US Week in Review - Week ending 24 January 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
Our webcast on the FASB's credit impairment proposal on 31 January 2013 from 2 p.m. to 3:30 p.m. Eastern time will provide you with a summary of the Board's principles-based credit impairment model for financial assets. All companies would be affected by the proposal, which would require changes in how they account for bad debt reserves on trade receivables and other-than-temporary impairment of debt securities as well as loan losses. CPE credit is available for this live webcast.
In this webcast, we will discuss:
- What you would need to consider when estimating "current expected credit losses" under the proposal
- How the models for estimating impairment of debt securities, receivables and loans under existing US GAAP would change
- Why you should begin reviewing the proposal now and assessing its potential impact on your company
To register for this event, go to Credit impairment.
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 publication 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.
Comment letter on the FASB's proposal to clarify the scope of a fair value disclosure for nonpublic entities
In our comment letter, we agreed with the FASB's proposal to amend ASC 825 to clarify that nonpublic entities are not required to disclose the fair value hierarchy level for items that are not measured at fair value on the statement of financial position but for which fair value is disclosed. We also recommended that the FASB subsequently address the overlap in ASC 825 and ASC 820 regarding this disclosure requirement as well as situations where terms such as “nonpublic entity” have multiple definitions in the glossary of the Codification.
The Emerging Issues Task Force (EITF) reached final consensuses on the following issues:
- Accounting for a cumulative translation adjustment in sales within a foreign entity and sales of an investment in a foreign entity
- Recognition and measurement of obligations subject to joint and several liability for which the total amount of the obligation is fixed at the reporting date
The EITF also reached consensuses-for-exposure on the following issues:
- Designation of the federal funds effective rate as an acceptable US benchmark interest rate for hedge accounting purposes
- Presentation of a liability for an unrecognized tax benefit when a net operating loss or tax credit carryforward exists
The EITF also discussed pushdown accounting, service concession arrangements and personnel services received by a not-for-profit entity from employees of an affiliated entity.
Our EITF Update publication explains what you need to know about these issues.
Practical matters for the c-suite: Credit losses would be recognized sooner under FASB proposal and special edition for financial institutions
Two new editions of our Practical matters for the c-suite publication explore the effect of the FASB proposal on credit losses on an organization's finance, tax, IT systems and business processes. Credit losses would be recognized sooner under FASB proposal is written for all organizations. We have also prepared a second publication that is aimed at financial institutions and addresses industry-specific issues. These publications complement our 21 January 2013 Technical Line publication on the FASB's proposal. The Practical matters for the c-suite series is produced by our Financial Accounting Advisory Services group and is intended to help companies assess the potential effects of accounting proposals on their organizations.
Standard Setter updates
Financial Accounting Standards Board (FASB)
23 January 2013 FASB meeting
The Board discussed its project on investment companies.
For details, see the FASB Action Alert.
Upcoming meetings and webcasts
30 January 2013 joint FASB-IASB videoconference meeting
The Boards are scheduled to discuss their projects on:
- Revenue recognition
- Insurance contracts
31 January 2013 FASB meeting
The Board is scheduled to discuss its projects on:
- Going concern
- Nonpublic entities: clarification of a fair value disclosure requirement
The FASB is also scheduled to decide whether to approve two consensuses and two consensuses-for-exposure reached at the 17 January 2013 EITF meeting.
For additional details, see the FASB calendar.
See the FASB calendar for upcoming education sessions. No decisions are made at these sessions.
Securities and Exchange Commission (SEC)
President Obama nominates Mary Jo White as new chair
President Obama nominated Mary Jo White to be the new chair of the SEC. If confirmed by the Senate, Ms. White will replace Elisse Walter as chairman. Ms. White is a former US Attorney for the Southern District of New York and currently is a partner at the law firm Debevoise & Plimpton LLP in New York.
Division of Corporation Finance updates Financial Reporting Manual
The SEC staff updated its Financial Reporting Manual (FRM) to revise the staff's views about, among other things, determining significance under the income test for the acquisition of businesses that are considered “related.” When testing significance, registrants should use the combinedincome or loss of allrelated businesses acquired even when the related businesses are not eligible to present combined financial statements.
The updated FRM also clarifies the significance thresholds and financial information requirements for acquisitions of real estate properties subject to a triple net lease. Registrants are no longer required to present summarized tenant financial information in Securities Act registration statements for triple net leased properties between the 10% and 20% significance levels. Full audited financial statements of the tenant are still required in registration statements when the acquired property is 20% or more of the registrant's assets.
Other revisions clarify (1) auditor responsibility for inception-to-date amounts presented by development stage companies in annual financial statements, (2) the first periodic filing affected by a change in accelerated filer status, (3) PCAOB requirements for auditors of non-issuer financial statements (e.g., those required by S-X Rule 3-09) and (4) financial information requirements for a foreign private issuer bidder in a tender offer.
The FRM, which is updated quarterly, is designed to provide general guidance only to Division of Corporation Finance staff. Because the information is useful to registrants and their auditors, the SEC staff posts it on the SEC website.
International Accounting Standards Board (IASB)
IASB publishes proposed amendments to IAS 36 on impairment of assets
The IASB published proposed modifications to the disclosures in IAS 36, Impairment of Assets, for the measurement of the recoverable amount of impaired assets. The disclosure requirements were introduced by IFRS 13, Fair Value Measurement, issued in May 2011, which resulted in the requirements being more broadly applicable than the IASB intended. This ED proposes amendments to IAS 36 that better represent the IASB's intention for those disclosure requirements. Comments on the ED are due by 19 March 2013.
Upcoming Thought center webcasts and podcasts
Credit impairment: a discussion of FASB's proposal
31 January 2013, 2:00 p.m. Eastern time