 15, 2014, and
interim periods within annual periods beginning on or after December 15, 2015.
All businesses or nonprofit activities that, on acquisition, are classified as held for
sale that occur within annual periods beginning on or after December 15, 2014,
and interim periods within annual periods beginning on or after December 15,
2015.
An entity should not apply the amendments in this Update to a component of an entity,
or a business or nonprofit activity, which is classified as held for sale before the effective
date even if the component of an entity, or business or nonprofit activity, is disposed of
after the effective date.
Early adoption is permitted, but only for disposals (or classifications as held for sale) that
have not been reported in financial statements previously issued or available for
issuance.
29
ASU 2014-09 Revenue Recognition (Topic 606)--Revenue from Contracts
with Customers
Why Issued
Revenue is a crucial number to users of financial statements in assessing an entity’s
financial performance and position. However, revenue recognition requirements in U.S.
generally accepted accounting principles (GAAP) differ from those in International
Financial Reporting Standards (IFRSs), and both sets of requirements need
improvement. U.S. GAAP comprises broad revenue recognition concepts and numerous
requirements for particular industries or transactions that can result in different
accounting for economically similar transactions.
Accordingly, the Financial Accounting Standards Board (FASB) and the International
Accounting Standards Board (IASB) initiated a joint project to clarify the principles for
recognizing revenue and to develop a common revenue standard for U.S. GAAP and
IFRSs that would:

Remove inconsistencies and weaknesses in existing
revenue requirements.

Provide a more robust framework for addressing revenue
issues.

Improve comparability of revenue recognition practices
across entities, industries, jurisdictions, and capital
markets.

Provide more useful information to users of financial
statements through improved disclosure requirements.

Simplify the preparation of financial statements by reducing
the number of requirements to which an entity must refer.
Who is Affected
The guidance in this Update

Affects any entity that enters into contracts with customers unless
those contracts are in the scope of other standards (for example,
insurance contracts or lease contracts).

Supersedes most of the revenue recognition requirements in Topic
605 (and related guidance) in U.S. GAAP.

Supersedes IASs 11 and 18 (and related Interpretations) In IFRSs.

Amends the existing requirements for the recognition of a gain or loss
on the transfer of some nonfinancial assets that are not an output of
30
an entity’s ordinary activities (for example, property, plant, and
equipment within the scope of Topic 360, IAS 16, Property, Plant and
Equipment, or IAS 40, Investment Property) to be consistent with the
proposed recognition and measurement guidance in this proposed
Update.
Main Provisions
The core principle of this guidance is that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or
services.
To achieve that core principle, an entity would apply all of the following steps:

Step 1: Identify the contract with a customer.

