Financial reporting

- A standard issued by FASB is designed to improve targeted areas of consolidation guidance for certain legal entities and make financial statements more relevant for users.

The guidance applies to legal entities such as:

  • Limited partnerships.
  • Limited liability corporations.
  • Securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions).

Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, is intended for reporting organizations (public and private companies and not-for-profits) that are required to evaluate whether they should consolidate these legal entities.

The standard, available at, reduces the number of consolidation models from four to two, simplifies FASB’s Accounting Standards Codification, and changes current GAAP by:

  • Placing more emphasis on risk of loss when determining a controlling financial interest. A reporting organization may no longer have to consolidate a legal entity in certain circumstances based solely on its fee arrangement, when certain criteria are met.
  • Reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable-interest entity (VIE).
  • Changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.

The standard takes effect for public companies for periods beginning after Dec. 15, 2015. For private companies and not-for-profits, the standard takes effect for annual periods beginning after Dec. 15, 2016, and for interim periods beginning after Dec. 15, 2017. Early adoption is permitted, including adoption in interim periods.


- FASB proposed two standards changes that are designed to reduce complexity in accounting for income taxes. The proposal is available at

For public business entities, the proposed changes would take effect for annual periods, including interim periods within those annual periods, beginning after Dec. 15, 2016. Early adoption would not be permitted for public business entities.

For all other entities, the proposed amendments would take effect for annual periods beginning after Dec. 15, 2017, and interim periods in annual periods beginning after Dec. 15, 2018. Early adoption would be permitted, but not before the effective date for public business entities.

FASB is seeking comments on both items by May 29. Comments can be made at FASB’s website at

The first item the board is proposing is elimination of the exception in ASC Subtopic 740-10, Recognition, that prohibits recognizing current and deferred income tax consequences for an intra-entity asset transfer until the asset or assets have been sold to an outside party.

This proposal would require that an entity recognize the current and deferred income tax consequences of an intra-entity asset transfer when the transfer occurs. The proposal would align GAAP with IFRS guidance on the recognition of income tax consequences of intra-entity asset transfers.

Entities would be required to apply the proposed amendments on a modified retrospective basis. A cumulative-effect adjustment would be made directly to retained earnings as of the beginning of the period of adoption for the recognition of the income tax consequences of intra-entity asset transfers occurring before the effective date.

At transition, required disclosures would include the nature of and reason for the change in accounting principle, and quantitative information about the effects of the change in accounting.

The other change FASB is proposing would affect only entities that present a classified statement of financial position. To simplify the presentation of deferred income taxes, FASB is proposing that for such entities, deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The proposal would not change the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single account.

The proposal would align GAAP with IFRS in the presentation of deferred income tax assets and liabilities.

Entities would be required to apply the proposed balance sheet changes prospectively to all deferred income tax liabilities and assets. At transition, disclosures would include the nature of and reason for the change in accounting principle and a statement that prior periods were not restated.


- FASB issued a proposal that is designed to provide more useful information to financial statement users about hybrid financial instruments that contain bifurcated embedded derivatives.

The amendments in the proposal, available at, would require an entity to disclose information in the notes to financial statements that links each bifurcated embedded derivative to its related host contract.

Under current GAAP, ASC Topic 815, Derivatives and Hedging, does not require an entity to provide information that explicitly links bifurcated embedded derivatives with their related host contracts. As a result, financial statement users often are unable to trace these derivatives to their host contracts.

The proposed amendments would apply to all reporting entities that issue or invest in hybrid financial instruments with embedded derivatives that are separated from their host contracts and accounted for as derivative instruments.

Under the proposal, an entity would be required to disclose in both interim and annual reporting periods the carrying amount, measurement attribute, and line item within the balance sheet and the income statement in which each bifurcated embedded derivative and its related host contract are presented.

The amendments would be applied prospectively to hybrid financial instruments with bifurcated embedded derivatives that existed as of the beginning of the fiscal year for which the proposed amendments are effective.

The effective date will be determined by the board after hearing stakeholders’ comments, which can be submitted through April 30 at FASB’s website at The proposal is titled Proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Disclosures About Hybrid Financial Instruments With Bifurcated Embedded Derivatives.


- Three years after its inception, the Private Company Council (PCC) will undergo a public evaluation of the job it is doing in looking out for the interests of private companies in accounting standards.

The board of trustees of the Financial Accounting Foundation (FAF) issued a request for comment, with responses to be evaluated in its assessment of the PCC’s effectiveness, accomplishments, and future role in setting standards for private companies. The request for comment is available at

When the trustees created the PCC in May 2012, they stated that they would conduct an assessment of the council following its first three years of operation.

The PCC has established a number of GAAP alternatives for private companies that are intended to decrease costs and complexity without sacrificing usefulness to users of financial statements. To date, PCC-initiated actions have resulted in four Accounting Standards Updates containing GAAP alternatives for private companies.

In addition, the PCC has given FASB feedback on private company perspectives during the board’s development of standards.

Written comments can be emailed to by May 11.


- FASB’s staff will work with AICPA staff to clarify guidance regarding uncertain tax positions.

In May 2010, the AICPA Financial Reporting Executive Committee (FinREC) issued a technical practice aid, TPA 5250-15, which refers to Accounting Standards Update (ASU) No. 2009-06, Income Taxes (Topic 740): Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities.

FinREC’s TPA said that nonpublic entities are required to make certain disclosures regardless of whether the entities have uncertain tax positions (also known as unrecognized tax benefits).

PCC and FASB members said at a PCC meeting that the guidance in the TPA should change and that such disclosures are necessary only if an entity has uncertain tax positions.

The AICPA staff is working with FASB’s staff to determine the best way to proceed in addressing the issue.

In the basis for conclusions section of the ASU, FASB concluded that no disclosure would be required if management determines there are no unrecognized tax benefits to record. FASB concluded that requiring such a disclosure would set a precedent for requiring a similar disclosure for all accounting standards for which there was no material effect on the financial statements. But the basis for conclusions is not part of the FASB Accounting Standards Codification.


- The PCC has decided to review whether it should provide more flexibility to private companies in election and use of some of the GAAP alternatives it has created.

PCC member Larry Weinstock said more flexibility may be necessary to allow private companies to take advantage of:

  • ASU No. 2014-07Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements; and
  • ASU No. 2014-02Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill.

Current guidance suggests that private companies that do not elect an alternative the first time it’s available are not allowed to elect it in the future, unless they can establish preferability, as defined in ASC Topic 250, Accounting Changes and Error Corrections, according to Weinstock.

Weinstock said private companies should be able to elect to use the alternatives in the future if their circumstances change. The PCC asked FASB’s staff to undertake research that could provide more flexibility.


- The IASB issued a proposal intended to clarify how entities classify debt, particularly when it is coming up for renewal.

The proposal is designed to improve presentation in financial statements by clarifying the criteria for the classification of a liability as either “current” or “non-current.” The proposed amendments would accomplish this by:

  • Clarifying that the classification of a liability as either “current” or “non-current” is based on the entity’s rights at the end of the reporting period, and
  • Clearly describing the link between the settlement of the liability and the outflow of resources from the entity.

The proposed amendments are contained in the exposure draft Classification of Liabilities (Proposed Amendments to IAS 1), which is available at The IASB is seeking comments, which can be made at by June 10.


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