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NEWS DIGEST

Financial reporting

 

April 2013

  The Private Company Council (PCC) is forging ahead with more in-depth analysis of three of the four issues it initially identified as candidates for possible GAAP exceptions or modifications for private companies.

During the newly created PCC’s second meeting, the council added the three items to its agenda for examination of possible GAAP exceptions or modifications. These were:

  • Recognizing and measuring intangible assets acquired in business combinations. Accounting Standards Codification (ASC) Topic 805, Business Combinations, (formerly FAS 141(R)) and ASC Topic 350, Intangibles—Goodwill and Other (formerly FAS 142), govern this topic.
  • Accounting for variable-interest entities (VIEs). This topic is subject to the requirements of ASC Topic 810, Consolidation. Formerly known as FIN 46(R) and FAS 167, this standard requires consolidation of the financial data of a VIE with the company that is the VIE’s primary beneficiary.
  • Accounting for “plain vanilla” interest rate swaps. ASC Topic 815, Derivatives and Hedging, (formerly FAS 133) requires costly accounting when swaps are used to convert variable interest rates on loans to fixed interest rates. The PCC decided to proceed with further analysis in situations where just one counterparty is involved. The PCC is having FASB’s staff perform more pre-agenda research in situations involving more than one counterparty or lending arrangement.


Accounting for uncertain tax positions was the lone item of initial interest that the PCC decided not to place on its agenda.

Two new items were identified for pre-agenda discussion, and FASB’s staff was asked to prepare preliminary background on them for consideration at the next PCC meeting on May 7. Those items are:

  • Stock compensation, including measurement, modifications, and settlements accounting for private companies.
  • Accounting for development-stage enterprises.


The PCC was formed by FASB’s parent body, the Financial Accounting Foundation (FAF), in part to determine whether and when exceptions or modifications to GAAP should be created for private companies.

The PCC also voted with FASB to seek more public input on the proposed private company decision-making framework, which will create criteria to determine whether and when it is appropriate to adjust financial reporting requirements for private companies using GAAP.

The proposal was expected to be re-exposed in March with a 90-day comment period.


  FASB issued proposed financial reporting standards for repurchase agreements, in part to address investors’ concerns that some current practices do not adequately reflect the transferor’s obligations and risks.

The comment period for the Proposed Accounting Standards Update (ASU), Transfers and Servicing (Topic 860)—Effective Control for Transfers With Forward Agreements to Repurchase Assets and Accounting for Repurchase Financings, ended March 29. The proposal is available at tinyurl.com/arggkus.

According to an issue of FASB in Focus devoted to the topic, the market for repurchase agreements has changed significantly since FASB issued its first guidance on this subject in 1996 in FASB Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

Repurchase agreements increasingly involve asset types that are not U.S. Treasury or government agency securities and may be less liquid. That can affect how the transactions operate and how investors consider the risks associated with them.

If approved, the proposal would make changes to financial reporting for repurchase agreements and other transfers with forward agreements to repurchase transferred assets. The proposal is intended to clarify the guidance for distinguishing whether these transactions are sales or secured borrowings, and improve disclosures about them.

For some arrangements, the proposal also would result in financial reporting that is more comparable with IFRS.


  FASB issued an ASU that clarifies that a 2011 standard on offsetting disclosures does not apply to ordinary trade receivables and receivables.

ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities, excludes trade receivables and receivables from the scope of the standard and is available at tinyurl.com/bx93rru.

The new ASU explains that the 2011 standard, ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures About Offsetting Assets and Liabilities, applies to the following when they are offset in accordance with FASB criteria or subject to a master netting arrangement or similar agreement:

  • Derivatives.
  • Repurchase agreements and reverse purchase agreements.
  • Securities borrowing and securities lending transactions.


Issued in December 2011, ASU No. 2011-11 was the result of a joint project with the International Accounting Standards Board (IASB). It was designed to improve transparency and comparability between U.S. GAAP and IFRS. The standard requires enhanced disclosures about financial instruments that are offset in the statement of financial position, or subject to an enforceable master netting arrangement or similar agreement.

After the standard was released, companies realized that many contracts have standard commercial provisions that would equate to a master netting arrangement. FASB concluded that requiring enhanced disclosures for ordinary trade receivables and receivables would significantly increase the cost of compliance with limited value to users of financial statements.


  A FAF review affirmed the general effectiveness of a FASB statement that establishes standards for the way public companies report information about operating segments in annual and interim financial statements.

But the report on the post-implementation review also revealed room for improvement in Statement No. 131, Disclosures About Segments of an Enterprise and Related Information, which is codified in ASC Topic 280, Segment Reporting. Some of the challenges include the effect of changes in technology on the determination of what information is reviewed by the company’s chief operating decision-makers (CODMs). The report is available at tinyurl.com/a2qdpr4.

FASB announced that it will review the issues raised in the FAF report with stakeholders and the SEC to determine whether further review of the standard is warranted. FASB believes any plan for such a review or project should be coordinated with the IASB, which is reviewing IFRS 8, Operating Segments. IFRS 8 is converged with Statement No. 131.

The IASB’s review is expected to be finished this year.


  GASB approved a standard geared toward the specific needs of state and local governments’ financial reporting of mergers, acquisitions, transfers of operations, and disposals of government operations.

“Historically, governments have accounted for their mergers and acquisitions by analogizing to guidance intended for the private-sector business environment, which proved problematic because those standards focus on stock arrangements and ownership interests not present in a governmental setting,” GASB Chairman Robert Attmore said in a news release.

GASB Statement No. 69, Government Combinations and Disposals of Government Operations, is available at tinyurl.com/awacnrp and provides guidance for:

  • Determining whether a combination is a merger, acquisition, or transfer of operations.
  • Using carrying values to measure the assets, deferred outflows of resources, liabilities, and deferred inflows of resources combined in a government merger or transfer of operations.
  • Measuring acquired assets, liabilities, deferred outflows of resources, and deferred inflows of resources based on their acquisition values in a government acquisition.
  • Reporting the disposal of government operations that have been transferred or sold.


The standard takes effect for periods beginning after Dec. 15, 2013, and should be applied prospectively. GASB encourages early application.

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