DECOSIMO ACCOUNTING SEMINAR
GAAP Update
May 13, 2014
Richard L. Townsend, Ph.D, CPA
Associate Professor Emeritus of Accounting
University of Tennessee
• Overview
• Selected FASB ASC Updates
• Selected FASB and FASB/IASB Exposure Drafts
• FASB Private Company Council
• Selected FASB ASC Updates – Private Company
• Other
FASB ASC 2013-04 (Topic 405)
Obligations Resulting from Joint and Several Liability
Arrangements for Which the Total Amount of the Obligation
is Fixed at the Reporting Date
• Objective is to provide guidance for recognition,
measurement, and disclosure of obligations resulting
from joint and several arrangements for which the total
amount is fixed at the reporting date.
• Examples of items within the scope of this proposal
include debt arrangements, other contractual obligations,
and settled judicial and litigation rulings.
• These type obligations are to be measured as the total of
– The amount the entity agreed to pay based on
arrangements with co-obligors
– Any additional amount the entity expects to pay in
place of its co-obligors
• Entity must disclose nature and amount and other
information about the obligations
• The amendments are effective for periods beginning
after 12/15/13. The effective date for nonpublics is
periods beginning after 12/15/14.
• Amendments should be applied retrospectively to all
prior periods for all liability arrangements that exist at the
date of adoption.
• Entities may elect to use hindsight for comparative
periods
FASB ASC 2013-07 (Topic 205)
Liquidation Basis of Accounting
• An entity should prepare statements on a going concern
basis unless liquidation is imminent
• Liquidation occurs when an entity converts its assets to
cash and settles its obligations with creditors in
anticipation of ceasing activity
• Liquidation is imminent when likelihood is remote that
the entity will exit the liquidation and either:
• (a) A liquidation plan has been approved by one with
authority and it is remote that liquidation will not occur
• (b) A liquidation plan is imposed by others
• Assets and liabilities should be shown at the amount of
cash expected to be received or paid
• Also include any assets not recognized under GAAP
• Costs expected to accrue or income to be earned during
liquidation are included, as well as disposal costs
• Financial statements in this situation should have titles
such as “Statement of Net Assets in Liquidation” and
“Statement of Changes in Net Assets in Liquidation”
• Disclosure should include liquidation plan and significant
assumptions used in measurement of accounts
• Disclose expected duration of the liquidation
• Effective for periods beginning after 12/15/13
FASB ASC 2013-12
Definition of Public Business Entity
An amendment to the Master Glossary
• This provides a single definition of a public business entity for GAAP
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A business entity (this excludes Not-For-Profit and employee
benefit plans) that meets any of the following criteria is a public
business entity:
Required by the SEC to file or furnish financial statements with SEC
Required by SEC 1934 Act to file or furnish statements with a
regulatory agency
Required to file with regulatory agency in order to issue securities
It has (or is a conduit bond obligor for) securities to be traded on an
exchange or over-the-counter
Its securities are not subject to restrictions on transfer and it is
required to prepare US GAAP financial statements pursuant to a
legal, contractual or regulatory requirement
FASB ASC 2014-08 (Topic 205)
Reporting Discontinued Operations and Disclosures …
• A discontinued operation is a component or group of
components that has been disposed of and is a shift that
will have a major effect on the entity’s operations
• This shift could be a disposal of a major geographical
operating area or a major line of business
• Examples are given of such a disposal but the term
“major” is not defined
• It also could be a business that, when acquired, meets
certain criteria to be classified as held for sale.
