May 2017

Accounting for financial instruments: hedging

The purpose of this project is to “make targeted improvements to the hedge accounting model based on the feedback received from preparers, auditors, users and other stakeholders.”

On September 8, 2016, the FASB issued a proposed ASU that would make targeted improvements to the accounting for hedging activities. The proposed amendments “would expand and refine hedge accounting for both nonfinancial and financial risk components and would align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.” Comments on the proposal were due by November 22, 2016. For more information, see Deloitte’s September 14, 2016, Heads Up.

During the first quarter of 2017, the FASB has affirmed a number of the proposed amendments and revised others. For more information, see Deloitte’s February 1, 2017; February 16, 2017; March 10, 2017; and March 23, 2017, journal entries.

Collaborative arrangements: targeted improvements

The purpose of this project is “to clarify when transactions between partners in a collaborative arrangement (that is within the scope of [ASC 808]) should be accounted for as revenue transactions in [ASC 606].”

The Board added this project to its technical agenda on November 16, 2016.

Conceptual framework

The objective of the conceptual framework project is “to develop an improved conceptual framework that provides a sound foundation for developing future accounting standards.”

The FASB is undertaking three conceptual framework projects: (1) presentation, (2) measurement, and (3) elements. On August 11, 2016, the FASB issued a proposed concepts statement that would add a new chapter on presentation of financial statement information to the conceptual framework. Comments were due by November 9, 2016. On May 3, 2017, the Board discussed feedback received and decided to add a separate conceptual framework project on elements of financial statements.

Consolidation reorganization and targeted improvements

The purpose of this project is to clarify and make targeted improvements to the consolidation guidance in ASC 810.

On November 2, 2016, the Board added this project to its technical agenda. Further, it tentatively decided to (1) “clarify the consolidation guidance in [ASC 810]” by dividing it into separate Codification subtopics for voting interest entities and variable interest entities (VIEs); (2) develop a new Codification topic, ASC 812, that would include those reorganized subtopics and would completely supersede ASC 810; (3) rescind the subsections on consolidation of entities controlled by contract in ASC 810-10-15 and in ASC 810-30 on research and development arrangements; (4) “further clarify that power over a VIE is obtained through a variable interest”; and (5) “provide further clarification of the application of the concept of ‘expected,’ which is used throughout the VIE consolidation guidance.”

At its March 8, 2017, meeting, the FASB discussed the feedback received at its December 16, 2016, public roundtable and voted to move forward with a proposed ASU that reorganizes the consolidation guidance.

For more information, see Deloitte’s November 8, 2016, and March 14, 2017, journal entries.

Consolidation: targeted improvements to related-party guidance for VIEs

The objective of this project is to make targeted improvements to the relatedparty guidance for VIEs.

At its March 8, 2017, meeting, the Board decided to add to its agenda a project on an elective private-company scope exception to the VIE guidance for entities under common control and certain targeted improvements to the existing related-party guidance in the VIE model. On May 18, 2017, the FASB directed the staff to draft a proposed ASU for a vote by written ballot. The FASB expects to publish a proposed ASU in the third quarter of 2017. For more information, see Deloitte’s March 14, 2017, journal entry.

Customer’s accounting for implementation costs incurred in a cloud computing arrangement that is considered a service contract (EITF Issue 17-A)

The purpose of this project is to address the customer’s accounting for implementation costs incurred in a cloud computing arrangement that is considered a service contract.

On May 10, 2017, the Board decided to add this project to the EITF’s agenda. For more information, see Deloitte’s May 15, 2017, journal entry.

Determining the customer of the operation services in a service concession arrangement (EITF Issue 16-C)

The purpose of this project was to resolve diversity in practice related to the accounting for service concession arrangements.

On May 16, 2017, the FASB issued ASU 2017-10. A service concession arrangement is an arrangement between a grantor (a government or public-sector entity) and an operating entity (a private-sector entity) under which the operating entity will operate the grantor’s infrastructure (e.g., airports, roads, bridges, and hospitals). Under the ASU, the grantor (rather than any third-party user) is considered the customer of the operation services when the revenue recognition guidance in ASC 606 is applied to a service concession arrangement within the scope of ASC 853. Accordingly, payments made by the operating entity to the grantor are treated as a reduction of revenue rather than as an operating expense.

