AccountingLink

    Financial instruments

    19 October 2017

    Financial Reporting Developments - Derivatives and hedging
    We have updated our Financial reporting developments publication on derivatives and hedging to further clarify and enhance our interpretative guidance. Our updates also address the accounting implications of rulebook changes made by certain central clearinghouses to legally characterize variation margin payments for over-the-counter derivatives they clear as settlements rather than collateral. Refer to Appendix F of the publication for a summary of the updates.

    5 October 2017

    Financial Reporting Developments - Issuer’s accounting for debt and equity financings
    We have updated our Financial reporting developments (FRD) publication on an issuer’s accounting for debt and equity financings to reflect the issuance of ASU 2017 11 on accounting for certain financial instruments with down round features. We have also enhanced and clarified our interpretive guidance. Refer to Appendix F of the publication for a summary of the updates.

    29 September 2017

    To the Point - FASB proposes clarifying the new guidance for recognizing and measuring financial instruments
    The FASB proposed technical corrections and improvements to its new standard on recognizing and measuring financial instruments that would clarify that entities would use a prospective transition approach only for equity securities they elect to measure using the new measurement alternative. The amendments would also clarify the guidance on how to apply the measurement alternative and the presentation requirements for financial liabilities measured under the fair value option. Comments are due by 13 November 2017.

    30 August 2017

    NAIC Bulletin - Summer 2017 edition
    Our NAIC Bulletin contains the highlights of the Summer 2016 meeting of the National Association of Insurance Commissioners.

    28 August 2017

    To the Point - FASB amends hedge accounting guidance to better reflect entities' risk management activities
    The FASB issued final guidance amending its hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The amendments also simplify the application of hedge accounting in certain situations. The guidance is effective in 2019 for calendar-year public business entities and 2020 for all other calendar-year companies, with early adoption permitted in any interim or annual period.

    26 July 2017

    Financial Reporting Developments - Transfers and servicing of financial assets
    We have updated our FRD publication on transfers and servicing of financial assets primarily for recent standard-setting activity.

    18 July 2017

    To the Point - FASB simplifies the accounting for financial instruments with ‘down round’ features
    The FASB issued final guidance that eliminates today’s requirement to consider “down round” features when determining whether certain equity-linked financial instruments or embedded features are indexed to an entity’s own stock. Entities that present earnings per share pursuant to ASC 260 will recognize the effect of a down round feature in a freestanding equity-classified financial instrument only when it is triggered. The effect of triggering such a feature will be recognized as a dividend and a reduction to income available to common shareholders in basic EPS.

    22 June 2017

    Financial Reporting Developments - Foreign currency matters
    We have updated our Financial reporting developments publication on foreign currency matters primarily to clarify our existing guidance and update references to external content and our other publications.

    16 June 2017

    Technical Line - How principle-based reserving will affect life insurers
    Our Technical Line takes a closer look at the new principle-based reserving (PBR) framework established by the National Association of Insurance Commissioners that will require life insurers to significantly change how they estimate reserves for most types of life insurance contracts under the statutory basis of accounting. Life insurers also will need to prepare a comprehensive PBR actuarial report documenting the judgments made in the PBR valuation process to submit to state insurance regulators.

    16 June 2017

    To the Point - FASB TRG for credit losses discusses implementation issues
    Members of the FASB TRG for credit losses reached general agreement on three implementation issues and may revisit two others. They generally agreed that entities can elect to use a discount rate adjusted for expected prepayments to determine the allowance for credit losses and can elect to maintain existing pools of purchased credit impaired assets at adoption or on an ongoing basis. They also generally agreed that entities should consider the cash flows of the assets underlying a beneficial interest, including expected prepayments, to determine whether the guidance on purchased financial assets with credit deterioration applies. The TRG may revisit questions about how to determine the life of a credit card receivable and how to forecast troubled debt restructurings.

    5 May 2017

    Comment Letter - FASB proposal to simplify the balance sheet classification of debt
    In our comment letter, we support the FASB’s efforts to reduce the cost and complexity of determining whether debt should be classified as current or noncurrent on a classified balance sheet by replacing today’s rules-based guidance with a principles-based approach. While we also support the FASB’s proposed exception for certain waivers of covenant violations received after the balance sheet date but before the financial statements are issued, we recommend that the FASB clarify the proposed principle by requiring classification to be based on whether current assets are needed to settle the liability.

    3 May 2017

    NAIC Bulletin - Spring 2017 edition
    Our NAIC Bulletin contains the highlights of the Spring 2016 meeting of the National Association of Insurance Commissioners.

