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August 14, 2012. FASB Update. Rahul Gupta, Practice Fellow, FASB. The views expressed in this presentation are my own and not the positions of the Financial Accounting Standards Board (FASB). Positions of the FASB are arrived at only after extensive due process and deliberations. Agenda.
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August 14, 2012 FASB Update Rahul Gupta, Practice Fellow, FASB The views expressed in this presentation are my own and not the positions of the Financial Accounting Standards Board (FASB). Positions of the FASB are arrived at only after extensive due process and deliberations.
Agenda • Recently completed FASB standards • Convergence efforts and FASB project plan • Private Company Financial Reporting • Update on joint projects • Update on FASB only projects • Emerging Issues Task Force (EITF) agenda • Questions & Answer Session
Recently issued standards • Presentation of Comprehensive income • ASU 2011-05: Presentation of Comprehensive Income • ASU 2011-12: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 • Goodwill Impairment • ASU 2011-08: Testing Goodwill for Impairment • Impairment of indefinite-lived intangible assets • ASU 2012-02: Testing Indefinite-Lived Intangible Assets for Impairment
Presentation of Comprehensive Income • ASU 2011-05: Objective was to increase prominence of Comprehensive Income • Eliminated the option to report OCI and its components in the statement of changes in stockholder’s equity • Required to present comprehensive income and its components in either a single continuous statement or in two separate but consecutive statements • Components of OCI and reclassifications to net income to be reported on the face of the financial statements • ASU 2011-12: Deferred the requirement to present effects of reclassifications of AOCI on components of net income
Goodwill Impairment (ASU 2011-08) • Objective is to simplify impairment assessment of goodwill • Entities can choose to qualitatively assess goodwill before performing Step 1 • If more likely than not that the carrying value (CV) of goodwill exceeds its fair value (FV), then proceed to Step 1 • Otherwise, no further analysis is required • Option to carry forward detailed calculation of a reporting unit’s fair value from prior period is no longer allowed
Goodwill Impairment (ASU 2011-08) • Standard includes examples of facts and circumstances to consider in performing qualitative assessment • Quantitative disclosures no longer required for significant unobservable inputs used to measure goodwill impairment • High-quality documentation will be important to support judgments supplemented by policies and controls • Effective date: January 1, 2012, for calendar year-end filers. Early adoption permitted
Impairment of Indefinite-Lived Intangible Assets (ASU 2012-02) • Objective is to simplify impairment assessment of indefinite-lived intangible assets, other than goodwill • Entities would have the option to first assess qualitative factors to determine if it is more likely than not that an impairment exists • No further action if the entity concludes it is not more likely than not that impairment exists • Quantitative test would be performed otherwise
Impairment of Indefinite-Lived Intangible Assets (ASU 2012-02) • Qualitative assessment will focus on factors that impact significant inputs to the asset’s fair value calculation, including asset level indicators • Exempts nonpublic entities from disclosing quantitative information about significant unobservable inputs used to measure the fair value in case an impairment is recorded • Standard would apply to all entities, both public and nonpublic
FASB Project Plan (as of July 2012) E Exposure Draft F Final Document C Comment Deadline R Roundtable Discussion
FASB Project Plan (as of July 2012) E Exposure Draft F Final Document C Comment Deadline D Discussion Paper
The Private Company Council Responsibilities • Based on criteria agreed on with FASB, PCC identifies, deliberates and votes on proposed modifications to existing U.S. GAAP for private companies • Recommendation subject to FASB process • PCC is primary advisory body to FASB on private companies for active technical agenda issues
The Private Company Council Membership and Terms • 9-12 members, including chair, appointed by FAF • Chair is not FASB member • Initial 3-year term • Members & chair to have considerable experience with private company issues • Serve without compensation
The Private Company Council Meetings and Agenda • Agenda set by supermajority vote of PCC • PCC to meet at least five times annually • Most meetings to be held in Norwalk • Two meetings per year may be held elsewhere • All deliberative meetings open to public • FASB expected to attend
The Private Company Council Endorsement Process and Voting • PCC uses agreed upon criteria to identify, deliberate and vote on GAAP exceptions • Two-thirds (supermajority) vote required • FASB endorsement process for PCC recommendations by simple majority • FASB expected to act within 60 days
The Private Company Council Endorsement Process and Voting • If FASB endorses: • Public comment/due process • PCC redeliberates and votes – supermajority • FASB makes final endorsement – simple majority • FASB issues Accounting Standards Update • If FASB does not endorse: • FASB chair to provide PCC with written notice • FASB to outline changes that could result in endorsement
Definition of Nonpublic Business Entity Tentative Decisions Reached To Date The Board has tentatively decided that the following types of entities should not be included in the definition of a private company for financial reporting purposes: Entities that are required to file or furnish financial statements for purposes of issuing securities to be traded in a public market For-profit entities that are conduit bond obligors for conduit debt securities that are traded in a public market Employee benefit plans. The Board has tentatively decided that a company that otherwise meets the characteristics of a private company as defined in this project would be deemed a private company for financial reporting purposes if: It is a privately held financial institution It is a consolidated subsidiary of an entity that is a public company One of its controlled and consolidated subsidiaries is a public company.