• A component comprises operations and cash flows that
are clearly distinguishable operationally and for financial
reporting purposes from the other part of the entity
• Included among new disclosures for discontinued
operations would be the major sources of income and
expense for the discontinued operation
• Additional disclosures would be operating and investing
cash flow activities for the discontinued operations
• Reconciliations are required for major classes of assets
and liabilities for the discontinued operation as well as
other reconciliations
• There are also disclosures required for disposals of
material components that do not qualify as discontinued
operations, including profit or loss for the current period
• In addition to this proposal making it more difficult for a
disposal of a component to be considered a discontinued
operation, there are other changes in that
– An entity can now have continuing involvement with
the discontinued operation after the disposal
transaction
– An entity can now continue to have operations and
cash flows with the discontinued operation but
disclosure must include cash flows with this operation
• This guidance will be effective for public companies for
annual periods and interims beginning on or after
12/15/14
• The effective date for private companies is annual
periods beginning on or after 12/15/14 and interims after
12/15/15
• All entities may adopt early
• For comparative periods, the entity must reclassify
assets and liabilities of the discontinued operation
• Guidance to be applied prospectively after effective date
FASB Exposure Draft (Topic 810)
Principal versus Agent Analysis
(issued November, 2011)
• This proposal concerns asset manager of funds and
whether the manager is a principal or is an agent
representing the fund’s investors
• A decision-making arrangement must be assessed to
determine if it represents a variable interest
• If the other entity is a variable interest entity and the
reporting entity has the controlling financial interest, the
other entity must be consolidated
• For voting interest entities, the principal versus agent
analysis would include determining whether the limited
partners or noncontrolling shareholders are involved in
the activities that most affect the entity’s activities
• This amendment would require a separate qualitative analysis to
determine whether the decision maker is acting as a principal or an
agent
• The evaluation to determine whether the decision maker is a
principal or an agent considers:
– Rights held by other parties
– Decision maker’s compensation
– Decision maker’s exposure to variability of returns from other
interests that it holds in an entity
– Related parties
– Voting interest entities
• This proposal would change the evaluation of whether a general
partner controls a limited partnership – it’s no longer assumed that a
general partner controls but may be a principal or an agent
FASB Exposure Draft (Topic 860)
Effective Control for Transfers with Forward Agreements to
Repurchase Assets and Accounting for Repurchase
Financing
• Background – A sale or a secured financing?
• A transfer of a financial asset with an agreement entitling
and obligating the transferor to repurchase the asset
from the transferee is considered to maintain the
transferee’s effective control if all of the following exists:
– The financial asset to be repurchased at settlement is identical to
or substantially the same as the asset transferred at inception
– A fixed or readily determinable repurchase price
– The agreement to repurchase is entered at the same time with,
or in contemplation of, the initial transfer
If effective control does exist, the transaction must be
accounted for as a secured borrowing
• “Substantially the same” is when the transferor is in an
economically equivalent position with the return of the
asset as compared with the identical asset
• The transferor would account for the initial transfer apart
from the related repurchase financing
• If transfer accounted for as a borrowing, the transferor
would disclose the total amount of borrowing separated
into the class of assets pledged as collateral
• If assets are derecognized only because they are not
“substantially the same”, transferor must disclose the
carrying amount of any asset derecognized
• In May, 2013 the FASB decided not to change the
accounting for financial asset transfers as proposed in
this Exposure Draft but instead only require more
disclosure
• In October the FASB tentatively decided that repo-tomaturity transactions were secured borrowings (as the
ED stated originally)
• Also, as in the original ED, the Board decided that
repurchase agreements should be accounted for
separately from the initial transfer
• In December the Board affirmed the October decision
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FASB Exposure Draft (Topic 205)
Disclosure of Uncertainties about an Entity’s Going
Concern Presumptions
(Issued June, 2013)
Financial statements are prepared with a presumption of
going concern unless liquidation is imminent
When liquidation is imminent, a liquidation basis is
required under FASB ASC 2013-07
There is no GAAP guidance for preparing financing
statements when liquidation is not imminent but where
there are uncertainties about the entity’s continuation as
a going concern.
