2 September 2015
NAIC Bulletin - Summer 2015 edition
Our NAIC Bulletin contains the highlights of the Summer 2015 meeting of the National Association of Insurance Commissioners.
13 August 2015
Financial Reporting Developments - Foreign currency matters
We have updated our FRD publication on foreign currency matters to clarify and enhance our interpretative guidance. Refer to Appendix B of the publication for additional information regarding these updates.
13 August 2015
To the Point - FASB tries to simplify balance sheet classification of debt
The FASB directed the staff to draft a proposal based on tentative decisions reached that would replace today’s rules-based guidance for determining whether to classify debt as current or noncurrent on the balance sheet with a principles-based approach. Under this approach, debt would be classified as noncurrent only when it is due more than 12 months (or beyond the operating cycle) after the balance sheet date or when the entity has a legal right to defer settlement for at least 12 months (or beyond the operating cycle) after the balance sheet date. While this approach would require entities to classify debt based on the legal rights existing at the balance sheet date, the FASB tentatively decided to provide an exception for waivers of debt covenant violations received after the balance sheet date but before the financial statements are issued.
11 August 2015
To the Point - Applying the normal purchases normal sales exception to power contracts in nodal energy markets
The FASB issued final guidance specifying that entities are not precluded from applying the normal purchases and normal sales exception to derivative accounting to certain forward contracts that necessitate the transmission of electricity through or delivery to a location within a nodal energy market. The guidance, which is effective immediately, applies only to contracts for the physical delivery of electricity where transmission charges or credits are determined based on the spot prices at the locations between which the electricity is transmitted in or through a nodal market.
6 August 2015
To the Point - FASB proposes allowing hedge accounting relationships to continue after novations
The FASB proposed clarifying that the novation of a derivative contract in a hedge accounting relationship does not, in and of itself, require dedesignation of that hedge accounting relationship. The proposed guidance would amend ASC 815 to make it clear that a change in counterparties to a derivative instrument that has been designated in a hedging relationship would not be considered a termination of the derivative instrument under ASC 815 or a change in the critical terms of the hedge relationship. Comments are due by 5 October 2015.
6 August 2015
To the Point - Simplifying the presentation of debt issuance costs
We have updated our publication to reflect an SEC staff member’s announcement at the June 2015 meeting of the Emerging Issues Task Force that the staff will not object to an entity presenting the cost of securing a revolving line of credit as an asset, regardless of whether a balance is outstanding. The question arose after the FASB issued ASU 2015-03 on the presentation of debt issuance costs in April 2015. The ASU doesn’t address the presentation of the costs of obtaining a revolving line of credit.
15 July 2015
Financial Reporting Developments - Transfers and servicing of financial assets
We have updated our Financial reporting developments publication on transfers and servicing of financial assets primarily to reflect the amendments resulting from the issuance of ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings and Disclosures and for further clarification and enhancements to our interpretative guidance. Refer to Appendix F of the publication for a summary of the updates.
1 July 2015
To the Point - FASB tries to make hedge accounting easier to apply and understand
The FASB tentatively decided to make certain targeted improvements to the hedge accounting model in ASC 815 in an effort to make the accounting easier for companies to apply and for users of the financial statements to understand. The FASB plans to issue an exposure draft seeking comment on these proposals during the fourth quarter of 2015.
1 May 2015
To the Point - FASB eliminates requirement to categorize certain investments in the fair value hierarchy
The FASB issued final guidance that eliminates today’s requirement to categorize investments measured using the net asset value practical expedient in the fair value hierarchy table. The new guidance is effective for public business entities for fiscal years beginning after 15 December 2015, and interim periods within those fiscal years. For entities other than public business entities, the guidance will be effective for fiscal years beginning after 15 December 2016 and interim periods within those years. Early adoption is permitted.
1 May 2015
To the Point - Recognizing breakage for certain prepaid stored-value cards
The FASB proposed requiring an entity that issues certain prepaid stored-value cards redeemable for goods and services only at third-party merchants, cash or a combination of the two to recognize breakage, which is the dollar value that is not redeemed by cardholders. Further, entities would provide disclosures related to the recognition of breakage that would be similar to the requirements of the new revenue recognition standard. Comments are due 29 June 2015.
