US Week in Review - Week ending 14 June 2012
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 FASB and the IASB decided that lessees and lessors would classify leases based primarily on the nature of the asset being leased. For lessees, some leases would have an accelerated lease expense recognition pattern and others would have a straight-line lease expense recognition pattern. Lessees would recognize all leases (other than short-term leases) on the balance sheet. Our To the Point publication describes the Boards' latest decisions.
Improving the standard-setting process for private companies has become an area of focus on several fronts for the Financial Accounting Foundation and the Financial Accounting Standards Board. The creation of a Private Company Council, and projects to develop a private company decision-making framework and to better define a nonpublic entity, reaffirm a strong commitment to private company stakeholders. Our To the Point publication highlights these initiatives.
The Supreme Court is expected to issue a ruling by the end of June on the health care law (the Affordable Care Act) that could have significant implications for financial reporting. Our Technical Line publication explains what you need to know about the issues.
Many companies have completed initial public offerings (IPOs) recently, and the easing of regulatory requirements under the new Jumpstart Our Business Startups Act (JOBS Act) may encourage even more IPO activity. But companies embarking on the IPO process must consider many requirements that don't apply to private companies. Our Technical Line publication reviews significant accounting and disclosure considerations for companies preparing financial statements to be included in IPO registration statements and subsequent SEC filings.
Accounting pronouncements effective for the second quarter of 2012
All entities should carefully evaluate which accounting requirements apply to them for the first time in the second quarter of 2012. Our upcoming Second Quarter 2012 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 2012 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)
12-13 June 2012 FASB-IASB joint meeting
Insurance contracts - The Boards decided how consideration, discounts and cash flows would be attributed to unbundled components of an insurance contract. The Boards asked the staffs to continue exploring a method of measuring and presenting earned premiums under the building block approach.
Leases - See our To the Point publication above.
Accounting for financial instruments: classification and measurement - The Boards reaffirmed that a debt instrument would be measured at fair value through other comprehensive income only if it passes the contractual cash flow characteristics assessment and the debt instrument is managed within the relevant business model.
The FASB also tentatively decided that an entity may, at initial recognition, irrevocably elect a fair value option to measure the following financial instruments at fair value through net income:
- A hybrid financial liability unless either of the following conditions are met:
- The embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract.
- It is clear with little or no analysis that separation of a derivative embedded in a similar hybrid instrument is prohibited.
- A group of financial assets and financial liabilities if both of the following conditions are met:
- The entity manages its net exposure to those financial assets and financial liabilities (which may be derivative instruments) on a fair value basis.
- The entity provides information on that basis to the reporting entity's management.
Investment companies - The IASB and the FASB agreed to prohibit an investment company from consolidating another controlled investment company, including a master fund in a master-feeder structure. However, the FASB will further consider whether to apply that conclusion to certain investments in entities set up for specific regulatory, legal or tax purposes (e.g., blocker entities). The FASB also concluded it would require a feeder fund to attach its master fund's financial statements and will continue to consider whether to require attached financial statements in other fund-of-fund structures. Finally, the Boards affirmed they will diverge on retention of fair value accounting by a non-investment company parent. The FASB favors retention of fair value accounting.
For additional details of the Boards' discussions, see the FASB Action Alert.
Upcoming meetings and webcasts
20 June 2012 FASB meeting
The Board is scheduled to discuss classification and measurement of financial instruments and the presentation requirements for items reclassified out of accumulated other comprehensive income.
21 June 2012 EITF meeting
The Task Force is scheduled to discuss:
- Issue No. 11-A, Parent's Accounting for the Cumulative Translation Adjustment upon the Sale or Transfer of a Group of Assets That Is a Nonprofit Activity or a Business within a Consolidated Foreign Entity
- Issue No. 12-B, Not-for-Profit Entities: Services Received from Employees of an Affiliated Entity
- Issue No. 12-D, Accounting for Joint and Several Liability for Which the Total Amount of the Obligation at the Reporting Date Is Fixed
For additional details of the planned discussions, see the FASB calendar.
See the FASB calendar for upcoming education sessions. No decisions are made at these sessions.
Government Accounting Standards Board (GASB)
18 June 2012 GASB meeting
The GASB is scheduled to hold a meeting on Monday, 18 June 2012, in Seattle, WA. The GASB is expected to discuss the following issues:
- Pension accounting and financial reporting
- Financial guarantees
- The Comprehensive Implementation Guide
International Accounting Standards Board (IASB)
Annual Report 2011
The 2011 Annual Report is a comprehensive account of the IFRS Foundation and IASB's activities over the past 12 months, as well as audited financial statements and details on the funding of the organization.
International Federation of Accountants/International Auditing and Assurance Standards Board (IFAC/IAASB)
IAASB Standard on assurance on greenhouse gas statements
The IAASB has issued a new International Standard on Assurance Engagements, (ISAE) 3410, Assurance Engagements on Greenhouse Gas (GHG) Statements. ISAE 3410 deals with both limited assurance and reasonable assurance engagements undertaken by a practitioner to report on an entity's greenhouse gas statement. The ISAE can be applied to greenhouse gas statements prepared, for example, as part of a regulatory disclosure regime, as part of an emissions trading scheme, or to inform investors and others on a voluntary basis.
Upcoming Thought center webcasts and podcasts
The lessons learned from year-end reporting
Hosted by Ernst & Young's Global IFRS Services
26 June 2012, 11:00 a.m. Eastern time
Accounting for income taxes: a quarterly perspective
26 June 2012, 1:00 p.m. Eastern time