This proposal provides GAAP guidance for preparers on
management’s responsibilities for evaluating and
disclosing going concern uncertainties
• At each reporting period the entity would evaluate going
concern uncertainties and would provide disclosure
when it is either:
– (a) More likely than not that the entity will be unable to meet its
obligations within 12 months of the financial statement date
without taking actions outside the normal business activity or
– (b )Known or probable that the entity will be unable to meet its
obligations within 24 months of the financial statement date
without taking actions outside the normal business activity
• In making this determination, management must
consider all information existing at the date of the
financial statements
• Also to be considered are any mitigating factors that are
within normal business activity
• If either of the time thresholds are met, disclosure must
include in the footnotes a description of:
• Principal conditions and events giving rise to this
situation
• Possible effects these would have on the entity
• Management’s assessment of these conditions and
events
• Any mitigating conditions or events
• Management’s plans to address the potential inability of
the entity to meet its obligations
• An SEC filer must evaluate whether there is substantial
doubt as to a going concern presumption
• If there is substantial doubt, this must be disclosed –
including the words “substantial doubt” and “ability to
continue as a going concern” or similar wording
• Substantial doubt would exist if after assessing all the
factors just described – including actions outside the
ordinary business activity by management – the
conclusion is that it is known or probable that the entity
will be unable to meet its obligations within 24 months of
the financial statement date
• Non SEC filers would have to apply all of the disclosure
requirements of this guidance but would not be required
to evaluate or disclose whether there is substantial doubt
about the entity being a going concern
Revenue Recognition
• Background
• Current GAAP
– Recognize Revenue when realized or realizable and
when earned – FASB Concept Statement No. 5
– Recognize Revenue when:
• Persuasive evidence of an arrangement exists
• Delivery has occurred
• The vendor’s fee is fixed or determinable
• Collectability is probable
SEC Staff Accounting Bulletin 101
FASB Exposure Draft (Topic 605)
Revenue from Contracts with Customers
(Revised November, 2011 but later revisions included and
expected in Update to be issued by end of June)
• The core principle requires an entity to recognize
revenue to depict the transfer of goods or services to
customers in an amount that reflects the consideration
that it expects to be entitled in exchange for those goods
and services.
• To apply the core principle, an entity must:
• a) identify the contract(s) with a customer
• b) identify the separate performance obligations in the
contract
• c) determine the transaction price
• d) allocate the transaction price to the separate
performance obligations
• e) recognize revenue when (or as) the entity satisfies
each performance obligation
• Identify the contract(s) with a customer
• An agreement between two or more parties that creates
enforceable rights and obligations
• Contracts can be written, oral or implied by customary
business practices
• Guidance is included, however, to specify when an entity
would combine two or more contracts
Identify the separate performance obligations in the
contract
• A performance obligation is an enforceable promise in a
contract with a customer to transfer a good or service to
the customer
• If more than one good or service is provided, account for
each distinct good or service as a separate performance
obligation
• A good or service is distinct if:
– the entity or another entity sells an identical or similar
good or service separately or
– The customer can benefit from the good or service
either on its own or with other readily available
sources
• Goods or services in a bundle are not distinct if both
the following are met:
• The goods or services are highly interrelated and the
entity must provide significant service to integrate the
goods or services into the contracted item
• The bundle of goods or services is significantly modified
to fulfill the contract
• The entity must determine whether its performance
obligation requires acting as a principal or as an agent
Determine the transaction price
• The transaction price is the amount of consideration that
an entity receives, or expects to receive, from a
customer in exchange for transferring goods and
services promised in the contract. In many instances this
price is readily determinable because it is a fixed amount
• If the amount is variable (discounts, incentives,
performance rewards, etc.), an entity would recognize
revenue from satisfying an obligation if the transaction
price can be reasonably estimated.
(continued)
• A transaction price can be reasonably estimated only if:
– the entity has experience with similar types of
contracts (or access to information) and
– the entity’s experience is relevant to the contract
because the entity does not expect significant
changes in circumstances
The amount recognized as revenue would be
constrained to the amount that management
believes is probable would not be subject to
significant reversal
• When considering the transaction price, an entity would
consider:
– time value of money – significant financing?