Step 2: Identify the separate performance
obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the
separate performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity
satisfies a performance obligation.
Effective Dates
 Public entities—Annual and interim reporting periods beginning after
December 15, 2016.
 Non-Public Entities—Annual reporting periods beginning after
December 15, 2017 and interim periods within annual periods
beginning after December 15, 2018.
ASU 2014-10 Development Stage Entities (Topic 915)—Elimination of
Certain Financial Reporting Requirements, Including an Amendment to
Variable Interest Entities Guidance in Topic 810
Why Issued?
The purpose of this Update is to improve financial reporting and the cost and complexity
of the incremental reporting requirements for development stage entities. This Update
also eliminates an exception for development stage entities in determining whether an
entity is a variable interest entity.
Who is Affected?
31
This Update affects entities that are development stage entities under U.S. GAAP. A
development stage entity is one that devotes substantially all of its efforts to establishing
a new business for which principal operations have not commenced and/or operations
have commenced with no significant revenues.
Main Provisions
This Update removes the definition of a development stage entity from the U.S. GAAP
Master Glossary thereby removing its distinction from other reporting entities. In addition,
the inception-to-date information and other disclosure requirements are eliminated.
Effective Dates
 Public entities—annual and interim periods beginning after December
15, 2014.
 Non-public entities—annual periods beginning after December 15,
2014 and interim periods beginning after December 15, 2015.
PROPOSED ACCOUNTING STANDARDS UPDATE LEASES (Topic 840)
SUMMARY OF TENTATIVE DECISIONS REACHED TO DATE (As of June 18,
2014) from www.fasb.org
Accounting Models
Lessee Accounting Model
The FASB decided on a dual approach for lessee accounting, with lease classification
determined in accordance with the principle in existing lease requirements (that is,
determining whether a lease is effectively an installment purchase by the lessee). Under
this approach, a lessee would account for most existing capital/finance leases as Type A
leases (that is, recognizing amortization of the right-of-use (ROU) asset separately from
interest on the lease liability) and most existing operating leases as Type B leases (that is,
recognizing a single total lease expense). Both Type A leases and Type B leases result in
the lessee recognizing a ROU asset and a lease liability.
The IASB decided on a single approach for lessee accounting. Under that approach, a
lessee would account for all leases as Type A leases (that is, recognizing amortization of
the ROU asset separately from interest on the lease liability).
Lessor Accounting Model
The Boards decided that a lessor should determine lease classification (Type A versus
Type B) on the basis of whether the lease is effectively a financing or a sale, rather than
32
an operating lease (that is, on the concept underlying existing U.S. GAAP and on IFRS
lessor accounting). A lessor would make that determination by assessing whether the
lease transfers substantially all the risks and rewards incidental to ownership of the
underlying asset. In addition, the FASB decided that a lessor should be precluded from
recognizing selling profit and revenue at lease commencement for any Type A lease that
does not transfer control of the underlying asset to the lessee. This requirement aligns the
notion of what constitutes a sale in the lessor accounting guidance with that in the
forthcoming revenue recognition standard, which evaluates whether a sale has occurred
from the customer’s perspective.
Lessor Type A Accounting
The Boards decided to eliminate the receivable and residual approach proposed in the
May 2013 Exposure Draft. Instead, a lessor will be required to apply an approach
substantially equivalent to existing IFRS finance lease accounting (and U.S. GAAP sales
type/direct financing lease accounting) to all Type A leases.
Scope
Definition of a Lease
The Boards directed the staff to provide them with drafting and examples for their review
on the basis of the staff recommendations that demonstrate how the proposed definition
would be applied.
The staff recommended the following:
1. Retain the principles in the 2013 Exposure Draft supporting the definition of a
lease that require an entity to determine whether a contract contains a lease by
assessing whether:
a. Fulfillment of the contract depends on the use of an identified asset; and
b. The contract conveys the right to control the use of the identified asset for
a period of time in exchange for consideration (that is, the customer has
the ability both to direct the use of the identified asset and to derive the
economic benefits from use of that asset during the period of use).
2. Clarify the following regarding whether fulfillment of the contract depends on the
use of an identified asset:
a. Fulfillment depends on the use of an identified asset when the supplier has
no practical ability to substitute an alternative asset or the supplier would
not benefit from substituting an asset; and
b. A customer should presume that fulfillment of the contract depends on the
use of an identified asset if it is impractical for the customer to determine
either (1) whether the supplier has the practical ability to substitute an
alternative asset or (2) whether the supplier would benefit from the
substitution.
3. Regarding the right to control the use of an identified asset:
33
a. Provide additional guidance on how to determine which decisions most
significantly affect the economic benefits to be derived from use of the
identified asset and which party to the contract has the ability to most
significantly affect those economic benefits, particularly when the supplier
and the customer both have decision-making rights; and
b. Remove the guidance that was proposed in the 2013 Exposure Draft on
assets that are incidental to the delivery of services.
Small-Ticket Leases
The Boards decided that the leases guidance should not include specific requirements on
materiality.
The Boards also decided to permit the leases guidance to be applied at a portfolio level by
lessees and lessors. The FASB decided to include the portfolio guidance in the basis for
conclusions; the IASB decided to include the portfolio guidance in the application
guidance.
The IASB decided to provide an explicit recognition and measurement exemption for
leases of small assets for lessees.
Short-Term Leases (Lessee)
The Boards decided to retain the recognition and measurement exemption for a lessee’s
short-term leases. The Boards also decided that the short-term lease threshold should
remain at 12 months or less. Additionally, the Boards decided to change the definition of
a short-term lease so that it is consistent with the definition of lease term.
Measurement
Lease Term and Purchase Options
The Boards decided that, when determining the lease term, an entity should consider all
