US Week in Review - Week ending 13 June 2013
The US Week in Review highlights this week’s developments and emerging issues in the financial reporting world and gives you direct access to relevant technical accounting guidance and thought leadership produced by Ernst & Young.
Ernst & Young publications
The Emerging Issues Task Force (EITF) reached final consensuses on the following issues:
- Inclusion of the federal funds effective swap rate (or overnight index swap rate) as a benchmark interest rate for hedge accounting purposes
- Presentation of an unrecognized tax benefit when a net operating loss carryforward or tax credit carryforward exists
The EITF also reached consensuses-for-exposure on the following issues:
- Accounting for the difference between the fair value of the assets and the fair value of the liabilities of a consolidated collateralized financing entity
- Accounting for service concession arrangements
- Reclassification of collateralized mortgage loans upon a troubled debt restructuring
In addition, the EITF discussed whether a performance target that can be met after the requisite service has been provided by the employee is a vesting condition or a condition that affects the grant-date fair value of a share-based payment.
Our EITF Update publication explains what you need to know about these issues
The FASB issued final guidance requiring an entity to have certain fundamental characteristics and to consider other typical characteristics to qualify as an investment company. The new guidance does not address disclosures about an investment in another investment company or issues related to the applicability of investment company accounting for real estate entities and the measurement of real estate investments.
Our To the Point publication tells you what you need to know about the guidance.
We have updated this publication primarily to include guidance on debt modifications and troubled debt restructurings, the classification and presentation of debt, advanced bond refundings and joint and several liabilities. We have also clarified certain guidance on evaluating the effect of a third party intermediary's involvement in a debt modification and how mandatory redemption features embedded in a hybrid financial instrument should be evaluated in determining the nature of the instrument's host. We also clarify that the induced conversion guidance generally should not be applied to cash convertible instruments when an issuer repurchases its own debt in the market at fair value.
Accounting pronouncements effective for the second quarter of 2013
All entities should carefully evaluate which accounting requirements apply to them for the first time in the second quarter of 2013. Our upcoming Second Quarter 2013 Standard Setter Update publication will include a list of recent accounting standards and effective dates that may be relevant to non-calendar-year entities. No new Accounting Standards Updates become effective for the second quarter of 2013 for calendar-year entities, but other standard-setter and regulatory requirements may apply for the first time.
Standard Setter updates
Financial Accounting Standards Board (FASB)
10 June 2013 FASB meeting
The FASB endorsed the first three consensuses-for-exposure reached by the Private Company Council (PCC) and is expected to issue exposure drafts soon. The issues are:
- Accounting for identifiable intangible assets in a business combination
- Accounting for goodwill subsequent to a business combination
- Accounting for certain receive-variable, pay-fixed interest rate swaps
For a description of the consensuses-for-exposure, see our To the Point publication, Private Company Council proposes alternatives under US GAAP.
11 June 2013 EITF meeting
For details of the EITF discussion, see our June 2013 EITF Update publication above.
12 June 2013 FASB meeting
Fair Value Measurement Disclosures of Private Company Equity Securities by Employee Benefit Plans - The FASB decided to indefinitely defer the requirement for any employee benefit plan that is not subject to the SEC's filing requirements to disclose quantitative information about the significant unobservable inputs used to measure the fair value of an equity investment in its nonpublic sponsor. The Board also agreed that the indefinite deferral would apply to equity securities in any nonpublic affiliates of the nonpublic plan sponsor. A final Accounting Standards Update is expected in the first week of July and will be effective upon issuance. For more information, see our To the Point publication, Disclosure relief proposed for certain nonpublic employee benefit plans.
For additional details, please see the Summary of Board Decisions.
Upcoming meetings and webcasts
18 June 2013 joint FASB-IASB videoconference meeting
The Boards are scheduled to discuss their project on accounting for financial instruments: classification and measurement.
19 June 2013 FASB meeting
The FASB is scheduled to discuss its project on the disclosure framework.
For additional details, see the FASB's calendar.
See the FASB's calendar for upcoming education sessions. No decisions are made at these sessions.
Securities and Exchange Commission (SEC)
Concept of control is important for resource extraction payment disclosures
Resource extraction issuers must evaluate whether they control an entity involved in the commercial development of oil, natural gas or minerals in assessing whether they must disclose that entity's payments to governments under a new SEC rule.
As reported in an article last week, the Division of Corporation Finance issued FAQs on the new SEC rule, which requires disclosure of payments made by the issuer, a subsidiary of the issuer or an entity under the control of the issuer. As a result, a resource extraction issuer must disclose payments made by its consolidated subsidiaries and by other entities that it controls but does not consolidate.
We have received questions about whether the rule would apply to resource extraction issuers that engage in the commercial development of oil, natural gas, or minerals through equity method investments, joint ventures and other contractual arrangements. In these situations, registrants will need to evaluate whether they control such entities, based on the Exchange Act definition of control and their individual facts and circumstances. In some cases, payments made by joint ventures or equity investees would need to be disclosed by the registrant.
The SEC staff clarified that a registrant would be considered a resource extraction issuer even if the registrant is a holding company and does not directly engage in any commercial development activities, but its subsidiary or an entity under its control engages in those activities.
American Institute of CPAs (AICPA)
New non-GAAP financial reporting framework for SMEs
The AICPA issued a financial reporting framework for small and medium-sized entities (SMEs) that these private entities can choose to use when US GAAP financial statements are not required. The framework, which is non-authoritative, is intended to make financial reporting less costly and complex when US GAAP financial statements are not required.
The Financial Accounting Foundation issued a statement that emphasizes the need to understand the differences between the AICPA framework and the joint efforts of the FASB and Private Company Council to address the accounting concerns of nonpublic entities.
International Financial Reporting Standards (IFRS)
IFRS Foundation charts progress toward global adoption of IFRS
The IFRS Foundation has completed the first phase of an important initiative to assess the progress toward global adoption of IFRS in response to the G20's call for global adoption of a single set of high-quality financial reporting standards. This initiative is intended to provide a central source of information that permits interested parties to chart jurisdictional progress toward the achievement of that goal.
Information related to the first phase of this project is available on the Jurisdiction profiles section of the IFRS website.
Upcoming Thought center webcasts and podcasts
Accounting for income taxes: a quarterly perspective
26 June 2013, 1:00 p.m. Eastern time
Environmental sustainability in financial services
5 July 2013, 6:00 a.m. Eastern time