– noncash consideration – fair value
– consideration payable to the customer
Customer Credit Risk
• Should this be a reduction in revenue or an expense?
• Management needs to consider facts and circumstances
• If, at the beginning of the contract, is it likely that entity
will have to make a price concession?
• If so, this is a reduction in revenue
• If, instead, this receivable becomes impaired over time, it
is bad debt expense
Allocate the transaction price to the separate performance
obligations
• Allocate the transaction price to all separate
performance obligations in proportion to the standalone
selling prices of the goods and services. If standalone
price not observable, it should be estimated
• If circumstances change, the entity would update the
transaction price and allocate the changes to the
separate obligations
Recognize revenue when a performance obligation is
satisfied
• Recognize revenue when performance obligation is
settled by transferring the promised goods or services. A
good or service is considered settled when the customer
has control of that good or service
• Entity must determine whether performance obligation
settled over time or at a point in time
(continued)
• A performance obligation is settled over time if:
• The entity’s performance creates or enhances an asset
that customer controls during creation or enhancement
• The entity’s performance does not create an asset with
an alternative use to the entity and the customer does
not have control over the asset created, and the entity
has the right to payment for performance completed to
date and it expects to fulfill the contract
• When the entity satisfies the performance obligation, it
would recognize revenue in the amount of the
transaction price that was allocated to the settled
obligation
• When the performance obligation is satisfied over time,
progress is measured using either output methods or
input methods
• An entity should select a method that shows the transfer
of control of the goods or services to the customer
• This might be during production or upon the delivery of
the goods or services
Licenses of Intellectual Property (IP)
• A license providing a right to use IP is recognized as
revenue when control has been transferred and the
period of the license begins
• A license allowing access to the entity’s existing IP
results in recognizing revenue over time
• If not settled over time, the performance obligation is
settled at a point in time. This determination should be
made by considering the following indicators of control:
• Entity has present right to payment
• Customer has legal title
• Entity has transferred physical possession
• Customer has significant risks and rewards
of ownership
• Customer has accepted the asset
• This proposal also specifies the accounting for some
costs. Often the cost of obtaining a contract is expensed
when incurred.
• If no other standard covers a cost incurred in fulfilling a
contract, the cost would have to be expensed unless it
relates directly to a contract, generates resources that
will be used to satisfy future obligations or is expected to
be recovered
• This proposed standard applies to all entities that have
contracts with customers – public, private and not-forprofit
• Certain contracts with customers would be excluded. For
example, those covered by the lease guidance,
investments in debt and equity securities, receivables,
debt, insurance contracts, financial instruments,
derivatives and guarantees
• Disclosures include quantitative and qualitative
information:
• Reconciliation of contracts with customers
• Significant judgments and changes
• Any assets recognized from contracts
• Revenue by primary categories
• Analysis of remaining performance obligations
(Nonpublic entities can omit reconciliations)
• For public entities, the effective date would be for
periods beginning after 12/15/16. Private companies
would have an additional year. Early adoption not
permitted
Transition
• Retrospectively apply to all period periods or
• Apply to all new contracts and apply to current contracts
with cumulative effect taken in retained earnings
• Some practical expedients are included in guidance
FASB Exposure Draft (Topic 840)
Leases (revision issued in May, 2013)
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A single, “right-of-use”, method for lessees
Guidance for both lessees and lessors
Most leases will be on the balance sheet
Simplified accounting for short leases – those with a
maximum possible lease term of 12 months or less
• Short leases are accounted for in a similar way to current
operating leases - no effect on Balance Sheet.