relevant factors that create an economic incentive to exercise an option to extend, or not
to terminate, a lease. An entity should include such an option in the lease term only if it is
reasonably certain that the lessee will exercise the option having considered the relevant
economic factors. Reasonably certain is a high threshold substantially the same as
reasonably assured in existing U.S. GAAP. The Boards decided that a lessee should
reassess the lease term only upon the occurrence of a significant event or a significant
change in circumstances that are within the control of the lessee.
The Boards decided that a lessor should not be required to reassess the lease term.
The Boards decided that an entity should account for purchase options in the same way as
options to extend, or not to terminate, a lease.
34
Variable Lease Payments
The Boards decided that only variable lease payments that depend on an index or a rate
should be included in the initial measurement of lease assets and lease liabilities and that
an entity should measure those payments using the index or rate at lease commencement.
The FASB decided that a lessee should reassess variable lease payments that depend on
an index or a rate only when the lessee remeasures the lease liability for other reasons
(for example, because of a reassessment of the lease term).
The IASB decided that a lessee should reassess variable lease payments that depend on
an index or a rate when the lessee remeasures the lease liability for other reasons (for
example, because of a reassessment of the lease term) and when there is a change in the
cash flows resulting from a change in the reference index or rate (that is, when an
adjustment to the lease payments takes effect).
The Boards decided that a lessor should not be required to reassess variable lease
payments that depend on an index or a rate.
In-Substance Fixed Payments
The Boards decided (1) to retain the principle that variable lease payments that are insubstance fixed payments should be included in the definition of lease payments and
provide additional clarifying guidance and (2) to note in the Basis for Conclusions that
the concept that some variable lease payments are in-substance fixed payments exists
under current practice.
Discount Rate
With respect to the determination of the discount rate, the Boards decided:
1. To clarify in the implementation guidance what “value” refers to in the definition
of the lessee’s incremental borrowing rate, but otherwise make no changes to the
definition in the May 2013 Exposure Draft.
2. To describe the rate the lessor charges the lessee as the rate implicit in the lease,
consistent with existing lessor guidance.
3. To include initial direct costs of the lessor in determining the rate implicit in the
lease.
With respect to reassessment of the discount rate, the Boards decided:
1. To require a lessee to reassess the discount rate only when there is a change to
either the lease term or the assessment of whether the lessee is (or is not)
reasonably certain to exercise an option to purchase the underlying asset.
2. Not to require a lessor to reassess the discount rate.
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Lease Modifications and Contract Combinations
The Boards decided to define a lease modification as any change to the contractual terms
and conditions of a lease that was not part of the original terms and conditions of the
lease and that the substance of the modification should govern over its form.
The Boards decided that both a lessee and a lessor should account for a lease
modification as a new lease, separate from the original lease, when (1) the lease grants
the lessee an additional right-of-use not included in the original lease and (2) the
additional right-of-use is priced commensurate with its standalone price (in the context of
that particular contract).
For lease modifications that are not accounted for as separate new leases, the Boards
decided that:
1. When a lease modification results in a change in the scope or consideration of the
lease, a lessee should remeasure the lease liability using a discount rate
determined at the effective date of the modification. For modifications that
increase the scope of, or change the consideration paid for, the lease, the lessee
should make a corresponding adjustment to the right-of-use asset. For
modifications that decrease the scope of the lease, the lessee should decrease the
carrying amount of the right-of-use asset to reflect the partial or full termination
of the lease and should recognize a gain or a loss on a proportionate basis to the
decrease in scope.
2. A lessor should account for (a) modifications to a Type B lease as, in effect, a
new lease from the effective date of the modification, considering any prepaid or
accrued lease rentals relating to the original lease as part of the lease payments for
the modified lease and (b) modifications to a Type A lease in accordance with
IFRS 9, Financial Instruments (IFRS), or Topic 310, Receivables (U.S. GAAP).
The Boards decided to include contract combination guidance in the final leases standard,
similar to that which will be included in the forthcoming revenue recognition standard,
that would indicate when two or more contracts should be considered a single transaction.
Separating Lease and Nonlease Components
The Boards decided to retain guidance similar to that proposed in the 2013 Exposure
Draft for both lessees and lessors on identifying separate lease components.
The Boards decided to retain guidance similar to that proposed in the 2013 Exposure
Draft for lessors on separating lease components from nonlease components and
allocating consideration in the contract to those components. That is, a lessor should
apply the guidance in the forthcoming revenue recognition standard on allocating the
transaction price to separate performance obligations. A lessor also should reallocate the
consideration in a contract when there is a contract modification that is not accounted for
as a separate, new contract.
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The Boards decided to change the proposals in the 2013 Exposure Draft for lessees
regarding separating lease components from nonlease components and allocating
consideration in a contract to those components as follows:
1. A lessee should separate lease components from nonlease components unless it
applies the accounting policy election discussed below.
2. A lessee should allocate the consideration in a contract to the lease and nonlease
components on a relative standalone price basis. Activities (or costs of the lessor)
that do not transfer a good or service to the lessee are not components in a
contract. A lessee also should reallocate the consideration in a contract when (a)
there is a reassessment of either the lease term or a lessee’s purchase option or (b)
there is a contract modification that is not accounted for as a separate, new
contract.
3. A lessee should use observable standalone prices, if available, and otherwise it
would use estimates of the standalone price for lease and nonlease components