For an entity that has not adopted the new revenue standard (ASU 2014-09), the effective date and transition for ASU 2017-10 is generally aligned with that for ASU 2014-09.

For more information, see Deloitte’s March 2017 EITF Snapshot.

Improving the accounting for asset acquisitions and business combinations (phase 3 of the definition of a business project)

The purpose of this phase of the project is to consider whether there are differences in the acquisition and derecognition guidance for assets and businesses that could be aligned.

The Board has not yet begun deliberating this phase of the project.

Insurance: targeted improvements to the accounting for longduration contracts

The purpose of this project is to “develop targeted improvements to insurance accounting. Those improvements may address recognition, measurement, presentation, and disclosure requirements for long-duration insurance contracts.“

On September 29, 2016, the FASB issued a proposed ASU that would make targeted improvements to the recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by insurance entities. The proposed approach would affect the assumptions used to measure the liability for future policy benefits, the measurement of market risk benefits, and the amortization of deferred acquisition costs. Comments on the proposal were due by December 15, 2016. On February 8, 2017, the Board discussed feedback received. No technical decisions were made. For more information, see Deloitte’s October 2016 Insurance Spotlight.

Liabilities and equity: targeted improvements

The purpose of this project is to “simplify the accounting guidance related to financial instruments with characteristics of liabilities and equity.“

On December 7, 2016, the FASB issued a proposed ASU that would replace (1) the existing guidance on “downround“ features in ASC 815-40 with a new accounting model and (2) the indefinite deferrals in ASC 480-10 with a scope exception that has the same applicability. Comments on the proposal were due by February 6, 2017.

On March 22, 2017, the Board affirmed its decision to replace the indefinite deferral in ASC 480 with a scope exception. On April 19, 2017, the Board decided that (1) the existence of a down-round feature should not preclude equity classification for an instrument that contains it and (2) a public business entity should reflect the effect of the trigger of a down-round feature as an adjustment to EPS.

On May 10, 2017, the FASB decided that the final guidance will be effective for public business entities for fiscal years, including interim periods within those years, beginning after December 18, 2018. Early adoption will be permitted for all entities. The FASB expects to issue a final ASU in the third quarter of 2017.

Nonemployee share-based payment accounting improvements

The purpose of this project is “to reduce cost and complexity and improve the accounting for nonemployee share-based payment awards issued by public and private companies.“

On March 7, 2017, the FASB issued a proposed ASU that would simplify the accounting for share-based payments granted to nonemployees for goods and services. Under the proposal, most of the guidance on such payments would be aligned with the requirements for sharebased payments granted to employees. Comments on the proposed ASU are due by June 5, 2017. For more information, see Deloitte’s March 10, 2017, Heads Up.

Revenue recognition: grants and contracts by not-for-profit entities

The purpose of this project is to “improve and clarify existing guidance on revenue recognition of grants and contracts by not-for-profit entities.”

At its April 20, 2016, meeting, the FASB decided to add this project to its technical agenda. Stakeholders have raised two main issues: (1) characterizing grants and contracts with governmental agencies and others as (a) reciprocal transactions (exchanges) or (b) nonreciprocal transactions (contributions) and (2) differentiating between conditions and restrictions for nonreciprocal transactions. The Board deliberated these issues on June 15, 2016; August 31, 2016; December 14, 2016; February 22, 2017; and April 19, 2017. For more information, see Deloitte’s June 16, 2016, journal entry.

Share-based payments: scope of modification accounting in ASC 718

This project is intended to reduce the cost and complexity of applying modification accounting in ASC 718.

On May 10, 2017, the FASB issued ASU 2017-09, which clarifies the scope of modification accounting under ASC 718 with respect to changes to the terms or conditions of a share-based payment award. Modification accounting would not apply if a change to an award does not affect the total current fair value (or other applicable measurement), vesting conditions, or the classification of the award. For all entities, the ASU is effective prospectively for awards modified in fiscal years beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. For more information, see Deloitte’s May 11, 2017, Heads Up.