• Final pronouncement now scheduled for 2014 but still
much controversy surrounding this proposal
Draft applies to all leases except for:
• Intangible assets (software, patents, licenses)
• Exploration for or use of minerals, oil, natural gas, and
other similar resources
• Biological assets
• Must distinguish between a lease and a service
A lease is defined in this draft as “a contract in which the
right to use a specified asset is conveyed, for a period of
time, in exchange for consideration”
• A contract would contain a lease if the substance of the
contract includes the following:
• The fulfillment of the contract depends on the use of a
specified asset and
• The contract conveys the right to control the use of the
asset for a period of time in exchange for consideration
• A contract would include control if the lessee has the
ability to direct and benefit from use of a specified asset
the entire term
• A specified asset is one that is explicitly or implicitly
identifiable
• The exclusive use by a customer of a physically distinct
portion of a larger asset is a specified asset
• If lease contains more than one asset, must identify and
account for each component as a separate lease
• If lease contains both land and building, do not allocate
lease payments
Lessee
• Must recognize an asset representing the right to use the
leased item for the lease term - measured at the present
value of the lease payments plus any initial direct costs
• Must recognize a liability for its obligation to pay the
rentals for the lease term - measured at the total of the
present values of the lease payments
• Discount rate is lessor’s implicit rate of return, if known –
if unknown, use lessee’s incremental borrowing rate
(nonpublic entities may choose to use a risk-free
discount rate for this measurement)
When the lessee consumes more than an insignificant
portion of the asset
• Use amortized cost approach to subsequently measure
the right to use the asset
• The obligation is reduced using the effective interest
method
• This method is called the Amortization and Interest
Method (A & I)
• The combination of depreciation and interest on a
declining balance will give a decreasing charge to
income – “front loaded”
• This does have a positive effect on EBITDA
• Interest portion of cash payment is operating activity and
principal portion is financing for SCF
When Lessee consumes an insignificant portion of the
asset
• Generally, leases of property – land, buildings
• The asset and liability are both recognized on the
balance sheet
• Expense is recognized, however, in a straight-line,
similar to operating leases under current GAAP
• This is called the Straight-Line Expense Method (SLE)
• It is an operating expense
• The entire payment is an operating cash outflow for the
SCF
Lease Term
• The noncancellable period
• Also any period for which there is an economic incentive
for the lessee to exercise an option to renew or not to
exercise an option to terminate
• The term is reassessed only if there is a significant
change in factors relating to the economic incentives
Lease Payments
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Fixed payments minus any incentives received
Variable lease payments based on an index or rate
If rate or index changes, amounts are reassessed
If purchase option expected to be exercised, include
amount expected to be paid
• Also, if expected, penalty payments to terminate lease
• Contingent rents based on sales, etc., not included
What is meant by “more than insignificant”?
• Much judgment is required
• Is the lease term a major part of the asset’s economic
life?
• Is the present value of the fixed lease payments
substantially all of the fair value of the asset?
• Boards did not define “more than insignificant” using
numbers but included application guidance and
examples
Disclosures by Lessee
• A reconciliation of opening and closing balances of lease
liabilities under both A & I and SLE approaches
(nonpublic are exempt from this requirement)
• A maturity analysis showing undiscounted cash flows for
each of the first 5 years and the total thereafter. This
analysis should reconcile to the recorded lease liability
• Separately present in the balance sheet or disclose in
notes the right-of-use assets and liabilities
Lessor
• The Board wants symmetry between accounting for the
lessee and lessor
• “More than insignificant” judgment is key
• If more than insignificant portion of an underlying asset,
lessor recognizes an asset representing its right to
receive payments
• If insignificant, then account for as under current
operating lease guidance – do not derecognize the asset
and recognize lease income over the term
If more than insignificant portion of the asset is consumed,
use the “receivable and residual” approach
• Initially measure the right to receive payments at the
present value of the lease payments using effective
interest method
• Initially measure the residual asset as an allocation of
the underlying asset. Divide into two parts –
– a) gross residual value measured at present value of
estimated residual at the end of the term
– b) deferred profit – the difference between the gross
residual value and the allocation of the carrying
amount of the underlying asset
• Subsequently measure the gross residual asset by
accreting to the estimated residual value at the end of
the term
• Recognize the unwinding of the discount on both
receivable and residual asset as income over the term of
the lease
• None of the deferred profit would be recognized until the
end of the term
• As with a lessee, the lessor must disclose quantitative
and qualitative information that identifies and explains
the amounts recognized in the financial statements
• This would include the current requirement of
undiscounted payments for each of the next 5 years and
in the aggregate.