(maximizing the use of observable information).
The Boards decided to permit a lessee, as an accounting policy election by class of
underlying asset, to not separate lease components from nonlease components. Instead, a
lessee should account for lease and nonlease components together as a single lease
component.
Initial Direct Costs
The Boards decided that only incremental costs should qualify as initial direct costs.
The Boards decided that initial direct costs should include only incremental costs that an
entity would not have incurred if the lease had not been obtained (executed) (for
example, commissions or payments made to existing tenants to obtain the lease).
The Boards decided that both lessees and lessors should apply the same definition of
initial direct costs.
The Boards decided the following regarding the accounting for initial direct costs:
1. A lessor in a Type A lease (except those who recognize selling profit at lease
commencement) should include initial direct costs in the initial measurement of
the lease receivable by taking account of those costs in determining the rate
implicit in the lease. A lessor who recognizes selling profit at lease
commencement should recognize initial direct costs associated with a Type A
lease as an expense at lease commencement.
2. A lessor in a Type B lease should recognize initial direct costs as an expense over
the lease term on the same basis as lease income.
3. A lessee should include initial direct costs in the initial measurement of the rightof-use asset and amortize those costs over the lease term.
37
Subleases
The Boards decided that an intermediate lessor (that is, an entity that is both a lessee and
a lessor of the same underlying asset) should account for a head lease and a sublease as
two separate contracts (accounting for the head lease in accordance with the lessee
accounting proposals and the sublease in accordance with the lessor accounting
proposals), unless those contracts meet the contract combinations guidance adopted by
the Boards at the April 2014 joint Board meeting.
The FASB decided that, when classifying a sublease, an intermediate lessor should
determine the classification of the sublease with reference to the underlying asset (for
example, the item of property, plant, and equipment that is the subject of the lease), rather
than with reference to the right-of-use (ROU) asset arising from the head lease.
The IASB decided that, when classifying a sublease, an intermediate lessor should
determine the classification of the sublease with reference to the ROU asset arising from
the head lease.The Boards decided that an intermediate lessor should not offset lease
assets and lease liabilities arising from a head lease and a sublease that do not meet the
respective IFRS and GAAP financial instruments requirements for offsetting.
The Boards decided that an intermediate lessor should not offset lease income and lease
expense related to a head lease and a sublease, unless it recognizes sublease income as
revenue and acts as an agent (assessed in accordance with the “principal-agent” guidance
in the recently published standard on revenue from contracts with customers).
Presentation
Balance Sheet Presentation
Lessee ROU Asset:
The FASB decided that a lessee should either present as separate line items on the
balance sheet or disclose in the notes Type A ROU assets (which are effectively
purchases of the underlying asset) and Type B ROU assets. If a lessee does not present
Type A ROU assets or Type B ROU assets as separate line items on the balance sheet,
the lessee should disclose in the notes which line items in the balance sheet include Type
A ROU assets and Type B ROU assets. A lessee is prohibited from presenting Type A
ROU assets within the same line item as Type B ROU assets.
The IASB decided that a lessee should either present as a separate line item on the
balance sheet or disclose in the notes ROU assets. If a lessee does not present ROU assets
as a separate line item on the balance sheet, the lessee should present ROU assets within
the same line item as the corresponding underlying assets would be presented if they
were owned, and disclose in the notes which line item in the balance sheet includes ROU
assets.
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Lessee Lease Liability:
The FASB decided that a lessee should either present as separate line items on the
balance sheet or disclose in the notes Type A lease liabilities and Type B lease liabilities.
If a lessee does not present Type A lease liabilities or Type B lease liabilities as separate
line items on the balance sheet, the lessee should disclose in the notes which line items in
the balance sheet include Type A lease liabilities and Type B lease liabilities. A lessee is
prohibited from presenting Type A lease liabilities within the same line item as Type B
lease liabilities.
The IASB decided that a lessee should either present as a separate line item on the
balance sheet or disclose in the notes lease liabilities. If a lessee does not present lease
liabilities as a separate line item on the balance sheet, the lessee should disclose in the
notes which line item in the balance sheet includes lease liabilities.
Cash Flow Presentation
Lessee:
The FASB decided to retain the guidance in the 2013 Exposure Draft requiring a lessee to
classify:
1. Cash payments for the principal portion of the lease liability arising from Type A
leases within financing activities
2. Cash payments for the Interest portion of the lease liability arising from Type A
leases within operating activities
3. Cash payments arising from Type B leases within operating activities.
The IASB decided to retain the guidance in the 2013 Exposure Draft for Type A leases
requiring a lessee to classify:
1. Cash payments for the principal portion of the lease liability within financing
activities
2. Cash payments for the interest portion of the lease liability in accordance with the
requirements relating to interest paid in IAS 7, Statement of Cash Flows.
The IASB also decided to require a lessee to disclose a single figure for lease cash
outflows elsewhere in the financial statements.
Lessor:
The Boards decided to retain the guidance in the 2013 Exposure Draft requiring a lessor
to classify cash receipts from leases within operating activities.
Disclosures - Lessee
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Short-Term Leases
The Boards decided to require disclosure of the amount of expense related to short-term
leases recognized in the reporting period as well as any qualitative disclosures the Boards
decide upon for leases generally. If the short-term lease expense does not reflect the
lessee’s short-term lease commitments, a lessee should disclose that fact and the amount
of its short-term lease commitments.
Proposed Accounting Standards Update Presentation of Financial Statements
(Topic 205) Disclosure of Uncertainties about an Entity’s Going Concern
Presumption—Proposed Update as of April 1, 2014 (from fasb.org)
Decisions Reached at Last Meeting (March 26, 2014)
