FASB Update
Nick CappielloSupervising Project Manager, FASB
August 15, 2016
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Expressions of individual
views by members of the
FASB and staff are
encouraged. The views
expressed in this presentation
are those of the presenter.
Official positions of the FASB
on accounting matters are
reached only after extensive
due process and deliberation.
FASB Staff Disclaimer
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• Accounting for Financial Instruments
o Hedging
• Business Combinations
o Accounting for Identifiable Intangible
Assets
• Goodwill
• Improving the Presentation of Net
Periodic Pension Cost and Net
Periodic Postretirement Benefit
Cost
• Disclosure Framework
• Conceptual Framework
Topic Summary
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• Government Assistance
• Simplifying the Balance Sheet
Classification of Debt
• Accounting for Income Taxes
• EITF Issue 16-A: Restricted Cash
• PCC Agenda Decision No. 15-02:
“Applying Variable Interest Entity
Guidance to Entities under Common
Control”
• Consolidations
• Nonemployee Share-Based Payments
Accounting for Financial Instruments (AFI): Hedging
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Fair Value and Cash Flow Hedges
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Hedge of
Nonfinancial Item
Hedge of
Financial Instrument
Fair
Value
Hedge
Cash
Flow
Hedge
Hedge of
inventory
Hedge of
forecasted
purchase or sale
of inventory
Swap fixed
rate debt to
floating
Swap
floating rate
debt to fixed
Updates
Entire G/L in same income statement
line as hedged item
Eliminate concept of separately
recording “ineffectiveness:
Component Hedging
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Hedge of
Financial Instrument
What is an entity allowed to designate as the hedged item?
Interest
Rate Risk
Credit
Risk
Foreign
Exchange
Risk
Variability in
total cash
flows (CF
Hedges)
or
Overall
changes in
fair value
(FV Hedges)
Component Hedging
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Hedge of
Nonfinancial Item
What is an entity allowed to designate as the hedged item?
NEW:
Contractually
Specified
Component
Variability in
total cash
flows (CF
Hedges)
or
Overall
changes in
fair value
(FV Hedges)Foreign
Exchange
Risk
Financial Instrument Hedges
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What rates can be hedged?
Variable rate hedges
Fixed rate hedges
AnyContractually Specified Rate
Overnight Index Swap Rate (OIS)
SIFMA
U.S. Treasury
Rate
LIBOR Swap Rate
Fair Value Hedges of Financial Instruments
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• May choose to measure the hedged item at the benchmark interest rate component at inception
Total Coupon Issue
• Revised methodology makes partial term hedges more achievable
Partial Term Hedging
• Only consider how interest rate changes affect exercise of prepayment option
Hedging Callable Debt
Other Simplifications
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Qualitative Testing
Hedge Documentation
Shortcut Method
Accounting for Identifiable Intangible Assets in a Business Combination
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Intangibles – Alternatives
View A – No intangibles
View B – No intangibles except those capable of being sold or licensed
View C – No change to GAAP
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Goodwill and Intangibles for Public Business Entities and Not-for-Profit Entities
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Project Approach
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Phase 1 • Simplify the impairment test
Phase 2• Work concurrently with IASB to
address any additional concerns
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
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Overview
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Present service cost with other compensation
costs
Service cost eligible for
capitalization
Other components
outside of income from operations
Disclosure Framework
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Improving the effectiveness of notes requires both:
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Disclosure Framework: Two Components
Appropriate exercise of discretion
by reporting entities when
assessing disclosure requirements
Phase II:
Entity’s Decision Process
Consistent considerations by the
Board in each standard-setting
activity
Phase I:
Board’s Decision Process
Purpose of notes
General limitations
• Relevance
• Costs
• Some information oriented toward the future
Information that could be appropriate for inclusion in notes
Considerations for interim reporting
Board’s Decision Process
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Issues Addressed in EDComment period ended July 14, 2014
Copyright 2015 by Financial Accounting Foundation, Norwalk, CT. For non-commercial, educational/academic purposes only.
Effectiveness of notes after applying two discretion criteria
Materiality
Entity-specific Relevance
Effectiveness of different criteria in removing disclosure that are not decision useful
Constraints of reporting system on entity’s ability to exercise discretion
• Audit
• Regulatory
• Legal
Entity’s Decision Process
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Field Study Provided Insights on
Copyright 2015 by Financial Accounting Foundation, Norwalk, CT. For non-commercial, educational/academic purposes only.