• Must include carrying amount of lease receivable and
residual asset as lease assets, either identified
separately on face or in notes
• Also must include a table with all lease related income
items disaggregated – profit at beginning, interest
income on receivable, interest income on residual asset
Transition
• May use either a full retrospective presentation or a
modified retrospective presentation
• With modified retrospective, lessee and lessor recognize
previous capital leases and sales or financing leases at
the current carrying amounts
• For leases previously accounted for as operating leases,
assets and liabilities would be recognized using
information available at the transition date
• For public entities, the effective date would be for
periods beginning after 12/15/16. Private companies
would have an additional year. Early adoption not
permitted.
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FASB Exposure Draft (Topic 825 and 815)
Accounting for Financial Instruments and Revisions to
Accounting for Derivatives and Hedging (initially issued
May, 2010)
Main objective of this proposal was to provide financial
statement users with a more timely and representative
picture of an entity’s involvement in financial instruments
– while reducing the complexity of accounting for them
Existing US GAAP allows different accounting
treatments for similar financial instruments
For US GAAP, hedge changes not yet considered
There is a difference in the views of the IASB and the
FASB on measuring financial instrument impairment (as
seen in a FASB revised Exposure Draft)
Impairment of Financial Assets
(now only proposed by the IASB)
• Impairment of financial assets recognizes the general
pattern of deterioration in credit quality.
• In this “three bucket approach”, all assets are in the first
category, regardless of credit quality. Transfers would be
to the next categories as credit quality deteriorates or
improves. This requires an estimate of “12 months of
expected losses” in the first category while in
subsequent categories the measurement objective is
“lifetime expected credit losses”
• This approach was advocated by the IASB and the
FASB agreed in mid – 2012.. However, the FASB
almost immediately took another approach- resulting in:
FASB Exposure Draft (Subtopic 825-15)
Financial Instruments – Credit Losses
(issued December 20, 2012)
• This approach is called the “Current Expected Credit
Loss” model and replaces the “incurred loss” model.
• An entity at each reporting date would determine for
financial assets an allowance for credit impairment for its
current estimate of expected credit losses
• This allowance is management’s estimate of cash flows
that are not expected to be collected
• Provides current estimate of expected lifetime credit
losses on balance sheet
• Current deterioration reflected on income statement
• The scope of this guidance includes financial assets not
accounted for at fair value with changes reported in net
income
• Includes loans, debt securities, trade receivables, etc.
that represent contractual rights to receive cash
• Estimate of expected credit losses would be based on
relevant information about past events, current
conditions, and reasonable and supportable forecasts
• Board believes this improves timely recognition of losses
FASB Exposure Draft (Topic 825)
Recognition and Measurement of Financial Assets and
Financial Liabilities (issued February, 2013)
• Financial assets would be classified and measured by
the instrument type and entity’s business strategy:
• Amortized cost – debt investments related to customer
financing where the strategy is to collect contractual
cash flows
• Debt investments at fair value with changes in fair value
recognized in OCI. Objective is to collect contractual
cash flow but also sell if change in fair value
• Fair value with changes reflected in net income. This is
for assets not included above and includes all equity
investments not accounted for by the equity method.