28 April 2015
Comment Letter - FASB proposal to provide disclosures about hybrid financial instruments with bifurcated embedded derivatives
In our comment letter, we supported the Board’s efforts to enhance the transparency and usefulness of information provided to financial statement users. However, we raised concerns about the ability of the proposed disclosure to meet the Board’s objective of providing information on the overall economics and cash flows of these instruments.
24 April 2015
To the Point - Applying the normal purchases and normal sales exception to power contracts in nodal energy markets
The FASB issued a Proposed Accounting Standards Update that would specify that entities are not precluded from applying the normal purchases and normal sales exception to derivative accounting to certain forward contracts for the delivery of electricity in nodal energy markets, where one of the parties incurs transmission charges or credits based on the spot prices at the locations between which the electricity is transmitted. Comments are due by 18 May 2015.
20 April 2015
Technical Line - New Venezuelan currency regime - same accounting and reporting considerations
New Venezuelan currency exchange controls require companies with operations in Venezuela to again reconsider the exchange rate(s) they use to remeasure their bolivar-denominated monetary assets and liabilities and related revenues and expenses. With large differences in the rates that are available on the three legal exchange mechanisms, companies need to consider their specific transactions and their ability to transact through each mechanism to determine the appropriate rate(s) to use. Our Technical Line publication discusses factors to consider when making this determination and addresses related financial reporting considerations and disclosures.
15 April 2015
NAIC Bulletin - Spring 2015 edition
Our NAIC Bulletin contains the highlights of the Spring 2015 meeting of the National Association of Insurance Commissioners.
12 March 2015
To the Point - FASB poised to make significant changes to credit impairment model
The FASB decided to require modified retrospective transition to its new credit impairment standard. The new standard would significantly change how entities measure and recognize credit impairment for certain financial assets and would require many more disclosures. The Board also agreed on provisions to simplify transition for certain types of assets and instructed its staff to prepare a draft of the final standard.
26 February 2015
To the Point - Proposed disclosures would link bifurcated embedded derivatives with their host contracts
The FASB issued a Proposed Accounting Standards Update that would require an entity to disclose information that would link an embedded derivative that is bifurcated from a hybrid financial instrument to its host contract. The proposed disclosures would include the locations and carrying amounts of the bifurcated derivative and its host contract (as well as the measurement attribute of the host contract) in the statement of financial position, along with the locations and amounts reported in the statement of financial performance. Comments are due by 30 April 2015.
22 January 2015
To the Point - New guidance on classifying and measuring financial instruments is coming soon
The FASB has concluded redeliberations on its 2013 proposal on classification and measurement of financial instruments and has tentatively decided to retain the existing guidance for financial assets and financial liabilities, except for investments in equity securities and financial liabilities that are measured under the fair value option. Investments in equity securities would be measured at fair value through net income, unless they qualify for the proposed practicability exception. Changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option would be recognized in other comprehensive income.
15 December 2014
Comment Letter - FASB proposal to simplify the presentation of debt issuance costs
In our comment letter, we supported the FASB's proposed requirement that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. The proposal would eliminate the inconsistency between today’s presentation requirement for debt issuance costs and the Conceptual Framework. We also highlight matters related to third-party debt issuance costs where we believe the FASB can do more to address complexity.
4 December 2014
Financial Reporting Developments - Derivatives and hedging
We have updated our Financial reporting developments publication on derivatives and hedging for the amendments made to Accounting Standards Codification Topic 815 by Accounting Standards Update 2014-03, Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps - Simplified Hedge Accounting Approach. This update also provides clarifications and enhancements to our interpretative guidance. Refer to Appendix F of the publication for a detailed list of these updates.
3 December 2014
NAIC Bulletin - Fall 2014 edition
Our NAIC Bulletin contains the highlights of the Fall 2014 meeting of the National Association of Insurance Commissioners.