    4 April 2017

    To the Point - FASB shortens the amortization period for certain purchased callable debt securities held at a premium
    The FASB issued guidance to shorten the amortization period for certain purchased callable debt securities held at a premium to the earliest call date. Today, entities generally amortize the premium as a yield adjustment over the contractual life of the security. The guidance does not change the accounting for callable debt securities held at a discount. For public business entities, the guidance is effective for fiscal years beginning after 15 December 2018, and interim periods therein. For all other entities, it is effective for fiscal years beginning after 15 December 2019, and interim periods within fiscal years beginning after 15 December 2020. Early adoption is permitted, including in an interim period.

    16 March 2017

    Technical Line - How the new credit impairment standard will affect entities outside the financial services industry
    The FASB issued new guidance that will change how entities account for credit impairment for many financial assets. For receivables and certain other instruments that aren’t measured at fair value, entities will be required to estimate expected credit losses, which generally will result in the earlier recognition of credit losses. For available-for-sale debt securities, they will recognize an allowance for credit losses rather than a reduction to the asset’s carrying value.

    9 February 2017

    Technical Line - Insurers will have to make additional disclosures about short-duration contracts
    We have updated our Technical Line to include the SEC staff’s views on the presentation of acquisitions, disposals and foreign currency exchange translation adjustments in the incurred and paid claims development tables required by the guidance. All insurers, not just SEC registrants, should consider those views.

    7 February 2017

    Comment Letter - FASB proposal on accounting for instruments with down round features
    In our comment letter, we support the FASB’s objective to reduce the cost and complexity of accounting for certain financial instruments with down round features, and we believe the proposal would meet that objective by requiring fewer equity-linked financial instruments (or embedded features) with down round features that have to be accounted for at fair value. However, we believe the proposed guidance could cause confusion about whether a convertible instrument with an adjustment provision that could result in the recognition of a contingent beneficial conversion feature (BCF) would be in the scope of the proposed recognition and measurement guidance for down round features (i.e., ASC 480-20). Therefore, we recommend that the FASB clarify the proposed guidance on convertible instruments with down round features that are also subject to the contingent BCF guidance in ASC 470-20. We do not believe these instruments should be in the scope of ASC 480-20, because applying both the guidance in ASC 480-20 and the contingent BCF guidance in ASC 470-20 would be too complex.

    18 January 2017

    NAIC Bulletin - Fall 2016 edition
    Our NAIC Bulletin contains the highlights of the Fall 2016 meeting of the National Association of Insurance Commissioners.

    12 January 2017

    To the Point - Proposal would simplify how entities determine the balance sheet classification of debt
    The FASB proposed replacing today’s rules-based guidance for determining whether to classify debt as current or noncurrent on the balance sheet with a principles-based approach that would require debt to be classified as noncurrent only when it is contractually due to be settled more than one year (or operating cycle, if longer) after the balance sheet date or when the entity has a contractual right to defer settlement for at least one year (or operating cycle, if longer) after the balance sheet date. An exception would be provided for waivers of debt covenant violations received after the balance sheet date but before the financial statements are issued. Comments are due by 5 May 2017.

    12 January 2017

    To the Point - Rule changes for centrally cleared derivatives could affect accounting
    The Chicago Mercantile Exchange and LCH.Clearnet Limited have amended their rulebooks to legally characterize variation margin payments for over-the-counter derivatives they clear as settlements of the derivatives’ exposures rather than collateral against the exposures. The changes could have accounting implications for both end-users and institutions that serve as clearing members.

    20 December 2016

    Technical Line - A closer look at the FASB’s hedge accounting proposal
    The FASB proposed targeted amendments to its hedge accounting guidance that are aimed at enabling entities to more clearly portray the economics of their risk management activities in their financial statements. The proposal would expand the strategies that qualify for hedge accounting, change how many hedging relationships are presented in the financial statements and simplify the application of hedge accounting in certain situations. In addition, certain disclosure requirements would be modified or added.

    14 December 2016

    Comment Letter - FASB’s long-duration contracts proposal for insurers
    In our comment letter, we support the Board’s objective to simplify and enhance the financial reporting requirements for long-duration contracts issued by insurers and believe many of the proposed amendments would meet that objective. However, we believe the FASB should reconsider certain aspects of the proposal and provide additional guidance or clarification in some places.

    17 November 2016

    Comment Letter - FASB proposal on premium amortization on purchased callable debt securities
    In our comment letter, we supported the FASB’s proposal to shorten the amortization period for callable debt securities purchased at a premium. However, we recommended that the FASB clarify whether the proposed guidance would apply to callable instruments that do not have definitive call dates.