• A practicability exception is available for equity
investments without readily available fair values
• Financial liabilities would be measured at amortized cost
unless the strategy is to subsequently transact at fair
value or the liability resulted from a short sale
• A public entity would present parenthetically on the
statement’s face the fair value of financial assets and
financial liabilities that are carried at amortized cost
• A nonpublic entity would not have this requirement
• If a financial liability is carried at fair value, any change in
fair value because of a change in credit risk would be
reported in other comprehensive income
FASB Private Company Council (PCC)
(formed in Summer, 2012)
• The purpose of the Council is to:
– Determine whether exceptions or modifications to
GAAP are needed to meet the needs of private
company financial statements users
– Reduce the cost and complexity of statements while
retaining the quality of the information
– Identify, consider, and vote of any proposed changes,
which will then be considered for endorsement by
the FASB
• Another purpose of the PCC is to act as an advisory
group to the FASB relating to the needs of private
company users – managers, lenders, venture capitalists,
sureties and others
Process
• As with any other proposal of the FASB, there is due
process, including public comment
• Determination by PCC of which elements of GAAP to
reconsider for exceptions or modifications is by a twothirds vote
• A majority vote of the FASB members is needed to
expose these exceptions or modifications for public
comment
• At then end of the exposure period, the PCC determines
if these changes should be sent to the FASB for
endorsement
• Endorsement is considered by the FASB members
• If endorsed, these exceptions or modifications become
GAAP
• If not endorsed, the FASB must provide the PCC with a
written explanation, including possible changes that
might lead to endorsement
• Explanation to be provided in no more than 60 days
• The exceptions or modifications that do become
GAAP for private companies will also be considered
later by the FASB as being appropriate for public
companies
Private Company Decision-Making Framework
• In July, 2013 the PCC voted to finalize the Private
Company Decision-Making Framework, outlining criteria
to use for determining whether and under what
circumstances it is appropriate to differentiate reporting
requirements for private companies
• FASB had issued Invitation to Comment on this
Framework in July, 2012 and again in April, 2013
• Input from users, preparers and auditors was considered
in preparing the Framework
• Framework was released in late December and includes
the following factors (cont’d)
Significant Factors Differentiating Financial Reporting for
Public and Private Entities
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Types and numbers of users
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Access to management
Investment strategies
Ownership and capital structures
Accounting resources
Learning about new financial guidance
Possible Areas of Different Guidance for Private and Public
Entities
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Recognition and Measurement
Disclosures
Display
Effective Dates
Transition Method
FASB ASC Update No. 2014-02 (Topic 350)
Accounting for Goodwill
• Entities electing this alternative would amortize goodwill
on a straight-line basis over 10 years (or less if that is
reasonable)
• There can be revisions in useful life but the cumulative
life can not exceed 10 years
• Impairment would not be tested annually as is now
required, but only if there is a triggering event that might
indicate that fair value is less than carrying value
• The testing for impairment may be conducted at the
component level or at the entity-wide level
• Net goodwill will be separate line item on Balance Sheet
• Amortization and impairment will be separate line item
on Income Statement – within continuing operations
• The more-likely-than-not impaired qualitative test for
impairment is still available under this alternative
• If impaired, the amount recognized would be the excess
of the carrying value over fair value
• The Update has an effective date of annual periods
beginning after 12/15/14 (and interims 12/15/15) with
early adoption permitted
• No additional disclosure requirements
• Goodwill amortization would be prospectively from
effective date, including existing and new goodwill
FASB ASC Update No. 2014-03 (Topic 815)
Accounting for Certain Receive-Variable, Pay-Fixed
Interest Rate Swaps - Simplified Hedge Accounting
• In these situations, nonfinancial private entities may
choose the simplified hedge accounting approach
• The interest expense on the income statement would be
similar to the amount reported if there had been a fixed
rate initially
• Swap term must approximate the term of the debt