4 November 2014
To the Point - A ‘whole-istic’ approach to defining host contracts in hybrid instruments issued as shares
The FASB issued final guidance requiring all entities to use what is called the “whole instrument approach” when determining the nature of a host contract in a hybrid instrument issued in the form of a share. This approach requires entities to consider all of a hybrid instrument’s stated and implied substantive terms and features, including any embedded derivative features being evaluated for bifurcation. The guidance eliminates the use of the so-called “chameleon approach,” under which all embedded features except the feature being analyzed are considered.
4 September 2014
NAIC Bulletin - Summer 2014 edition
Our NAIC Bulletin contains the highlights of the Summer 2014 meeting of the National Association of Insurance Commissioners.
19 June 2014
Technical Line - FASB changes accounting for certain repurchase agreements and requires new disclosures
The FASB issued final guidance that requires repurchase-to-maturity transactions to be accounted for as secured borrowings and eliminates existing guidance for repurchase financings. The guidance also requires new disclosures for certain transactions accounted for as secured borrowings and for transfers accounted for as sales when the transferor also retains substantially all of the exposure to the economic return on the transferred financial assets. Our Technical Line analyzes the new guidance and highlights key changes from current practice.
5 June 2014
Financial Reporting Developments - Issuer’s accounting for debt and equity financings
We have updated our FRD publication on issuer’s accounting for debt and equity financings to include, among other things, new interpretative guidance on debt issuance costs, trade accounts payable transactions and the subsequent measurement of certain redeemable equity instruments. Refer to Appendix F of the publication for a detailed listing of these updates.
17 April 2014
To the Point - FASB lays out topics it will consider for insurance industry accounting
After backing away from its proposal to overhaul the accounting for insurance contracts and deciding to focus on making targeted improvements, the FASB laid out the topics it will consider in redeliberations. The Board decided to divide the project into two components: short-term contracts (i.e., property-casualty and short-term health contracts) and long-duration contracts (i.e., life insurance and long-duration health contracts). Both components will be worked on concurrently.
10 April 2014
NAIC Bulletin - Spring 2014 edition
Our NAIC Bulletin contains the highlights of the Spring 2014 meeting of the National Association of Insurance Commissioners.
27 March 2014
Technical Line - Venezuela - reconsidering exchange rates used for remeasurement
Companies with operations in Venezuela should reconsider the exchange rate they use to remeasure their monetary assets and liabilities and related revenues and expenses denominated in bolivars due to recent changes in the Venezuelan foreign currency exchange market. With big differences in rates now available on various legal exchange mechanisms, companies need to consider their specific transactions and their ability to transact through each mechanism to determine the appropriate rate or rates to use. Our Technical Line publication discusses factors to consider when making this determination and addresses related financial reporting considerations and disclosures.
13 March 2014
To the Point - FASB sets path on changes to accounting for financial instruments
The FASB tentatively decided to retain the separate models in current US GAAP for classifying and measuring debt securities and loans, rather than overhaul its guidance in this area, as it had proposed. The FASB also confirmed that companies would apply its proposed "current expected credit loss" model to financial assets that are debt instruments measured at amortized cost. Our To the Point publication tells you what you need to know about these and other decisions that FASB has made in its financial instruments project.
20 February 2014
To the Point - FASB scales back scope of insurance contracts project
The FASB scaled back the scope of its insurance contracts project and said it will focus on targeted improvements to the current guidance for long-duration contracts and disclosures for short-duration contracts. Contracts written by noninsurance entities will not be subject to the guidance for insurance. Our To the Point publication tells you what you need to know about the Board's decisions.
30 January 2014
Technical Line - Certain private companies can now use simplified hedge accounting
Our Technical Line discusses new guidance from the FASB that makes it easier for certain private companies to qualify for hedge accounting for certain interest rate swaps. Eligible companies can assume that a hedging relationship is perfectly effective if certain conditions are met and can measure those swaps at settlement value rather than at fair value. They also have more time to complete formal hedge documentation.
