March 8, 2022

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FASB and IASB Reach Decisions on Revenue Recognition

As reported in its "Summary of Board Decisions" publication, the FASB and IASB (the Boards) met on February 20, 2013, and discussed and reached tentative decisions on certain revenue recognition disclosure issues. The Boards also reached tentative decisions on transition, effective date and early application. The tentative transition guidance would be retrospective with an enhanced practical expedient and modified presentation. For contracts completed before the date of initial application, an entity may not restate completed contracts irrespective of whether they begin and end within the same reporting period. However, entities that choose to apply the expanded practical expedient should not restate comparative periods in its financial statements. The revenue recognition guidance would be effective for annual periods beginning on or after January 1, 2017. Early application would not be permitted.

The Summary of Board Decisions is available here.

FASB Issues ASU on Cumulative Translation Adjustments

The FASB has issued Accounting Standards Update (ASU) No. 2013-05, Foreign Currency Matters (Topic 830) Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. When a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided.

For an equity method investment that is a foreign entity, the partial sale guidance in Section 830-30-40 still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. However, this treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment.

Additionally, the amendments in this ASU clarify that the sale of an investment in a foreign entity includes both (1) events that result in the loss of a controlling financial interest in a foreign entity (i.e., irrespective of any retained investment) and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (sometimes also referred to as a step acquisition). Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events.

The amendments in this ASU are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. For nonpublic entities the amendments in this ASU are effective prospectively for the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity elects to early adopt the amendments, it should apply them as of the beginning of the entity’s fiscal year of adoption.

The ASU is available here.

FASB Issues ASU 2013-04 - Liabilities

The FASB has issued Accounting Standards Update (ASU) No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the Emerging Issues Task Force). ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this ASU also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations.

The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2014, and interim periods and annual periods thereafter.

The amendments in this ASU should be applied retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements within the ASU’s scope that exist at the beginning of an entity’s fiscal year of adoption. An entity may elect to use hindsight for the comparative periods (if it changed its accounting as a result of adopting the amendments in this ASU) and should disclose that fact. Early adoption is permitted.

The ASU is available here.

FASB Responds to the FAF's Statement No. 131 Post-Implementation Review

The FASB has responded to the Financial Accounting Foundation’s (FAF) post-implementation review (PIR) of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information (codified in Accounting Standards Codification Topic 280, Segment Reporting). The PIR was undertaken by an independent FAF team working under the oversight of the FAF Board of Trustees.

The FASB issued Statement 131 in 1997 to improve the way public companies report financial information about their business segments in annual and interim financial statements and for related disclosures about products and services, geographic areas, and major customers.

The FAF PIR report concluded that Statement 131 generally is working effectively in providing more information about an organization’s business activities than the prior segment reporting standard and is enhancing the relevance of segment disclosures, although stakeholders suggested some improvements.

The FASB response letter noted that the PIR report findings affirm that segment information is better aligned with an organization’s internal structure and is more consistent with financial information reported outside the financial statements, which enables investors and users to better understand an organization’s activities and prospects for future growth. The report also noted that some preparers and practitioners would find additional guidance on certain operational aspects of Statement 131 to be helpful, and that some users would like additional and comparable segment information.

The FASB noted that it will review the issues raised by the PIR with its stakeholders and the staff of the SEC to determine whether further review of the standard is warranted.

The IASB is conducting a post-implementation review of IFRS 8, Operating Segments, which was substantially converged with Statement 131, and plans to publish its PIR report in the second quarter of 2013. The IASB staff discussed their preliminary findings at the January 2013 IASB meeting. The FASB believes that any plan to undertake a separate project to review or amend Statement 131 as a result of the PIRs should be coordinated with the IASB to maintain a converged approach to segment reporting.

The FASB response letter to the Financial Accounting Foundation is available here.

The FAF Post-Implementation Report is available here.

GASB Post-Implementation Review Released

The Financial Accounting Foundation (FAF) has concluded that GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements, and GASB Statement No. 40, Deposit and Investment Risk Disclosures, achieve their purposes, as indicated in their post-implementation review (PIR). Statements No. 3 and No. 40 were established to improve the way state and local governments report deposits and investment risks, and repurchase and reverse repurchase agreements. According to this PIR, these two statements have achieved their purpose and provide decision-useful information to creditors and other financial statement users.

Both statements require note disclosures about deposit and investment risks. Additionally, Statement No. 3 provides accounting guidance for repurchase and reverse repurchase agreements. The review of Statements No. 3 and No. 40 was undertaken by an independent FAF team working under the oversight of the FAF Board of Trustees. The PIR team received input from creditors, analysts, citizen and taxpayer groups, and other financial statement users; as well as preparers (state and local governments), auditors, and academics. The PIR team concluded that the standard-setting process worked well overall and contributed to a successful standard. They had no significant standard-setting process recommendations.

The FAF also announced today that the PIR team will start a review of GASB Statements No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, and GASB Statement No. 30, Risk Financing Omnibus - an amendment of GASB Statement No. 10, which establish accounting and financial reporting standards for risk financing and insurance-related activities of state and local governments, including public risk pools.

The PIR process, which is independent of the standard-setting process of the GASB and the FASB, is intended to assist the FAF’s Board of Trustees with its ongoing efforts to evaluate the effectiveness of the standard-setting process for both organizations. The FAF Trustees’ oversight responsibility does not extend to recommending standard-setting action, which is the sole, independent responsibility of the GASB and the FASB.

The GASB’s News Release is available here.

The PIR is available here.


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