    3 November 2016

    Comment Letter - FASB’s hedge accounting proposal
    In our comment letter, we applaud the FASB for addressing many of the concerns raised by preparers, users and other stakeholders about the complexity of today’s hedge accounting model and the restrictions it imposes. Overall, we agree that the proposed amendments would better portray the economics of an entity’s risk management activities in its financial statements and simplify the application of hedge accounting in certain situations. However, we believe the FASB should reconsider certain aspects of the proposal and provide additional guidance or clarification in some places.

    1 November 2016

    Technical Line - A closer look at proposed changes in insurers’ accounting and disclosures for long-duration contracts
    The FASB proposed changing how insurers account for and make disclosures about long-duration contracts to provide users of the financial statements with more meaningful information about the amount, timing and uncertainty of cash flows related to these contracts. The proposal would change how insurers recognize and measure insurance liabilities and deferred acquisitions costs and require them to make new disclosures. The proposal would significantly change practice and could have a material effect on insurers’ financial statements. Comments are due by 15 December 2016.

    20 October 2016

    To the Point - Rules on fund liquidity risk management and swing pricing
    The SEC adopted a rule that requires registered open-end funds, including mutual funds and exchange-traded funds but not money market funds, to establish a liquidity risk management program and expand their disclosures about their liquidity and redemption practices The SEC also gave open-end funds (except for money market funds and exchange-traded funds) the option to use swing pricing to adjust their net asset value for costs associated with satisfying requests for shareholder purchases or redemptions (e.g., trading costs) in certain circumstances.

    13 October 2016

    To the Point - New rules may affect how entities classify and account for investments in certain money market funds
    Entities will need to consider whether changes in the way money market funds operate under SEC rules will affect their ability to continue to classify investments in certain funds as cash equivalents. Effective tomorrow, institutional prime money market funds are required to have floating net asset values, and all money market funds are allowed to impose liquidity fees on redemptions or temporarily suspend redemptions in certain situations. This To the Point publication addresses the financial accounting and reporting considerations that investors in these funds will need to consider as a result of those changes.

    12 October 2016

    Technical Line - A closer look at the new credit impairment standard
    The FASB issued credit impairment guidance that modifies or replaces existing credit impairment models for many financial assets. For receivables, loans, held-to-maturity debt securities and certain other financial assets, entities will be required to estimate expected credit losses, which generally will result in the earlier recognition of credit losses. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. Our publication takes an in-depth look at the new standard and is intended to help companies consider the effects of adopting it. We expect to update this publication as we develop additional insights and views related to this standard. In the coming weeks, we will issue a publication that highlights significant changes for entities outside the financial services industry.

    29 September 2016

    To the Point - Proposal would change accounting and disclosures for long-duration contracts for insurers
    The FASB proposed changing how insurers account for long-duration contracts, including how they measure, recognize and make disclosures about insurance liabilities and deferred acquisition costs. Comments are due by 15 December 2016.

    14 September 2016

    NAIC Bulletin - Summer 2016 edition
    Our NAIC Bulletin contains the highlights of the Summer 2016 meeting of the National Association of Insurance Commissioners.

    8 September 2016

    To the Point - FASB aims to more clearly portray entities’ hedging activities in the financial statements
    The FASB proposed targeted amendments to its hedge accounting guidance that are intended to more clearly portray entities’ hedging activities in the financial statements. The proposal is also intended to simplify the application of hedge accounting. Comments on the exposure draft are due by 22 November 2016.

    31 August 2016

    Financial Reporting Developments - Certain investments in debt and equity securities
    We have updated our FRD publication on certain investments in debt and equity securities to further clarify and enhance our interpretative guidance. Refer to Appendix F of the publication for a summary of the updates.

    16 June 2016

    To the Point - FASB issues sweeping changes to credit loss guidance
    The FASB issued a new credit loss standard today that changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. Virtually all entities will be affected.

    28 April 2016

    To the Point - FASB delays effective dates of its upcoming credit impairment standard
    The FASB decided to delay the effective dates of the new credit impairment standard by one year in response to feedback it received from constituents. The first revised effective date would be the first quarter of 2020 for calendar-year public business entities that are SEC filers. Early adoption in the first quarter of 2019 would be permitted for all calendar-year entities. After discussing the costs and benefits of the new standard, the FASB also voted to issue the final guidance. The FASB expects to issue the new standard by the end of the second quarter of 2016.

    20 April 2016

    NAIC Bulletin - Spring 2016 edition
    Our NAIC Bulletin contains the highlights of the Spring 2016 meeting of the National Association of Insurance Commissioners.