The Exposure Draft proposed that entities would begin disclosures of going concern
uncertainties when certain early-warning disclosure criteria were met. In addition to
early-warning disclosures, SEC filers would assess whether there is substantial doubt
about the entity’s ability to continue as a going concern for a period of 24 months after
the balance sheet date.
In light of the feedback received on the Exposure Draft, the Board decided not to require
the proposed early-warning disclosures. Instead, the Board decided to pursue an approach
that would require disclosures when there is substantial doubt similar to disclosures
provided today under existing auditing standards.
Definition of Going Concern Presumption
The Board decided not to define the term going concern presumption, but rather to
specify that the going concern basis of accounting would be used until an entity’s
liquidation is imminent, which is consistent with the provisions of Subtopic 205-30 on
the liquidation basis of accounting.
Substantial Doubt Definition, Assessment Period, and Frequency of Assessment
The Board decided that the definition of substantial doubt would incorporate a
likelihood component defined using the term probable, as used in Topic 450 on
contingencies. In addition, the Board decided that the assessment period for substantial
doubt would be one year from the date the financial statements are issued (or, for
nonpublic entities, the date financial statements are available for issuance). The Board
affirmed the proposed Update’s requirement to assess substantial doubt at each annual
and interim reporting period.
Information to Be Assessed Including Management’s Plans
The Board decided that information about conditions and events would be assessed as of
40
the financial statement issuance date (or, for nonpublic entities, the date financial
statements are available for issuance). The Board also decided that management should
consider the mitigating effect of its plans to the extent it is probable that:
1. Those plans will alleviate the adverse conditions within the assessment period.
2. Those plans will be effectively implemented.
The Board asked that the staff draft the relevant provisions of the standard with respect to
information to be assessed and management’s plans for the Board’s review before its next
meeting.
Disclosures in Periods When Substantial Doubts Exist
The Board decided that when there is substantial doubt about an entity’s ability to
continue as a going concern, the notes to the financial statements should disclose:
1. A statement indicating that there is substantial doubt about the entity’s ability to
continue as a going concern
2. The principal conditions and events giving rise to substantial doubt
3. Management’s evaluation of the significance of those conditions and events
4. Any mitigating conditions and events including management’s plans.
Disclosures When Substantial Doubt Is Alleviated
The Board decided to require management to disclose in the financial statements when
substantial doubt about an entity’s ability to continue as a going concern has been
alleviated primarily by management’s plans. Those disclosures would include the
principal conditions and events that initially raised the substantial doubt, and
management’s plans that alleviated the substantial doubt, unless the information is
disclosed elsewhere in the financial statements.
Nonpublic Entities
The Board decided that the disclosures would apply to both public entities and nonpublic
entities.
(PCC) (Excerpted from http://www.fasb.org/pcc/aboutus)
About the PCC
What are the PCC’s responsibilities?
The Private Company Council (PCC) has two principal responsibilities:
1. The PCC and the Financial Accounting Standards Board (FASB), working jointly,
will mutually agree on a set of criteria to decide whether and when alternatives
within U.S. Generally Accepted Accounting Principles (GAAP) are warranted for
41
private companies. Based on those criteria, the PCC will review and propose
alternatives within U.S. GAAP to address the needs of users of private company
financial statements.
2. The PCC also serves as the primary advisory body to the FASB on the appropriate
treatment for private companies for items under active consideration on the
FASB’s technical agenda.
How does the PCC and the FASB work together?
Operating Procedures. The PCC and the FASB, working jointly, will mutually agree on
a set of criteria to decide whether and when alternatives within U.S. GAAP are warranted
for private companies. Based on those criteria, the PCC will review and propose
alternatives within U.S. GAAP to address the needs of users of private company financial
statements.
First, the PCC will conduct a review of existing U.S. GAAP and identify standards that
require reconsideration. The PCC will vote on proposed alternatives, which must be
approved by a two-thirds vote of all PCC members.
Proposed modifications or exceptions to U.S. GAAP approved by the PCC will be
submitted to the FASB for a decision on endorsement. If endorsed by a simple majority
of FASB members, the proposed modifications will be exposed for public comment.
Following receipt of public comment, the PCC will consider changes to the original
decision and take a final vote. If approved, the final decision then will be submitted to the
FASB for a final decision on endorsement.
If the FASB does not endorse a proposed or final modification or exception, the FASB
Chairman will provide to the PCC Chair, within a reasonable period of time, a written
document describing the reason(s) for the non-endorsement. The document also will
include possible changes for the PCC to consider that could result in a decision by the
FASB to endorse. This document will become part of the FASB’s public record.
What are the key elements to the PCC’s operating procedures?
The complete report establishing the PCC, including background materials, key
discussion issues considered by the Trustees, and PCC responsibilities and operating
procedures is available in this report and in this announcement. (See link above)
History of Establishing the PCC
Background and history of the events leading up to the creation of the PCC, including the
final plan, comment letters, public roundtables, and the initial FAF plan to create a
private company standards council.
42
AICPA Financial Reporting for Small- and Medium-Sized Entities
 The AICPA has released a new Financial Reporting Framework for Small- and
Medium-sized Entities (FRF for SMEs).
 FRF for SMEs is designed to be a Framework for management and other
users of small– and medium–sized entities private company financial
statements where U.S. GAAP financial statements are not required or
necessary.
 The self–contained framework may be used by small–and medium–sized
entities when U.S. GAAP financial statements are not required or needed.
 The framework is based on a blend of accrual income tax methods and other
traditional methods of accounting (commonly referred to as other
comprehensive basis of accounting or OCBOA).
FRF for SMEs:
Has been developed for smaller– to medium–sized, owner–managed, for–profit
entities where:

