US Week in Review - Week ending 15 December 2011
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.
Certain materials referenced below are available exclusively in AccountingLink. The site is available free of charge, but requires a one-time registration.
Ernst & Young publications
December 2011 Financial reporting briefs issued
We have issued the general and industry-specific December 2011 editions of Financial reporting briefs. These publications provide you with a snapshot of the major accounting and regulatory developments that have occurred during the quarter. The Reference library at the end of each document lists our publications issued during the quarter, along with a direct link to their location on AccountingLink.
The general Financial reporting briefs and the industry-specific editions are available online.
- Financial services
- Life sciences
- Media and entertainment
- Oil and gas
- Provider care
- Real estate
- Retail and consumer products
Our compendium summarizes comments of officials of the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB) and the Financial Accounting Standards Board (FASB) at the 2011 AICPA National Conference on Current SEC and PCAOB Developments in Washington, D.C. on 5-7 December 2011.
Senior SEC officials and the chairmen of the FASB and the International Accounting Standards Board also discussed incorporating IFRS into the US financial reporting system. Our To the Point, Support grows for keeping US GAAP but basing future standards on IFRS, discusses these comments in detail.
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) recently re-exposed their joint revenue recognition proposal, which would converge revenue recognition guidance under US GAAP and IFRS into a single model and replace essentially all revenue recognition guidance. While the overall framework is the same as in the 2010 exposure draft (ED), key parts of the proposal have changed. Some changes move the proposal closer to US GAAP than the 2010 ED. Others would significantly change current practice for some companies. Our Technical Line publication provides a comprehensive analysis of the proposed model and highlights key changes from current practice.
This industry-specific publication supplements our Technical Line, Double-exposure: The revised revenue recognition proposal, and highlights some of the more significant implications that the latest revenue recognition proposal may have on the asset management industry. In coming weeks, we will issue additional industry-specific publications that will address, in further detail, how the proposal would affect those industries.
In our comment letter on the Proposed Accounting Standards Update, Technical Corrections, we agree that most of the proposed changes would not be expected to have a significant effect on current accounting practice. However, we believe that several of the proposed amendments would have significant implications for some entities and that either those proposals should be revised or transition should be provided.
Standard Setter updates
Financial Accounting Standards Board (FASB)
ASU on rerecognition of in-substance real estate issued
The FASB has issued Accounting Standards Update (ASU) No. 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate - a Scope Clarification (a consensus of the FASB Emerging Issues Task Force). The ASU applies to transactions involving the loss of control of a subsidiary that is "in-substance real estate" because of a default by the subsidiary on its nonrecourse debt. The amendments in this ASU should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities.
For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after 15 June 2012. For nonpublic entities, the amendments are effective for fiscal years ending after 15 December 2013, and interim and annual periods thereafter. Early adoption is permitted.
Proposed ASU on parent's accounting for the cumulative translation adjustment upon the sale or transfer of a group of assets
The FASB has issued a Proposed Accounting Standards Update, "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 (a consensus of the FASB Emerging Issues Task Force)." The EITF tentatively concluded that when a parent sells or transfers a group of assets within a consolidated foreign entity that meets the definition of a business, the parent should recognize a portion of the cumulative translation adjustment (CTA) associated with the foreign entity in earnings. Comments are due 6 February 2012.
FASB publishes EITF minutes
The FASB has published the final minutes of the 3 November 2011, EITF meeting. Items included in the minutes are: (a) the status of open issues and agenda committee items; and (b) the discussion of the following agenda technical issues:
- EITF Issue No. 10-E, "Derecognition of in Substance Real Estate" (consensus reached).
- EITF 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" (tentative consensus reached).
The next EITF meeting is scheduled for 15 March 2012. The 19 January 2012 meeting was canceled.
14-16 December 2011 FASB meetings
Leases - The Boards tentatively decided that lessors of investment property that are not investment property entities would account for rental income from these leases on a straight-line basis or another basis that better represents the time pattern for which rent is earned. The Boards decided to provide implementation guidance indicating that variable lease payments based on an index or stepped rent increases to account for market rents would not be included in the straight-line calculation and instead would be recognized in the period the change occurs. The Boards also agreed on disclosures for these leases, which would be excluded from the receivable and residual approach.
Financial instruments: impairment - The Boards reached several tentative decisions, including how impairment should be measured for financial assets in Bucket 1 and the threshold for transferring them into Bucket 2. The Boards tentatively agreed that lifetime expected losses should be recorded for the portion of financial assets in Bucket 1 for which a loss event is expected in the next 12 months. Assets would move into Bucket 2 when (1) there has been a "more than insignificant" deterioration in credit quality and (2) the likelihood of default is such that it is at least reasonably possible that the contractual cash flows may not be recoverable. In addition, the Boards discussed indicators that would help preparers determine when to transfer assets to Bucket 2.
The Boards also discussed applying the model to debt securities and consumer and commercial loans and agreed to avoid bright lines indicating when lifetime expected losses should be recorded.
Insurance contracts - The Boards plan to discuss several topics related to the insurance contracts projects including: the definition of a portfolio of insurance contracts, onerous contracts, contracts with participating features, embedded options and guarantees, cash flows to future policyholders, discounting of liabilities for incurred claims and the unit of account for the risk adjustment (IASB), residual margin (IASB) and composite margin (FASB).
For additional details of the Boards' discussions, see the FASB's Action Alert.
21 December 2011
The FASB will discuss its project on disclosures about risks and uncertainties and the liquidation basis. See the FASB calendar for additional information.
Securities and Exchange Commission (SEC)
Comment period extended for proposal on conflicts of interest in ABS transactions
The SEC extended the comment deadline from 19 December 2011 to 13 January 2012 on its rule proposal that would prohibit certain material conflicts of interest involving those who package and sell asset-backed securities (ABS). The proposal was required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
SEC staff observations about common XBRL errors
The SEC staff has summarized significant and recurring errors in XBRL exhibits submitted for the second quarter of 2011, the first time all registrants were required to submit XBRL tagged financial statements. The SEC staff encouraged registrants preparing interactive filings to focus on the issues identified in its fourth edition of Staff Observations from the Review of Interactive Data Financial Statements (issued 13 December 2011).
Most of the SEC staff observations are consistent with the prior edition, which we summarized in our To the Point, SEC staff observations of common XBRL submission errors.
International Accounting Standards Board (IASB)
Michel Prada appointed Chairman of IFRS Foundation Trustees
The Trustees of the IFRS Foundation have announced the appointment of Michel Prada as Chairman of the Trustees. Mr. Prada is a former Chairman of the Executive and Technical Committees of the International Organization of Securities Commissions.
Upcoming Thought center webcasts and podcasts
Accounting for income taxes: a quarterly perspective
16 December 2011, 11:00 a.m. Eastern time