Changes to the Codification
“Provide to the extent material”
Eliminate language that limits discretion
Add guidance on applying materiality
Promote Discretion
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Guidance on Applying Materiality
Promoting Discretion (cont’d)
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US Supreme Court’s description
Omission not an accounting error
Applied individually and in the aggregate
Quantitative and qualitative
Applied individually and in the aggregate
Legal concept
Quantitative and qualitative
Omission not an accounting error
Promote Discretion (cont’d)
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Guidance on Applying Materiality
Fair Value Measurement
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Disclosures provide information about:
• Ways an entity arrives at fair value
• The effects on financial statements
• Uncertainty in measurement
• Measurement change period to
period
Objectives based on proposed framework
Fair Value Measurement - Disclosure Updates
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“Sensitivity” Information
Possible Changes Forward-looking
Information
Process and Policies
Gains and LossesRollforwards
Defined Benefit Plans – Disclosure review
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Redeliberations
General characteristics
Interest crediting rate of
cash plansNAV disclosures
Reasons for significant
gains/losses
Private entities: health care cost
trend rate
Defined Benefit Plans – Disclosure review
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General characteristics
Interest crediting rate of
cash plansNAV disclosures
Reasons for significant
gains/losses
Private entities: health care cost
trend rate
Redeliberations
Defined Benefit Plans – Disclosure review (cont’d)
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Amount in AOCI expected to be
recognized
Plan assets expected to be
returned
L3 plan asset rollforward
(nonpublic only)ABO
Redeliberations
• Disagreed with disclosure removals, agreed with disclosure additions
Users
• Agreed with disclosure removals, mixed feedback on disclosure additions
Preparers
• Agreed with disclosure removals, mixed feedback on disclosure additions
Auditors
• Agreed with most proposed disclosures
State Societies / Accounting
Associations
DBP: Comment Letter Feedback
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Income Taxes – Disclosure Review –Undistributed Foreign Earnings
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Proposed Changes to
Undistributed Foreign
Earnings
Changes in Assertion of Indefinitely
Reinvested Earnings
Aggregate of Cash, Cash Equivalents and Marketable
Securities held by Foreign Subsidiaries
Income Taxes – Disclosure Review –Unrecognized Tax Benefits
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Changes in next twelve
months
Proposed Removal Proposed Additions
Settlements using existing
DTAs and those in cash
Line items where the UTBs are presented on the Balance Sheet. If
not presented, those UTBs should be disclosed separately.
Income Taxes – Disclosure Review – Other Income Tax Disclosures
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Change in Tax Law
Proposed Changes to
General Income Tax
Disclosures
Disaggregation of Income Taxes
Paid
Disaggregation of Income Tax
Expense (Benefit)
Disaggregation of Pretax Income
(Loss)
Income Taxes – Disclosure Review – Other Income Tax Disclosures, Cont.
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Expanded Carryforward disclosures
Proposed Changes to
General Income Tax
Disclosures
Valuation Allowance
Government Assistance
Rate Reconciliation
Inventory Disclosures
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Scope and objectives
• Use decision questions from proposed framework to determine potential disclosures
• Evaluate alternatives for private companies based on PCDMF
Possible changes
• Incorporate SEC / AICPA guidance into GAAP
• Additional cost/measurement basis disclosures
• Disclosures of certain rights and obligations
• Disclosures around changes in value/quality/utility
Next steps
• Small group meetings with FASB
• Outreach with PCC members
• User and preparer outreach
Defined Benefit Plans
Fair Value Measurement
Income Taxes
Inventory
Next Steps
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Exposure Drafts
- Inventory
Redeliberate Proposed Concepts
in the Disclosure Framework
Redeliberate Entity’s Decision
Process
Roundtable in 2nd half of 2016
Conceptual Framework
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Not a new conceptual framework
- Try to address deficiencies
- Try to clarify and improve understanding
- Make amendments that experience in application have
suggested are necessary
Structure of the joint project was the same as the structure
of the FASB and IASB Frameworks
Project Objective
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Joint financial statement presentation
Address deficiencies in Concept Statement 5 related to
presentation
- How should individual items be included in line items?
- How should line items be grouped?
