FASB Update Nick Cappiello Supervising Project Manager, FASB

Transcription

1 FASB Update Nick Cappiello Supervising Project Manager, FASB March 7,

2 FASB Staff Disclaimer Expressions of individual views by members of the FASB and staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the FASB on accounting matters are reached only after extensive due process and deliberation. 2

3 Topic Summary Accounting for Financial Instruments o Hedging o Impairment Business Combinations o Accounting for Identifiable Intangible Assets Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost Disclosure Framework Goodwill Conceptual Framework Government Assistance Simplifying the Equity Method of Accounting Accounting for Income Taxes EITF Issue 16-A: Restricted Cash PCC Agenda Decision No : Applying Variable Interest Entity Guidance to Entities under Common Control 3

4 Accounting for Financial Instruments (AFI): Hedging 4

5 Hedge Accounting Current GAAP Highly effective Nonfinancial gets thrown out Component hedging allowed for financial instruments Cash flow hedges divided into effective and ineffective portions Hedge ineffectiveness reported in earnings 5

6 Hedged Item Designation Nonfinancial hedging: - Qualifying threshold of current GAAP will be retained - Separately recording ineffectiveness will be effectively eliminated - May designate a contractually specified component linked to an index as the hedged item 6

7 AFI: Impairment 7

8 Impairment... CECL Overview 8 Allowance = Cash flows not expected to be collected Model more forward-looking Provides enhanced disclosures 8

9 Impairment... Summary of Board Decisions Loans Debt Securities Held for Investment CECL Held to Maturity CECL Held for Sale Lower of cost or market Available for Sale New credit loss model Trading FV-NI 9

10 Accounting for Identifiable Intangible Assets in a Business Combination 10

11 Intangibles Alternatives 11 View A No intangibles View B No intangibles except those capable of being sold or licensed View C No change to GAAP 11

12 Goodwill and Intangibles for Public Business Entities and Notfor-Profit Entities 12

13 Project Approach Phase 1 Simplify the impairment test Phase 2 Work concurrently with IASB to address any additional concerns 13

14 Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost 14

15 Overview Present service cost with other compensation costs Service cost eligible for capitalization 15

16 Disclosure Framework 16

17 Disclosure Framework: Two Components Improving the effectiveness of notes requires both: Consistent considerations by the Board in each standard-setting activity Appropriate exercise of discretion by reporting entities when assessing disclosure requirements Phase I: Board s Decision Process Phase II: Entity s Decision Process 17

18 Board s Decision Process Issues Addressed in ED Comment period ended July 14, 2014 Purpose of notes General limitations Relevance Costs Some information oriented toward the future Information that could be appropriate for inclusion in notes Considerations for interim reporting Copyright 2015 by Financial Accounting Foundation, Norwalk, CT. For non-commercial, educational/academic purposes only. 18

19 Entity s Decision Process Field Study Provided Insights on Effectiveness of notes after applying two discretion criteria Materiality Entity-specific Relevance Effectiveness of different criteria in removing disclosure that are not decision useful Constraints of reporting system on entity s ability to exercise discretion Audit Regulatory Legal Copyright 2015 by Financial Accounting Foundation, Norwalk, CT. For non-commercial, educational/academic purposes only. 19

20 Promote Discretion Provide to the extent material Changes to the Codification Eliminate language that limits discretion Add guidance on applying materiality 20

21 Promoting Discretion (cont d) Guidance on Applying Materiality Applied individually and in the aggregate US Supreme Court s description Quantitative and qualitative Omission not an accounting error 21

22 Promote Discretion (cont d) Guidance on Applying Materiality Applied individually and in the aggregate Legal concept Quantitative and qualitative Omission not an accounting error 22

23 Fair Value Measurement Objectives based on proposed framework Disclosures provide information about: Ways an entity arrives at fair value The effects on financial statements Uncertainty in measurement Measurement change period to period 23

24 Fair Value Measurement - Disclosure Updates Possible Changes Forwardlooking Information Process and Policies Rollforwards Sensitivity Information Gains and Losses 24

25 Defined Benefit Plans Disclosure review Possible Additions General characteristics NAV disclosures Reasons for significant gains/losses Interest crediting rate of cash plans 25

26 Defined Benefit Plans Disclosure review (cont d) Possible Removals Amount in AOCI expected to be recognized L3 plan asset rollforward (nonpublic only) ABO Plan assets expected to be returned 26

27 Income Taxes - Disclosure Review Possible Changes to Unremitted Foreign Earnings Domestic Tax on Foreign Earnings Disaggregation of Income Before Tax Disaggregation of Indefinitely Reinvested Earnings Changes in Circumstances 27

28 Income Taxes - Disclosure Review (cont d) Possible Changes to Unrecognized Tax Benefits Enhance tabular reconciliation Change in next 12 months 28