16 January 2014
NAIC Bulletin - Fall 2013 edition
Our NAIC Bulletin contains the highlights of the Fall 2013 meeting of the National Association of Insurance Commissioners.
8 November 2013
To the Point - Defining host contracts in hybrid instruments issued as shares
The FASB recently proposed a single approach for determining whether a host contract in a hybrid instrument issued in the form of a share is more akin to debt or equity. The proposal would clarify that the nature of a host contract in a hybrid instrument issued in the form a share should be determined based on the consideration of all of its stated and implied substantive terms and features, including any embedded derivatives. It also would clarify that no single term or feature would in and of itself determine the nature of the host contract. Our To the Point tells you what you need to know about the proposal.
28 October 2013
Comment Letter - FASB proposed ASU on insurance contracts
In our comment letter, we encouraged the FASB and the IASB to work together to make their proposals more comparable. We also said the FASB needs to address certain issues before finalizing the guidance. Our most significant concerns relate to the proposed scope, discount rates and how changes in these rates would be recognized, recognition of changes in expected cash flows, revenue recognition, presentation and transition. We also encourage the Board to consider simplifying certain areas of the proposal to make it less costly to apply.
26 July 2013
Financial Reporting Developments - Accounting for certain debt and equity securities
We have updated our Financial reporting developments publication on the accounting for investments in certain debt and equity securities to further clarify and enhance our guidance, including our guidance on the SEC staff's views about beneficial interests that should be considered of "high credit quality."
17 July 2013
To the Point - Companies can use a new benchmark interest rate for hedge accounting
The FASB issued final guidance allowing companies to designate the Federal Funds Effective Swap Rate (which is the Overnight Index Swap rate or OIS in the US) as a benchmark interest rate for hedge accounting purposes, effective immediately. Our To The Point publication tells you what you need to know about the new guidance.
31 May 2013
Comment letter - FASB proposal on credit losses of financial instruments
In our comment letter, we urge the FASB to work with the IASB to converge their proposals to require more timely recognition of credit losses than under today’s incurred loss model. We note that the FASB could accomplish its goal of timelier recognition of losses by lowering the threshold for recognizing losses. We also recommend that the FASB exclude debt securities and trade, lease and reinsurance receivables from its proposal.
15 May 2013
Comment letter - FASB proposal on classification and measurement of financial instruments
In our comment letter, we say that while the FASB proposal on classification and measurement of financial instruments would represent a big step toward convergence, we do not support finalizing it in its current form. We believe the proposal may inappropriately require too many financial instruments, including certain common debt instruments, to be measured at fair value with changes in fair value recognized in net income. We are also concerned that certain provisions of the proposal could be interpreted in different ways and lead to diversity in practice. However, we believe the FASB can make specific changes and clarifications that will improve the proposal’s operability.
18 April 2013
Technical Line - FASB proposes new US benchmark interest rate for hedge accounting
Overnight Index Swap (OIS) rates are increasingly being used to value collateralized derivatives, instead of the London Interbank Offered Rate. As a result, the FASB has proposed allowing entities to designate the Federal Funds Effective Swap Rate (which is the OIS rate in the US) as a benchmark interest rate for hedge accounting purposes. Our Technical Line discusses the FASB proposal, the changes in the market that are driving it and the implications for companies that are considering using OIS discount curves to measure the fair value of their collateralized derivatives.
6 March 2013
Technical Line - FASB’s new classification and measurement model - a closer look
The FASB has proposed a sweeping new classification and measurement model for financial instruments that would apply to all entities across industries, not just those in financial services. Comments are due by 15 May 2013. Our Technical Line tells you what you need to know about the proposal.
14 February 2013
To the Point - FASB proposes new classification and measurement model
The FASB proposed a sweeping new classification and measurement model for financial instruments that would better converge some areas of US GAAP with IFRS 9. The proposal would apply to all entities across industries, with certain exceptions. Comments are due by 15 May 2013. Our To the Point tells you what you need to know about the proposal.