Private Company Decision Making FrameworkStructure of Framework
FASB Project Plan (as of July 2012) E Exposure Draft F Final Document C Comment Deadline R Roundtable Discussion
Agenda • Why a leases project? • Right-of-use model • Lessee accounting model • Lessor accounting model • Classification of leases • Where we are
Why a leases project? • Existing lease accounting does not meet users’ needs • accounting depends on classification • contractual rights and obligations (assets and liabilities) are off balance sheet • many users adjust financial statements • Structuring opportunities • current lease classification often based on bright lines • significant difference in accounting on either side of operating/finance lease line
Proposed right-of-use model • A lease contract is one in which the right to control the use of an asset (for a period of time) is transferred to the lessee. Lessee Lessor Right of use
Redeliberations—lessee model Income statement Balance sheet 1 Measured at present value of lease payments 2 Initially measured at same amount as liability, plus initial direct costs
Redeliberations—lessor model Lessor accounting approach
Receivable and residual approach 1Present value of lease payments, plus initial direct costs 2 Measured at an allocation of carrying amount of leased asset 3 Interest on residual based on estimated residual value—any profit on the residual asset is not recognised until asset sold or re-leased at end of lease term
Lessor approach similar to current operating lease accounting 1 Lessor measures leased asset (eg property) at fair value (IFRS) or cost 2 Rental income recognised on a straight-line basis or another systematic basis, if more representative of pattern of earning rentals 3 If property measured at cost, rental income plus depreciation recognised 4 If property measured at fair value, rental income plus fair value changes recognised
Classification of leases* * Both lessee and lessor
Classification of leases—examples Insignificant More than insignificant Comm. property (10yrs)1 Truck (4yrs)3 Vessel (20yrs)1 Vessel (5yrs)1 Comm. property (30yrs)1 Car (3yrs)4 Airplane (8yrs)2 Assumed economic life of: 1 40 years 2 25 years 3 10 years 4 6 years
Where we are 2012 2010 2012/2013 TBD Q4 2012 Second Exposure Draft Leases August 2010 Exposure Draft Leases Consultation TBD Final Standard Leases Comment period 4 months 786 comment letters received Contained proposals for both lessees and lessors Re-expose proposals Comment period 120 days Focus on revisions to 2010 proposals Will contain proposals for both lessees and lessors Outreach Working group meetings Redeliberations Effective date: TBD Will contain guidance for both lessees and lessors
FASB Project Plan (as of July 2012) E Exposure Draft F Final Document C Comment Deadline D Discussion Paper
The Liquidation Basis of Accounting • Requires use when liquidation is “imminent,” that a plan for liquidation • is approved and the likelihood is remote that its execution will be blocked by other parties or • is imposed by other forces and the likelihood of return from liquidation is remote • For limited life entities, liquidation is imminent when significant management decisions are substantially limited to carry out a plan for liquidation other than the plan specified at inception • Financial statements to reflect the amount of cash that the entity expects to collect or pay during liquidation • Comment period on Exposure Draft ends October 1, 2012