Reliable financial statements are needed:

Internal or external users have direct access to the
owner–manager
 GAAP financial statements are not required
May be used by owner–managers who rely on a set of financial statements:

to confirm their assessments of performance, what
they own and what they owe

to understand their cash flows
Authority for FAF for SMEs:
The AICPA has no authority to require the use of the FRF for SMEs for any entity.
The FRF will have no effective date
An owner–manager can decide to use the FRF
The FRF for SMEs is not intended for use by nonprofit organizations, but those
organizations are not precluded from using it.
FRF for SMEs:
43

Is a standalone, self–contained alternative framework for accounting (formerly
known as other comprehensive basis of accounting) intended for use by privately
held small–to medium–sized entities (SMEs) in preparing their financial
statements.
Draws upon a blend of accrual income tax methods and other traditional methods
of accounting.
Was developed by a working group of AICPA members and staff with years of
experience serving small–to medium–sized owner–managed entities
Small – and medium –sized entities would use FRF for SMEs because:
FRF for SMEs will be less complicated and a less costly system of accounting for
SMEs that do not need U.S. GAAP financial statements
A cost–beneficial solution for owner–managers and others who need financial
statements prepared in a consistent and reliable manner in accordance with a
framework that has undergone public comment and professional scrutiny.
Accounting principles comprising the Framework are intended to be the most
appropriate for the preparation of SME financial statements based on the needs of
the financial statement users and cost–benefit considerations.
Will be responsive to the well–documented issues and concerns stakeholders
currently encounter when preparing financial statements for SMEs.
FRF FOR SMEs DIFFERENCES FROM U.S. GAAP
The focus in this section will be on some of the areas of differences in the FRF for SMEs
from U.S. generally accepted accounting principles. For each area, brief descriptions of
the disclosure requirements for the FRF for SMEs are included.
Inventories
U.S. GAAP:
Inventories are valued under FIFO, LIFO and average cost methods at the lower of cost
or market. While market is usually considered replacement cost it is not permitted to
exceed the ceiling of net realizable value (selling price less costs of completion and
disposal) or be less than the floor of net realizable value (ceiling of net realizable value
less a normal profit margin).
FRF for SMEs:
Inventories are valued at the lower of cost or net realizable value (selling price less
estimated costs of completion and disposal). General disclosures are:
 Accounting policies and costing method.
 Carrying amounts of inventories in total and by appropriate classifications, e.g.,
raw materials, work-in-progress, finished goods, merchandise, supplies, etc.
 Costs of goods sold for periods presented.
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 Unusual or material losses resulting from costing methods.
 Material purchase commitments and any expected loss when the purchase price
exceeds market value.
 Any interest costs capitalized in inventories.
Goodwill
U.S. GAAP:
Goodwill is not amortized but, instead, is tested for impairment (by a qualitative or twostep quantitative method) at least annually or triggering event arises (such as going
concern or other profitability issues affecting a subsidiary)
FRF for SMEs:
Goodwill may be amortized using the federal income tax time period or 15 years. No
tests for impairment are required for long-lived assets, tangible or intangible. General
disclosures are:
 Aggregate carrying amounts of goodwill should be presented as a separate line
item in the statement of financial position.
 Aggregate amortization expense for the period and the amortization period and
rate used.
Intangible Assets
U.S. GAAP:
Indefinite-lived intangible assets are tested for impairment with qualitative or two-step
quantitative methods similar to goodwill. Definite-lived intangible assets are amortized
over their useful lives and long-lived intangibles are also tested for impairment as a result
of certain triggering events indicating possible impairment.
FRF for SMEs:
All intangible assets will be assigned estimated useful lives and amortized over that
period. No tests for impairment are required for long-lived assets, tangible or intangible.
Any long-term assets no longer used are written off. Management may elect either to
expense development phase intangibles or to capitalize their costs. General disclosures
are:
 Aggregate carrying amounts of intangibles should be classified separately on the
statement of financial position.
 Aggregate amortization expense for the period and the amortization period and
rate used.
 Accounting policy elected for internally developed intangible assets including
development costs.
Investments
U.S. GAAP:
45
Financial assets and liabilities are classified in the balance sheet based on managements
intentions, i.e., to trade, hold for sale or retain until maturity. Trading securities and
available-for-sale securities are valued at fair value. Unrealized appreciation or
depreciation for trading securities is recorded in operating income; for available-for-sale
securities such amounts are recorded in comprehensive income. Held-to-maturity
securities are carried at amortized cost.
FRF for SMEs:
Investments in entities over which a company has significant influence are accounted for
under the equity method. All other investments are accounted for based on historical
cost, except for securities held for sale which are valued at market value (changes are
included income). Income from investments should be presented separately or disclosed
in the footnotes. Equity method investees should follow the same method of accounting
as the as the investor. An entity’s share of any discontinued operations, changes in
accounting policies or corrections of errors and capital transactions of an equity method
investee should be presented and disclosed separately. General disclosures are:
 Accounting basis for all classes of investments.
 Events and transactions occurring between different reporting periods for the
entity and equity-method investees should be disclosed or recorded by the
investor.
 Name, description, carrying amount and ownership percentage for each
significant investment.
Fair Value Accounting
U.S. GAAP:
The definition of fair value in the accounting standards is “the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.” The standards provide guidance on
valuation techniques (market approach, income approach, cost approach) and the
hierarchy of inputs (levels one, two, three) for determining fair value.
FRF for SMEs:
The term “market value” is used instead of fair value. The definition is: “The amount of
the considerations that would be agreed upon in an arm’s length transaction between
knowledgeable, willing parties who are under no compulsion to act.” Since the FRF for
SMEs uses a cost approach primarily, measurement using market values is limited to
business combinations, some non-monetary transactions and marketable equity and debt
securities that are available for sale.
Derivatives
U.S.GAAP:
Generally, derivatives are accounted for as assets or liabilities and are measured at their
fair values; changes in fair values are accounted for based on the use of the derivative. An
entity is permitted to use hedge accounting.
46
FRF for SMEs:
This framework requires a disclosure approach only with recognition at settlement on a
cash basis. Disclosures include:
 The face, contract or notional principal amount (upon which payments are
calculated).
 The nature, terms, cash requirements and credit and market risks
 The entity’s purposes in holding the derivatives.
 At the reporting date, the net settlement amounts of the derivatives.
Hedge accounting is not permitted.
Lease Accounting
U.S. GAAP:
Traditionally, a lessee treats leases as capital or operating leases depending on certain
criteria. Capital leased assets and capital lease obligations are recorded in financial
statements. Operating leases are disclosed. A lessor treats leases as sales type, direct
financing or operating leases.
FRF for SMEs:
Accounting approaches are generally similar to traditional U.S. GAAP. A lessee either
records capital leases or discloses operating leases. A lessor either records sales type or
financing leases or discloses operating leases. General disclosures include:
 Capital Leases—Lessees:
o Cost of the leased asset, accumulated amortization and the amortization
method used.
o Interest rate, maturity date and the outstanding balance of the obligation.
o Any security for the lease.
o Interest expense related to lease obligations.
o Aggregate payments in each of the five years after the reporting date.