21 January 2013
Technical Line - FASB's credit loss proposal - a closer look
The FASB recently proposed a single, principles-based model to account for credit losses on certain financial assets. Every entity across industries would be affected by the proposal, which would change the accounting for credit losses on loans, debt securities and trade, lease and other receivables. Our Technical Line is designed to help companies better understand and interpret the proposal as they assess its effects and includes considerations for specific debt instruments affected by the proposal.
20 December 2012
To the Point - FASB proposes new credit impairment model
The FASB proposed today a single, principles-based model to account for credit losses on financial assets. All companies would be affected by the proposal, which would change the accounting for credit losses on loans, debt securities and trade and other receivables. Our To the Point tells you what you need to know about the proposal.
27 November 2012
To the Point - FASB proposes limiting scope of new offsetting disclosure requirements
The FASB proposed limiting the scope of the new balance sheet offsetting disclosure requirements to certain derivatives, repurchase agreements and securities lending arrangements. In doing so, the FASB responded to concerns that the requirements, as written, would apply to many commercial contracts and that the cost of preparing the disclosures would be significant compared to the limited benefits. Comments are due by 21 December 2012. Our To the Point publication summarizes what you need to know about the proposal.
28 April 2011
Technical Line - Hedge accounting: Is convergence possible
Our Technical Line summarizes both the FASB and IASB proposals on hedging proposals and discusses opportunities for convergence.
25 April 2011
Comment Letter - Selected issues about hedge accounting
Ernst & Young is supportive of the Boards' efforts to arrive at a converged solution to accounting for hedging transactions. On balance, we support the overall direction of the IASB’s proposal to align hedge accounting with an entity’s risk management activities.
10 February 2011
To the Point - Hedge accounting: FASB seeks reaction to IASB’s proposed model
The FASB is seeking comment on the IASB’s December 2010 hedge accounting proposal. The proposed IASB model would significantly change hedge accounting, going well beyond the changes the FASB proposed last year. This To the Point describes the IASB's proposal.
10 September 2010
Comment Letter - Financial instruments and derivative/hedging activities
This comment letter provides our views on the FASB's proposal on the accounting for financial instruments and derivative instruments and hedging activities.
27 May 2010
Hot Topic - Amendments to equity-classified preferred share instruments
Our Hot Topic provides an overview of the existing extinguishment accounting model for equity-classified preferred shares, discusses factors to consider when evaluating whether an amendment to equity-classified preferred shares should be considered an extinguishment or modification and provides thoughts on accounting models that may be appropriate for modifications of equity-classified preferred shares.
31 March 2010
Hot Topic - Boards complete deliberations on financial instruments with characteristics of equity
On 11 March 2010, the FASB and the IASB finalized a collection of tentative conclusions that will serve as the basis for an exposure draft of an accounting standard addressing financial instruments with characteristics of equity instruments. Our Hot Topic publication summarizes the boards' tentative conclusions.
10 March 2010
Hot Topic - FASB issues new guidance on embedded credit derivatives
The ASU clarifies the guidance within the derivative literature that exempts certain credit-related features from analysis as potential embedded derivatives requiring separate accounting. The ASU provides that only an embedded credit derivative feature related to the transfer of credit risk that is solely in the form of subordination of one financial instrument to another is not subject to further analysis as a potential embedded derivative. Our Hot Topic provides additional detail.
11 November 2009
Comment Letter - Proposed ASU, "Derivatives and Hedging (Topic 815)– Scope Exception Related to Embedded Credit Derivatives"
This comment letter provides our views on FASB's proposal on embedded credit derivatives and scope exception.
11 November 2009
Technical Line - Tranched preferred share issuances
Our Technical Line addresses how to determine if the future tranche right/obligation is a freestanding instrument or an embedded feature. It also provides factors to consider when evaluating the transaction’s contractual terms to make that determination. It provides a brief overview of the different accounting models applied to freestanding instruments and embedded features.