Research project on performance reporting added in July
2014
Overview of Past and Current Presentation Efforts
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Concept 1: Information should be combined into reasonably
homogeneous groups
Concept 2: The association between different items that
changed should be made apparent
Presentation Concepts
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Measurement – What does it mean?
Does measurement apply to revenues, expenses, gains,
losses, or to cash flows?
For assets and liabilities:
- Is systematic allocation measurement?
- Is accrual of interest measurement?
- Is adjusting to a market price measurement?
- Is adjusting to a (discounted or undiscounted) amount of
estimated cash flows measurement?
Measurement
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What is a value?
- Value to whom?
- Is there an inherent worth that is (a) unchanging except for
consumption or deterioration and (b) independent of market
changes?
What is a price? How is it different from value?
What is a cost? How is it different from a price or a value?
Value, cost, and price
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Government Assistance Disclosures
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Enable user to access:
Nature of assistance and related accounting
policies
Significant terms/conditions of the agreement
Effect on organization’s financial statements
Objectives
Annual Disclosures
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Nature of the assistance and the related accounting policies
Reflect a description of how the policies relate to nature of
the agreements
Should include:
- Nature of the assistance
- Accounting policy
- Presentation location
Annual Disclosures
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Significant terms and conditions of the agreement, including:
- The duration/period of the contract, interest rate
- Commitments made by both the reporting entity and the government
- Provisions, if any, for recapturing government assistance, including the
conditions under which recapture is allowed
- Other contingencies
Simplifying the Balance Sheet Classification of Debt
Simplification Initiative Project
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Simplifying the Balance Sheet Classification of Debt
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Make determination based on facts & circumstances that exist as of
reporting date (balance sheet date)
Determine when debt should be classified as noncurrent
Accounting for Income Taxes
Simplification Initiative Project
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Balance Sheet Classification of Deferred Taxes
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Current GAAP requirement:
Presented in balance sheet as:
- Current deferred tax asset and liability
- Noncurrent deferred tax asset and liability
Classification:
- Based on related asset or liability
- Generally not based on when temporary differences will reverse
Proposed GAAP:
Classify all deferred tax asset and liability as noncurrent
Intra-Entity Asset Transfers
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Current GAAP requirement:
Defer the recognition until the assets have been sold to an outside
third party
Exception for comprehensive recognition of income taxes
Proposed GAAP:
Eliminate the exception
Require recognition when the transfer occurs
EITF Issue 16-A, “Restricted Cash”
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Overview
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• Significant diversity in practice exists
with respect to the classification of
certain cash receipts and payments
• This diversity may exist because of a
lack of specific accounting guidance
Proposed Update
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Changes to the Cash
Flow Statement
Include Restricted Cash and Restricted
Cash Equivalents
Supplemental Disclosures
PCC Agenda Decision No. 15-02: “Applying
Variable Interest Entity Guidance to Entities
under Common Control”
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Overview
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Diversity in practice exists in application of the VIE consolidation guidance to entities under common control
Consolidations
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Interests Held Through Related Parties That Are
Under Common Control
Proposed Update
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Address stakeholders’ concerns about certain amendments in Consolidation: Amendments to the Consolidation Analysis
Treat indirect interest held through related parties on a proportionate basis
Example
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No common control
Related Party (RP)
VIE
Decision Maker (DM)
50%
20%
Example
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RP and DM under common control
Related Party (RP)
VIE
Decision Maker
(DM)
50%
20%
Parent100% 100%
Nonemployee Share-Based Payments
Simplification Initiative Project
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Simplification effort focused on making improvements
- PIR Report (response to 123R)
- The Private Company Council’s (PCC)
- Ideas submitted by FASB staff members as part of the
Simplification Initiative
Deliberations
- Improvements could require substantive changes
- Board designated nonemployee share-based payment as its
own research project
Adding NESBP to the FASB Agenda
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Model Comparisons
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Nonemployee Model Employee Model
Awards are remeasured
Awards are not remeasured
Compensation same but payment methods different
=
Unduly burdensome
Include all share-based payment transactions for acquiring goods and services
Align the post-vesting classification
Anti-abuse provision
Use expected term as an input
Nonpublic option
- Substitute calculated value in place of expected volatility
- Measure all liability awards at fair value or intrinsic value.
Board Decisions to Date
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