Direct Financing and Sales-Type Leases—Lessors:
o Net investment in each type of lease and implicit interest rates.

Operating Leases
o Lessees—future minimum lease payments in total and for each of the five
years after the reporting date.
o Lessors—cost of assets held for leasing and the related accumulated
amortization.
Income Tax Accounting
U.S. GAAP
A deferred income tax method is use to determine the effects of temporary differences
between financial and tax reporting. The standards require management to evaluate and
disclose uncertain tax positions for all open tax years, for all taxing jurisdictions. Any
47
estimated liabilities for unsustainable positions should be recorded in the financial
statements.
FRF for SMEs:
Management may elect either an income taxes payable method or the deferred income
taxes method. Uncertain tax positions are not required to be evaluated or accrued.
General disclosures include:
 The accounting policy—income taxes payable or deferred taxes method.
 For the income taxes payable method:
o Provision for income tax expense or benefit include in net income or loss
before discontinued operations.
o Explanation or reconciliation of the differences between statutory rates
and the effective rate.
o Unused loss or tax credit carryforwards.
o Any allocation of expense or benefit to equity transactions.
 For the deferred taxes method:
o Current and deferred income tax expense or benefit included income or
loss before discontinued operations.
o Any allocation of expense or benefit to equity transactions.
o Total amount of unused tax losses and credits and amounts of any
temporary differences for which no deferred tax asset has been
recognized.
o Explanation or reconciliation of the differences between statutory rates
and the effective rate.
o Unused loss or tax credit carryforwards.
 Pass-through entities will disclose they are not subject to income taxes.
Retirement and Postemployment Benefits
U.S. GAAP:
Accounting standards use a projected benefit obligation model that requires accounting
for the aggregate of periodic pension costs and the overfunded and underfunded status of
defined benefit and post-retirement benefits plans. Defined contribution plans’ costs are
accounted for as period expenses.
FRF for SMEs:
Management may elect to account for plans using a current contribution payable method
or one of the accrued benefit obligation methods similar to U.S. GAAP. General
disclosures include:
 Description of the plan and the period cost recognized.
 Multi-employer plans description, period cost and any liability that would result
from a probable withdrawal.
 Description of deferred compensation plans, their participants and how payments
are determined.
 For defined benefit plans:
o Description, plan participants and how benefits are determined.
48
o Funded status information including benefit obligation, market value of
plan assets and the under-funded or over-funded status at the reporting
date.
o Under the current contribution method, the current and following years
contributions.
o Expected rate of return on assets and the discount rate used to determine
the benefit obligation.
o Any current period termination benefits.
Comprehensive Income
U.S. GAAP:
Items of comprehensive income, such as the unrealized appreciation on available for sale
securities and prior service costs for defined benefit pension plans, are reported in a
separate statement of comprehensive income or a single statement combined with
operating income.
FRF for SMEs:
This framework does not recognize items of comprehensive income.
Revenue Recognition
U.S. GAAP:
Revenue is recognized when it is earned or realized based on evidence of the
arrangement, the occurrence of a point of sale or delivery, a fixed sales price and
reasonable assurance of collectability. Contracts for production or construction are
accounted for currently under the percentage of completion or completed contract
methods. Future standards for recognizing revenue under the contract method will likely
require revenue recognition as performance obligations are completed.
FRF for SMEs:
Revenue recognition is more principles-based and revenues will be recorded based on
performance and reasonable assurance of collectability. When the risks and rewards of
ownership of goods are transferred to a customer, performance of a transaction is
accomplished. For services in long-term contracts, such as construction or production
contracts, the percentage of completion or completed contract methods may be used. The
consideration received for the service will indicate accomplishment of stages of
performance of a service. General disclosures include:
 Revenue recognition policy for all types of transactions in Note A.
 Accounting policies for multi-deliverables.
 Explanation of why the completed contract method is used instead of the
percentage-of-completion method, if applicable.
 Revenue and contingent assets from any contract-related claim.
 Major categories of revenue disclosed on the statement of operations.
 Any unrecorded claims if claims are not recorded until received or awarded.
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Stock-Based Compensation Plans