21 October 2009
Technical Line - Warrants on redeemable shares
Our Technical Line illustrates the application of the accounting literature related to freestanding warrants, and similar instruments, on redeemable shares. There is also a brief overview of the transactions where these types of warrants frequently have been issued
14 October 2009
Hot Topic - Proposed ASU: Scope exception for embedded credit derivatives
Our Hot Topic clarifies the FASB re-proposal that clarifies that the embedded credit derivative feature between the tranche holders created by subordination is not subject to potential bifurcation from the host contract. The revised accounting guidance will be a major accounting change for many synthetic CDO investors (e.g., insurance groups) who have historically applied the scope exception to their investments in synthetic collateralized debt obligations.
10 July 2009
Hot Topic - FASB ratifies EITF 09-1 on own-share lending arrangements
Our Hot Topic addresses the accounting for an entity’s own-share lending arrangement initiated in conjunction with a convertible debt or other financing offering and the effect a share-lending arrangement has on earnings per share.
13 February 2009
Comment Letter - Proposed Statement 133 Implementation Issue No. C22: Scope exception for embedded credit derivative
The comment letter provides our views on DIG Issue C 22 on embedded credit derivatives.
16 January 2009
Hot Topic - FASB proposes to clarify the embedded credit derivative scope exception of Statement 133
Our Hot Topic summarizes proposed DIG Issue C22. The proposal clarifies when embedded credit derivatives, including those in collateralized debt obligations (CDOs) and synthetic CDOs, are not considered embedded derivatives that must be separately analyzed for potential bifurcation and separate accounting at fair value.
19 December 2008
Technical Line - EITF Issue 07-5-Determining whether an Instrument Is Indexed to an Entity’s Own Stock
Our Technical Line discusses the provisions of 07-5 and helps companies analyze equity-linked embedded features for bifurcation under the new guidance.
12 November 2008
Technical Line - FSP APB 14-1-Accounting for convertible debt instruments that may be settled in cash upon conversion
Our Technical Line provisions of FASB Staff Position APB 14-1 which was issued to address questions about the valuation of the components of an instrument when convertible debt is settled in cash upon conversion.
1 October 2008
Technical Line - Auction rate securities and settlement agreements
Our Technical Line addresses several questions that have arisen regarding accounting considerations for the proposed auction rate security settlements from the perspective of both the investor and the broker dealer.
1 October 2008
Technical Line - Considerations for derivatives with counterparties in distress
Our Technical Line provides accounting considerations affecting derivatives with counterparties in financial distress.
17 September 2008
Hot Topic - FASB issues FSP on disclosures about credit derivatives and certain guarantees and clarifies the effective date of FAS 161
Our Hot Topic summarizes the key provisions of the proposed FASB FSP on disclosures of credit derivatives and certain guarantees.
19 August 2008
Comment Letter - FASB Exposure Draft on Hedging
This comment letter provides our views on the FASB's proposal on hedging activities.
30 June 2008
Comment Letter - Proposed FSP FAS 133-b and FIN 45-c on disclosures about credit derivatives
This comment letter provides our views on the FASB's proposed FSP on disclosures about credit derivatives.
16 June 2008
Hot Topic - FASB Exposure Draft on hedging activities
Our Hot Topic summarizes the FASB's proposal on hedging activities. The proposal is intended to resolve major practice issues that have been evident in restatements and near-restatements under Statement 133.
30 May 2008
Comment Letter - FASB preliminary views: Financial instruments with characteristics of equity
Our comment letter supports a joint FASB and IASB project to comprehensively consider the model for distinguishing between liabilities and equity as well as the related measurement and financial statement presentation issues. We tentatively support the “basic ownership” approach from the three models described in the PV for various reasons, including its perceived simplicity.
28 May 2008
Hot Topic - Accounting for convertible debt instruments that may be settled in cash upon conversion
Our Hot Topic focuses on the application of FASB FSP APB 14-1 on convertible debt.
5 May 2008
Comment Letter - EITF07-05 Draft Abstract-Determining whether an instrument (or embedded feature) is indexed to an entity's own stock
This comment letter provides our views on whether an instrument (or embedded feature) is indexed to an entity's own stock.