What’s new this month?
The new year is off to a strong start with the FASB issuing four Accounting Standard Updates (ASU). By comparison in January 2016, the FASB issued one ASU. With 2016 toting a five-year record of 20 ASUs, we are sure to expect an active 2017 as the FASB has as extensive list of active projects.
Companies will be busy as January 1, 2017, generally for calendar year-end public companies, marks the beginning effective date for ten different ASUs as follows:
- Update 2017-02—Not-for-Profit Entities—Consolidation (Subtopic 958-810): Clarifying When a Not-for-Profit Entity That Is a General Partner or a Limited Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity
- Update 2016-19—Technical Corrections and Improvements
- Update 2016-17—Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control
- Update 2016-05—Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships
- Update 2016-06—Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments
- Update 2016-07—Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
- Update 2016-09—Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
- Update 2015-17—Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
- Update 2015-11—Inventory (Topic 330): Simplifying the Measurement of Inventory
- Update 2014-15—Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
New revenue recognition standard (ASC 606) – Have you assessed the impact?
In addition to adopting the aforementioned ASUs, companies should have started to assess the impact of the new revenue recognition standard. For businesses that have not yet begun to make the assessment, the time to start is now. The 2018 effective date for public companies is fast approaching and businesses will need sufficient time to change systems, processes, and controls. The implementation effort could be extensive and is expected to impact all companies in some form.
In December’s American Institute of CPAs (AICPA) National Conference on Current SEC and PCAOB Developments, the Securities and Exchange Commission (SEC), FASB, auditors and prepares placed a great deal of emphasis on preparing for the adoption of this standard. The SEC staff reminded attendees of Staff Accounting Bulletin No. 74 (codified in SAB topic 11-M), and stated that they expect to see more robust qualitative and quantitative disclosures about the anticipated impact of the new revenue standard, as well as about management’s status in achieving implementation, in registrants’ upcoming Form 10-K filings.
What’s been issued in January 2017?
ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
This ASU tackles the broad definition of a business included in Topic 805, Business Combinations. The overall goal is to mitigate the risk of transactions being recorded as business acquisitions when, in fact, they are asset acquisitions. The amendments in this ASU provides a screen to determine when a set of assets and activities is not a business.
Public business entities should apply the amendments in this ASU to annual periods beginning after 15 December 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after 15 December 2018, and interim periods within annual periods beginning after 15 December 2019.
ASU 2017-02, Not-for-Profit Entities – Consolidation (Subtopic 958-810): Clarifying When a Not-for-Profit Entity That Is a General Partner or a Limited Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity
The amendments in this ASU maintain how Not-for-Profit (NFP) general partners currently apply the consolidation guidance in Subtopic 810-20 (prior to ASU 2015-02 implementation) by including that guidance within Subtopic 958-810. The amendments also add to Subtopic 958-810 the general guidance in Subtopic 810-10 related to when NFP limited partners should consolidate a limited partnership.
The amendments in this ASU are effective for NFPs for fiscal years beginning after 15 December 2016, and interim periods within fiscal years beginning after 15 December 2017.
Update 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC update).
- This ASU amends the codification pursuant to SEC Staff comments made at two Emerging Issues Task Force (EITF) meetings. The SEC staff commented on its expectations regarding the extent of disclosures issuers should make about the impact of the new FASB guidance (including any amendments issued prior to adoption) on revenue (ASU 2014-09), leases (ASU 2016-02) and credit losses on financial instruments (ASU 2016-13).
- The ASU also amends ASC paragraph 323-740-S99-2, which describes the SEC staff’s views on accounting for investments in qualified affordable housing projects, to the guidance issued in ASU 2014-01, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects.
Update 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. Under the new amendments in this ASU, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
What’s been proposed?
In addition to the ASUs above, the FASB has proposed important guidance this month.
Proposed ASU, Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent). The guidance is intended to simplify determining whether debt should be classified as current or noncurrent in a classified balance sheet.
Specifically, the proposed ASU introduces the principle that an entity should classify a debt instrument as noncurrent if either of the following criteria is met as of the balance sheet date:
- The liability is contractually due to be settled more than one year (or operating cycle, if longer) after the balance sheet date.
- The entity has a contractual right to defer settlement of the liability for at least one year (or operating cycle, if longer) after the balance sheet date.
Comments are due to the FASB by 5 May 2017.
Proposed ASU, Inventory (Topic 330): Disclosure Framework – Changes to the Disclosure Requirements for Inventory. The guidance would modify the disclosure requirements for inventory by introducing additional disclosure requirements to reporting entities, including:
- Inventory disaggregated by component
- Inventory disaggregated by measurement basis
- Changes to the inventory balance that are not specifically related to the purchase, manufacture, or sale of inventory in the ordinary course of business
- A qualitative description of the types of costs capitalized into inventory
- The effect of last-in, first-out (LIFO) liquidations on income
- The replacement cost for LIFO inventory
Comments are due to the FASB by 13 March 2017.
We can help
To have a more detailed assessment on how these standards, including the new revenue recognition standard, impact your organization please contact our team below.