With the changing colors marking the onset of autumn, the Financial Accounting Standards Board has released its own set of proposed changes impacting numerous areas in their Accounting Standards Codification.
Additionally, a final standard was issued incorporating the Securities and Exchange Commission’ staff’s views on the effective date for certain private companies, meeting the definition of ‘public business entities,’ for the upcoming leases and revenue recognition standards.
Consolidations: reorganized guidance, with clarifications
On Sept. 20, the FASB released a proposed ASU on consolidation (ASC Topic 812). The driving force behind the proposal, according to FASB, was that constituents said “the consolidation guidance in Topic 810 as currently organized is difficult to understand and navigate.” The FASB is proposing to reorganize the consolidation guidance that currently resides in Topic 810, by moving certain sections to a new Topic 812, and moving other sections to other topics.
Additionally, the proposal contains what FASB describes as clarifications:
- The word “required” was changed to “compelled” in the guidance on implicit variable interests appearing in paragraph 812-20-225-16. FASB states this change was made because “compelled does not imply an explicit contractual arrangement and is a more accurate description of how an implicit variable interest arises.”
- The guidance pertaining to noncontrolling rights has also been revised, with respect to determining whether a legal entity is a Variable Interest Entity (VIE) or Voting Interest Entity. FASB states: “In separating VIE and voting interest entity guidance into different Subtopics, the Board revised the guidance to clarify how noncontrolling rights are considered. That determination is different from a variable interest holder determining whether there are participating rights that should overcome its consolidation conclusion. In that latter analysis, the variable interest holder applies a different definition of participating rights, which has different criteria and a higher hurdle to meet as a participating right.
“The Board does not anticipate outcomes reached under the reorganized guidance to change from those reached historically under Topic 810,” says FASB.
However, to the extent there are any changes required to conform to the reorganization and clarifications, FASB says, “the Board decided to provide transition guidance for instances in which outcomes change as a result of a better understanding of the guidance from the clarifications made in this proposed Update as opposed to for which obvious errors in application have been made.” The comment deadline on this proposal is Dec. 4.
Leases: Land easements
On Sept. 25, FASB released a proposed ASU on Leases (Topic 842), Land Easement Practical Expedient for Transition to Topic 842.
In an accompanying news release, FASB Chair Russell Golden stated, “Since issuing our new Leases standard in 2016, the FASB has heard concerns from stakeholders about the application, cost, and complexity of the new leases guidance to land easements. We encourage stakeholders to review the proposed ASU and share their views on whether they think its provisions would address the issues raised.” The comment deadline is Oct. 25.
Technical corrections to Financial Instruments, Leases
On Sept. 27, FASB released a document containing two proposed ASUs, containing technical corrections to its guidance on financial instruments (Subtopic 825-10) and leases (Topic 842). This proposal is part of the FASB’s ongoing work providing technical corrections to the ASC.
Charts summarizing the proposed changes in each of the above topics appear within the proposal. The comment deadline is Nov. 13.
On Oct. 3, the FASB released a proposed ASU entitled Codification improvements.
FASB explains the nature of the proposed changes in this document includes making “incremental improvements” which “eliminate the need for periodic agenda requests for narrow and incremental items.”
The Journal of Accountancy has published a brief summary of the proposed changes, impacting nine different areas. The comment deadline on the proposal is Dec. 4.
Final ASU incorporating SEC views on effective date of leases, rev rec standards for certain entities
On September 29, the FASB issued ASU 2017-13: Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.
As noted by Thomson Reuters, the change, impacting certain private companies swept into the FASB’s definition of ‘public business entities,’ was actually effective immediately on the day of the SEC staff announcement (July 20). See our July 21 post, SEC clarifies private company transition to revenue recognition, lease standards