    7 April 2016

    To the Point - Transition Resource Group for credit losses discusses FASB’s proposed guidance
    At the first public meeting of the FASB’s Transition Resource Group (TRG) for credit losses, TRG members generally agreed that a staff draft of portions of the new guidance on estimating credit losses is sufficiently clear. Members of the TRG suggested that the FASB staff and the Board make only minor clarifications as they proceed with final drafting. The FASB plans to discuss the costs and benefits of issuing the standard and the effective date at a meeting later this month. The Board plans to issue the new standard by 30 June 2016.

    15 March 2016

    To the Point - FASB clarifies guidance on assessing contingent put and call options in debt instruments
    The FASB issued final guidance clarifying that an assessment of whether an embedded contingent put or call option is clearly and closely related to the debt host requires only an analysis of the four-step decision sequence in ASC 815-15-25-42. Because many entities are already using only the decision sequence, the guidance will not change practice for these entities.

    10 March 2016

    To the Point - FASB says hedge accounting relationships may continue after a novation
    The FASB issued final guidance 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.

    9 March 2016

    To the Point - FASB develops a model to recognize breakage for certain prepaid stored-value products
    The FASB issued final guidance requiring entities that sell prepaid stored-value products redeemable for goods, services or cash at third-party merchants to derecognize liabilities related to those products for breakage (i.e., the value that is ultimately not redeemed by the consumer). This new derecognition model will prevent liabilities related to breakage from being recognized in perpetuity and provide better information to users of financial statements.

    3 March 2016

    Technical Line - A closer look at the new guidance on classifying and measuring financial instruments
    The FASB issued final guidance that will require entities to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income. Entities will have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income. The new guidance also changes certain disclosure requirements and other aspects of current US GAAP. It does not change the guidance for classifying and measuring investments in debt securities or loans.

    28 January 2016

    To the Point - New guidance on classifying and measuring financial instruments - health care not-for-profit entities
    The FASB issued final guidance that will change how entities, including business-oriented health care not-for-profit (NFP) entities, measure equity investments that do not result in consolidation and are not accounted for under the equity method and how they present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. The new guidance also changes certain disclosure requirements and other aspects of current US GAAP. It does not change the guidance for classifying and measuring investments in debt securities. Health care NFPs can early adopt certain provisions in financial statements that have not yet been issued or made available to be issued.

    14 January 2016

    Comment Letter - SEC’s fund liquidity and swing pricing proposal
    In our comment letter, we recommend that the SEC clarify how mutual funds that would be allowed to use swing pricing (i.e., adjust net asset value per share (NAV) for costs associated with satisfying requests for shareholder purchases and redemptions that exceed certain thresholds) would present NAV on the balance sheet and certain financial highlights and how they would adjust NAV for trade date activity, among other things. We also express our view that auditors should not be responsible for assessing the reasonableness of a fund’s swing pricing policies and procedures and recommend that the SEC clarify that point in any adopting release.

    7 January 2016

    To the Point - FASB makes targeted amendments to guidance on classifying and measuring financial instruments
    The FASB issued final guidance that will change how entities measure equity investments that do not result in consolidation and are not accounted for under the equity method and how they present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. The new guidance also changes certain disclosure requirements and other aspects of current US GAAP. It does not change the guidance for classifying and measuring investments in debt securities and loans. All entities can early adopt the new guidance on changes in own credit, and non-public business entities can early adopt a provision that eliminates the fair value disclosures for financial instruments not recognized at fair value.

    17 December 2015

    To the Point - SEC proposes rule to limit use of derivatives by regulated investment companies
    The SEC proposed a rule to enhance investor protection by setting restrictions on the use of derivatives and financial commitment transactions by mutual funds, exchange-traded funds, closed-end funds and business development companies. In proposing the rule, the SEC said it was responding to growth in the volume and complexity of derivatives and their increased use by certain funds.

    10 December 2015

    NAIC Bulletin - Fall 2015 edition
    Our NAIC Bulletin contains the highlights of the Fall 2015 meeting of the National Association of Insurance Commissioners.

    12 November 2015

    To the Point - Preparing for the new credit impairment standard
    Now that the FASB has set effective dates for the new credit impairment standard, entities should start planning for implementation.

    29 September 2015

    To the Point - SEC proposes liquidity risk rules for mutual funds and ETFs
    The SEC proposed requiring that all open-end mutual funds (excluding money market funds) and exchange-traded funds implement a liquidity risk management program and giving mutual funds the option to use swing pricing to adjust their net asset value for costs associated with satisfying requests for shareholder purchases or redemptions in certain circumstances.

    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.