29 Income Taxes - Disclosure Review (cont d) Possible Changes to Other Income Tax Disclosures Carryforwards Change in tax law Rate reconciliation Explanation of valuation allowance Domestic/foreign tax paid 29

30 Inventory Disclosures Scope and objectives Use decision questions from proposed framework to determine potential disclosures Evaluate alternatives for private companies based on PCDMF Possible changes Next steps Incorporate SEC / AICPA guidance into GAAP Additional cost/measurement basis disclosures Disclosures of certain rights and obligations Disclosures around changes in value/quality/utility Small group meetings with FASB Outreach with PCC members User and preparer outreach 30

31 Next Steps Exposure Drafts - Income Taxes - Inventory Redeliberate Proposed Concepts in the Disclosure Framework Redeliberate Entity s Decision Process Defined Benefit Plans Fair Value Measurement Income Taxes Inventory Roundtable in 2 nd half of

32 Conceptual Framework 32

33 Project Objective Not a new conceptual framework - Try to address deficiencies - Try to clarify and improve understanding - Make amendments that experience in application have suggested are necessary Structure of the joint project was the same as the structure of the FASB and IASB Frameworks 33

34 Overview of Past and Current Presentation Efforts Joint financial statement presentation Address deficiencies in Concept Statement 5 related to presentation - How should individual items be included in line items? - How should line items be grouped? Research project on performance reporting added in July

35 Concepts Concept 1: Information should be combined into reasonably homogeneous groups Concept 2: The association between different items that changed should be made apparent 35

36 Measurement Measurement What does it mean? Does measurement apply to revenues, expenses, gains, losses, or to cash flows? For assets and liabilities: - Is systematic allocation measurement? - Is accrual of interest measurement? - Is adjusting to a market price measurement? - Is adjusting to a (discounted or undiscounted) amount of estimated cash flows measurement? 36

37 Value, cost, and price What is a value? - Value to whom? - Is there an inherent worth that is (a) unchanging except for consumption or deterioration and (b) independent of market changes? What is a price? How is it different from value? What is a cost? How is it different from a price or a value? 37

38 Government Assistance Disclosures 38

39 Objectives Enable user to access: Nature of assistance and related accounting policies Significant terms/conditions of the agreement Effect on organization s financial statements Assistance not recognized in the financial statements, but may have an effect on the financial statements in future periods 92

40 Annual Disclosures Nature of the assistance and the related accounting policies Reflect a description of how the policies relate to nature of the agreements Should include: - Nature of the assistance - Accounting policy - Presentation location 40

41 Annual Disclosures Amounts not recognized in company s financial statements, but that affect cash flows in current period Significant terms and conditions of the agreement, including: - The duration/period of the contract, the tax rate, or interest rate - Commitments made by both the reporting entity and the government - Provisions, if any, for recapturing government assistance, including the conditions under which recapture is allowed - Other contingencies 41

42 Simplifying the Equity Method of Accounting 42

43 Background Current equity accounting GAAP requires: - Difference between cost and equity - Determine the FV in the same manner as Business Combinations - Presented as a single line item Subsequent measurement requires recognition of proportionate share of: - Investee income/loss - Amortization or accretion of basis difference, - Other-than-temporary impairment 43

44 Issues Costly and complex: - The information may be difficult to obtain - Increased cost when 3 rd -party valuations are necessary - Ongoing tracking is time consuming Generally not decision useful 44

45 Board Decision - Basis Remove concept Transition method: modified prospective - Freeze any basis and apply the new guidance. Transition disclosures 45

46 Accounting for Income Taxes Simplification Initiative Project 46

47 Balance Sheet Classification of Deferred Taxes Current GAAP requirement: Presented in balance sheet as: - Current deferred tax asset and liability - Noncurrent deferred tax asset and liability Classification: - Based on related asset or liability - Generally not based on when temporary differences will reverse Proposed GAAP: Classify all deferred tax asset and liability as noncurrent 47

48 Intra-Entity Asset Transfers Current GAAP requirement: Defer the recognition until the assets have been sold to an outside third party Exception for comprehensive recognition of income taxes Proposed GAAP: Eliminate the exception Require recognition when the transfer occurs 48

49 EITF Issue 16-A, Restricted Cash 49

50 Overview Significant diversity in practice exists with respect to the classification of certain cash receipts and payments This diversity may exist because of a lack of specific accounting guidance 50

51 Project topics Three subissues being examined: 1. Definition of restricted cash 2. Classification of changes in restricted cash 3. Presentation of cash payments and cash receipts that directly affect restricted cash 51

52 PCC Agenda Decision No : Applying Variable Interest Entity Guidance to Entities under Common Control 52

53 Overview Diversity in practice exists in application of the VIE consolidation guidance to entities under common control 53