April 29, 2022

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FASB Issues Guidance on Liquidation Accounting

The FASB has issued ASU No. 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. The amendments in this ASU clarify when an entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. This ASU is effective for interim and annual reporting periods beginning after December 15, 2013, with early adoption permitted.

Liquidation is the process by which a company converts its assets to cash or other assets and settles its obligations with creditors in anticipation of ceasing all of its activities. An organization in liquidation must prepare its financial statements using a basis of accounting that communicates information to users of those financial statements to enable those users to develop expectations about how much the organization will have available for distribution to investors after disposing of its assets and settling its obligations.

The ASU requires an organization to prepare its financial statements using the liquidation basis of accounting when liquidation is “imminent.” Liquidation is considered imminent when the likelihood is remote that the organization will return from liquidation and either: (a) 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 (b) a plan for liquidation is being imposed by other forces (e.g., involuntary bankruptcy). In cases where a plan for liquidation was specified in the organization’s governing documents at inception (e.g., limited-life entities), the organization should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified in the organization’s governing documents.

The ASU requires financial statements prepared using the liquidation basis to present relevant information about a company’s resources and obligations in liquidation, including the following:

  • The organization’s assets measured at the amount of the expected cash proceeds from liquidation, including any items it had not previously recognized under U.S. GAAP that it expects to either sell in liquidation or use in settling liabilities (e.g., trademarks).
  • The organization’s liabilities as recognized and measured in accordance with existing guidance that applies to those liabilities.
  • Accrual of the costs it expects to incur and the income it expects to earn during liquidation, including any anticipated disposal costs.

The ASU is available here.

The FASB’s In Focus publication is available here.

Not-for-Profit Entities - ASU 2013-06 Issued

The FASB has issued Accounting Standards Update (ASU) No. 2013-06, Not-for-Profit Entities (Topic 958) - Services Received from Personnel of an Affiliate. The objective of the amendments in this ASU is to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate. More specifically, the amendments in this ASU apply to not-for-profit entities, including not-for-profit, business-oriented health care entities that receive services from personnel of an affiliate that directly benefit the recipient not-for-profit entity and for which the affiliate does not charge the recipient not-for-profit entity.

The amendments in this ASU require a recipient not-for-profit entity to recognize all services received from personnel of an affiliate that directly benefit the recipient not-for-profit entity. Those services should be measured at the cost recognized by the affiliate for the personnel providing those services. However, if measuring a service received from personnel of an affiliate at cost will significantly overstate or understate the value of the service received, the recipient not-for-profit entity may elect to recognize that service received at either: (a) the cost recognized by the affiliate for the personnel providing that service or; (b) the fair value of that service.

The amendments in this ASU are effective prospectively for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter. A recipient not-for-profit entity may apply the amendments using a modified retrospective approach under which all prior periods presented upon the date  should be adjusted, but no adjustment should be made to the beginning balance of net assets of the earliest period presented. Early adoption is permitted.

The ASU is available here.

FAF Names Russell G. Golden Chairman of the FASB

The Board of Trustees of the Financial Accounting Foundation (FAF) has named Russell G. Golden as the next chairman of the Financial Accounting Standards Board (FASB), effective July 1, 2013. Mr. Golden will succeed current FASB Chairman Leslie F. Sideman, whose term ends on June 30, 2013.

Mr. Golden has served as a FASB member since his appointment in September 2010. He previously served for six years on the FASB staff as a senior technical advisor in 2004. From 2008 to September 2010, Mr. Golden was technical director of the FASB, overseeing FASB staff work on standards-level projects, including both major projects and technical application and implementation activities. He also chaired the FASB’s Emerging Issues Task Force (EITF).

Prior to joining the FASB, Mr. Golden was a partner at Deloitte & Touché LLP, in the National Office Accounting Services department. In this role, he was responsible for providing timely and accurate accounting consultations to partners and clients throughout the United States and globally.

Mr. Golden’s initial term as FASB chairman will extend to June 30, 2017. At that time, he will be eligible to serve another term of three years.

The FAF Press Release on Mr. Golden’s appointment as FASB Chairman is available here.

IIA Issues Tone at the Top

The Institute of Internal Auditors (IIA) has issued a new edition of Tone at the Top, entitled “Prepared for a Crisis?”. This issue of Tone at the Top features 10 tips on preparing for a crisis. According to the IIA, this edition will help the internal auditor see why experts recommend to assemble a professional crisis team and develop a communication plan ahead of time. As stated on the IIA website, the goal of the publication is “to provide executive management, boards of directors, and audit committees with concise, relevant information and guidance on establishing the appropriate tone at the top concerning governance-related topics such as ethics, risk management, and corporate culture.”

The current edition of Tone at the Top is available for download here.

GASB Approves Standard on No exchange Financial Guarantees

The GASB has approved Statement No. 70, Accounting and Financial Reporting for No exchange Financial Guarantees, that provides accounting and financial reporting guidance to state and local governments that offer no exchange financial guarantees and for governments that receive guarantees on their obligations.

GASB 70 requires a state or local government guarantor that offers a no exchange financial guarantee to another organization or government to recognize a liability on its financial statements when it is more likely than not that the guarantor will be required to make a payment to the obligation holders under the agreement.

A no exchange financial guarantee is a credit enhancement or assurance offered by a guarantor without receiving equal or approximately equal value in exchange. The guarantor agrees to pay an obligation holder in the event that the issuer of the obligation is not able to make its required payments to the obligation holder. No exchange financial guarantees can include guarantees by a state for bonds issued by local governments within that state or guarantees of mortgage loans to individuals, if equal or approximately equal value is not received in exchange.

GASB 70 is effective for reporting periods beginning after June 15, 2013, and the GASB encourages early application. GASB will be available on Accounting Research Manager after it is published in May.

The GASB’s News Release is available here.

Our strategic partnership with CCH, a Wolters Kluwer business, has enabled us to craft our Audit & Accounting eAlert. The articles have been selected from CCH’s Accounting Research Manager Daily and/or Weekly Summary and we hope you find them valuable and relevant. Please feel free to contact ParenteBeard LLC at [email protected] if you have any questions related to these stories or ParenteBeard's services.

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