FASB issued separate accounting standards Wednesday that are designed to simplify reporting of certain employer retirement obligations and assets, as well as provide explicit guidance about how to account for fees paid in a cloud-computing arrangement.
Both standards are the result of FASB’s simplification initiative, which has produced several standards advancing its objective of reducing complexity for preparers without sacrificing usefulness of information for financial statement users.
New measurement guidelines are included in Accounting Standards Update (ASU) No. 2015-04, Compensation—Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.
Under the standard, an entity with a fiscal year end that does not coincide with a month end will be permitted to measure defined benefit plan assets and obligations using the month end that is closest to the entity’s fiscal year end. The practical expedient is required to be applied consistently from year to year and across all of an entity’s plans.
If a contribution or significant event that calls for a remeasurement occurs between the month-end measurement date and the entity’s fiscal year end, the entity is required to adjust the measurement to reflect those effects. Events that call for a remeasurement could include a plan amendment, settlement, or curtailment. But under the standard, entities should not adjust the measurement for other events not caused by the entity—such as changes in market prices or interest rates—that occur between the month-end measurement date and the end of the fiscal year.
An additional practical expedient allows an entity that has a significant event in an interim period that calls for a remeasurement (e.g., a partial settlement) to remeasure defined benefit plan assets and obligations using the month end that is closest to the date of the significant event. This remeasurement should be adjusted for any effects of the significant event that may or may not be captured in the month-end measurement. But the measurement should not be adjusted for other events that are not caused by the entity.
If an entity using the expedient receives a contribution between the month-end measurement date and the end of the fiscal year, the fair value of each class of plan assets should not be adjusted for the effects of the contribution. Instead, the entity should disclose the amount of the contribution to permit reconciliation of the total fair value of all the classes of plan assets in the fair value hierarchy to the ending balance of the fair value of plan assets.
Preparers are required to disclose this accounting policy election and the date used to measure defined benefit plan assets and obligations. The expedient does not apply to employee benefit plans.
The standard takes effect for public business entities in annual periods, including interim periods within those annual periods, beginning after Dec. 15, 2015. All other entities are required to apply the new requirements for annual financial statements with years that begin on or after Dec. 15, 2016, and interim periods in annual periods beginning after Dec. 15, 2017.
All entities have the option of adopting the new requirements early.
Cloud-computing arrangements
Explicit guidance on how to account for cloud-computing vendor fees is included in ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.
GAAP previously has not contained specific guidance on how an organization should account for fees paid in a cloud-computing arrangement. That led to costs, complexity, and diversity in practice for companies using arrangements such as software as a service, platform as a service, infrastructure as a service, and similar hosting arrangements.
The new guidance helps cloud customers understand whether their arrangement includes a software license. If the arrangement does include a software license, then the software license element of the arrangement is required to be accounted for in a manner consistent with the acquisition of other software licenses.
If a cloud-computing arrangement does not include a software license, the customer is required to account for the arrangement as a service contract.
The standard takes effect for public business entities in annual periods, including interim periods within those annual periods, beginning after Dec. 15, 2015. All other entities must apply the new requirements for annual periods beginning after Dec. 15, 2015, and interim periods in annual periods beginning after Dec. 15, 2016.
Early adoption is permitted for all entities.
—Ken Tysiac ( ktysiac@aicpa.org ) is a JofA editorial director.