U.S. GAAP:
This form of compensation may be accounted for as either a liability or equity amount,
depending on management’s intentions, at fair values. Fair value will be determined
based on this hierarchy: 1) a fair value accounting method when it can be reasonably
determined, 2) calculated-value method if it can be reasonably estimated or 3) intrinsic
value method when neither of these methods can be used.
FRF for SMEs:
This framework requires only footnote disclosures for such plans. The disclosures
include:
 The terms of awards under the plan.
 Vesting requirements.
 The maximum terms of options granted.
 Separate disclosures for multiple plans.
Going Concern Issues
U.S. GAAP:
There currently is no requirement in the accounting standards for management to assess
and disclose going concern issues and whether a going-concern basis of accounting is
appropriate. Future accounting standards will likely create this responsibility for
management, along with the requirement to develop and disclose plans to mitigate
significant threats to the continuance of an entity. Clarified Auditing Standards for nonpublic entities published by the AICPA’s Auditing Standards Board, require auditors to
evaluate significant threats to continued existence of an entity and to request management
to provide plans for mitigating such threats.
FRF for SMEs:
This framework requires management to assess whether the going concern basis of
accounting is appropriate. When business or environment events or conditions create
material uncertainties about business continuance, the entity should include footnote
disclosures of these circumstances, along with its plans to mitigate the uncertainties.
Consolidation and Subsidiaries
U.S. GAAP:
An entity having a controlling financial interest (normally more than 50% ownership) in
another entity is required to consolidate the subsidiary. When the entity cannot maintain
significant influence over the operation of the subsidiary, such as in the case of external
events like bankruptcy, the subsidiary would not be consolidated. For investments in
variable interest entities, investors that have the power to significantly influence the
operations of such entities will usually be deemed “primary beneficiaries.” In such
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circumstances, primary beneficiaries are required to consolidate variable interest entities.
Either the equity method or cost method would be used otherwise.
FRF for SMEs:
Management can elect to consolidate more than 50%-owned subsidiaries or account for
them using the equity method (if it exercises significant influence over the entity). When
significant influence is not exercised over the subsidiary, the cost method should be used
to report the investment. Equity and debt securities that are available for sale, however,
should be recognized at market values with changes in such values included in periodic
net income. General disclosures include:
 Consolidation policy.
 When consolidated, the names of all subsidiaries, income from each and the
percentage of ownership.
 Descriptions of the periods for subsidiaries’ financial statements that don’t
coincide with the parent’s reporting date, along with any significant events or
transactions in the intervening periods.
 When financial statements are not consolidated, method of accounting for its
subsidiaries, descriptions, names, carrying amounts, income and percentage of
ownership for each.
Business Combinations
U.S. GAAP:
The acquisition method of accounting is required. The acquisition-date fair values of
assets, liabilities, goodwill and non-controlling interests in an acquired entity are used for
measurement in financial reporting.
FRF for SMEs:
This framework essentially requires the acquisition method of accounting using
acquisition-date market values. It permits, however, management to elect to account for
an intangible asset either separately or as a part of goodwill. General disclosures similar
to U.S. GAAP are required for material and immaterial business combinations.
Push-Down (New Basis) Accounting
U.S. GAAP:
There is no requirement to permit new-basis accounting for acquired entities.
FRF for SMEs:
When an acquirer gains more than 50% control of an entity, the assets and liabilities of
the acquired entity may be comprehensively revalued in its financial statements,
assuming the new values are reasonably determinable. This results in similar values
being used in the acquired entity’s financial statements and the acquirer’s consolidated
statements. General disclosures include:
 First applications:
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
o Date push-down accounting was first applied and the date of the related
purchase transaction.
o Description of the situation resulting in push-down accounting and the
amounts of changes to major classes of assets, liabilities and equity.
In addition for the following fiscal period:
o Amount of the revaluation adjustment and the equity account in which it
was recorded.
o Amount of reclassified retained earnings and the equity account in which
it was recorded.
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