Financial reporting

July 1, 2013

   Stakeholders have expressed concerns to FASB that certain disclosure requirements for nonpublic employee benefit plans would reveal sensitive proprietary information of private companies.

FASB is addressing that concern by proposing an indefinite deferral of the effective date for certain disclosures about investments held by a nonpublic employee benefit plan in the plan sponsor’s own equity securities.

Comments were due May 31 on Proposed Accounting Standards Update (ASU), Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04. The proposal is available at tinyurl.com/d7k8own.

Stakeholders have been concerned that proprietary information about private companies would be divulged through the dissemination of their employee benefit plans’ financial statements on the plan regulator’s website.

The deferral is proposed to allow time for regulators and stakeholders to discuss the specific quantitative disclosures and their potential effect on the plan sponsor as a result of making that information public. The proposed deferral would be effective when the final ASU is issued. At press time, the ASU was expected to be released in June.


  A new FASB standard provides guidance for organizations on when and how to prepare financial statements using the liquidation basis of accounting.

ASU 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting, describes how financial statements must be prepared by a company that is converting its assets to cash or other assets, and is settling its obligations with creditors with the intent of ceasing its activities. The ASU is available at tinyurl.com/ckl8wpp.

In these circumstances, financial statements must be prepared using a basis of accounting that helps financial statement users understand how much the organization will have available to distribute to investors after disposing of its assets and settling its obligations.

Leslie Seidman, who was FASB’s chairman when the standard was issued, said in a news release that the standard will reduce diversity in practice and addresses the concerns of stakeholders who had asked for guidance from FASB.

Organizations will be required under the new standard to use the liquidation basis for preparing financial statements when liquidation is “imminent.”

When liquidation was specified in an organization’s governing documents at inception (as in a limited-life entity), the liquidation basis should be used only if the liquidation plan differs from the original terms.

The standard applies to public and private companies as well as not-for-profit organizations. The ASU takes effect for interim and annual reporting periods beginning after Dec. 15, 2013, and early adoption is permitted.


  GASB approved a new standard designed to help state and local governments report on nonexchange financial guarantees they have offered, and to help governments properly report on guarantees they have received on their obligations.

GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees, spells out the provisions. A nonexchange financial guarantee is a credit enhancement or assurance a guarantor offers without receiving value in exchange that is equal or approximately equal.

The guarantor agrees to pay an obligation holder if the issuer of the obligation is unable to pay the obligation holder, as required. Examples of nonexchange financial guarantees include guarantees by a state for bonds issued by local governments within that state, and guarantees of mortgage loans to individuals, if equal or approximately equal value is not received in exchange.

A state or local government guarantor will be required to recognize a liability on its financial statement when it is more likely than not that the guarantor will be required to make a payment to the obligation holder under the agreement.

The standard took effect for reporting periods beginning after June 15, 2013, and is available at tinyurl.com/c47lpwq.

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