• Swap must become effective at approximately the same
time as the debt
• Under the simplified hedge accounting approach, the
swap and related borrowing would continue to be
accounted for separately
• No ineffectiveness would be assumed for qualifying
hedges
• The swap may be accounted for at settlement value
rather than fair value
• Effective for annual periods beginning after 12/15/14
(and interims 12/15/15) with early adoption permitted
FASB ASC Update No. 2014-07 (Topic 810)
Applying Variable Interest Entities Guidance to Common
Control Leasing Arrangements
• Provides a private entity an option to not apply Variable
Interest Entity guidance when:
– The private entity and the lessor are under common
control
– The private entity has a leasing arrangement with
lessor
– Substantially all activity between the two entities
relates to the leasing activity
– At the beginning of the lease, any guaranteed
obligation of the lessor by the entity could be
collateralized by the asset leased to the entity
• Effective for first annual period beginning after 12/15/14
(and interims after 12/15/15) but early adoption permitted
• This guidance includes full retrospective application for
all periods shown
• While Variable Interest Entity guidance will no longer be
used, disclosures will include
– Amount and terms of significant liabilities of the lessor that might
impact the lessee’s future obligations
– Qualitative description of any unrecognized arrangements of the
lessor that might impact the lessee’s future obligations
FASB Exposure Draft (Topic 805)
Accounting for Identifiable Intangible Assets in a Business
Combination
• Private companies may elect, in business combinations,
to recognize only intangible assets arising because of
noncancellable contract terms or other legal rights
• All other intangible assets would be included in goodwill
• Entity must qualitatively disclose any identifiable
intangible assets acquired in a business combination
that are included in goodwill
• Those intangible assets that are recognized would be
accounted for initially at fair value
• The PCC is reviewing this and is considering changes
after receiving input from the ED
• Will consider separating from Goodwill only those
intangible assets that have separate cash flow
FASB Exposure Draft (Topic 915)
Development Stage Enterprises (DSE) – Elimination of
Certain Financial Reporting Requirements
• A Development Stage Enterprise devotes most of its
efforts in establishing a new business and either planned
principal operations have not begun or have commenced
and there is no significant revenue
• This proposal removes the definition of a DSE from
Topic 915 so that there is no longer a distinction
between a DSE and other entities
• This proposal removes a paragraph stating that a DSE is
not a variable interest entity if it can show that the equity
invested in it is enough to finance its current activities
• This proposal eliminates the following disclosures
currently required by a DSE:
– Inception to date information on income statement, cash flows
and equity
– A statement that these are financial statements of a DSE
– A description of the activities in which the DSE is engaged
– A note to the effect that in the first year after the development
stage that the entity is no longer a DSE
While this proposal originated with the PCC, it
went directly to the FASB for consideration as
guidance for all business entities
FASB Disclosure Framework Project
• Invitation to Comment on the Project was released in
July 2012
• Input received will help in the FASB establish a
framework of use in setting requirements for note
disclosure in financial statements
• Many concerns from stakeholders about the amount and
relevance of footnote disclosure
• The Invitation to Comment included options that could be
considered in having more effective disclosure
• Project subsequently divided into the FASB’s decision
process and the entity’s decision process
Areas Addressed in Invitation to Comment
• Guidance that will provide relevant information for users
of financial statements
• Flexible requirements that could be used by reporting
entities and applied only to information that is relevant
for users of that entity’s financial statements
• Establishing a framework for helping entities determine
which disclosures are relevant
• Techniques for organizing and formatting the appropriate
information so that the notes are less complex
• Interim disclosure guidance
Priorities for the FASB
• The Financial Accounting Standards Council (FASAC)
surveyed 105 stakeholders concerning their thoughts on
what should be the priorities of the FASB for the next
3 -5 years. (Excluding almost completed active projects)
• The top six, in order of importance were:
– Disclosure Framework
– Hedging
– Conceptual Framework
– Financial Instruments with Characteristics of Equity
– Pensions
– Financial Statement Presentation