Technical corrections and improvements

The purpose of this project is to “provide regular updates and improvements to the [Codification] based on feedback received from constituents.“

On May 3, 2017, the Board directed the staff to draft two separate proposed ASUs that would eliminate (1) outdated guidance in ASC 942-740 related to bad debt reserves of savings and loans entities and (2) ASC 995, which provides guidance on U.S. steamship entities. The FASB expects to issue the proposed ASUs in the second quarter of 2017.

Disclosure framework

The disclosure framework project consists of two phases: (1) the FASB’s decision process and (2) the entity’s decision process. The overall objective of the project is to “improve the effectiveness of disclosures in notes to financial statements by clearly communicating the information that is most important to users of each entity’s financial statements. (Although reducing the volume of the notes to financial statements is not the primary focus, the Board hopes that a sharper focus on important information will result in reduced volume in most cases.)“

On March 4, 2014, the FASB issued an ED of a proposed concepts statement that would add a new chapter to the Board’s conceptual framework for financial reporting that contains a decision process for the Board and its staff to use in determining what disclosures should be required in notes to financial statements. Comments on the ED were due by July 14, 2014. For more information, see Deloitte’s March 6, 2014, Heads Up.

On September 24, 2015, the FASB issued an ED of proposed amendments to chapter 3 of Concepts Statement 8 that would add a statement that materiality is a legal concept and include a brief summary of the U.S. Supreme Court’s definition of materiality. Comments on the ED were due by December 8, 2015.

On September 24, 2015, the FASB issued a proposed ASU that would amend the Codification to indicate that the omission of disclosures about immaterial information is not an accounting error. The proposal notes that materiality is a legal concept that should be applied to assess quantitative and qualitative disclosures individually and in the aggregate in the context of the financial statements taken as a whole. Comments on the proposal were due by December 8, 2015. For more information, see Deloitte’s September 28, 2015, Heads Up.

The Board began its discussion of comments received on December 14, 2016.

Disclosure framework: disclosure review — defined benefit plans

The purpose of this project is to improve the effectiveness of disclosure requirements that apply to defined benefit plans.

On January 26, 2016, the FASB issued a proposed ASU that would modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Comments on the proposal were due by April 25, 2016. For more information, see Deloitte’s January 28, 2016, Heads Up.

At its July 13, 2016, meeting, the FASB discussed feedback on its proposed ASU and directed its staff to conduct additional research.

Disclosure framework: disclosure review — fair value measurement

The purpose of this project is to improve the effectiveness of fair value measurement disclosures.

On December 3, 2015, the FASB issued a proposed ASU that would modify the disclosure requirements related to fair value measurement. Comments on the proposal were due by February 29, 2016. For more information, see Deloitte’s December 8, 2015, Heads Up.

At its June 1, 2016, meeting, the FASB discussed comments received on its proposed ASU and directed its staff to reach out to investors and other financial statement users regarding the proposal.

Disclosure framework: disclosure review — income taxes

The purpose of this project is to improve the effectiveness of income tax disclosures.

On June 26, 2016, the FASB issued a proposed ASU that would modify existing and add new income tax disclosure requirements. The proposed requirements include describing an enacted change in tax law; disaggregating certain income tax information between foreign and domestic; explaining the circumstances that caused a change in assertion about the indefinite reinvestment of undistributed foreign earnings; and disclosing the aggregate of cash, cash equivalents, and marketable securities held by foreign subsidiaries. Comments on the proposed ASU were due by September 30, 2016. For more information, see Deloitte’s July 29, 2016, Heads Up.

On January 25, 2017, the Board discussed the feedback received on the proposed ASU. No technical decisions were made.

Disclosure framework: disclosures — interim reporting

The purpose of this project is to improve the effectiveness of interim disclosures.

At its May 28, 2014, meeting, the FASB decided to amend ASC 270 “to reflect that disclosures about matters required to be set forth in annual financial statements should be provided on an updated basis in the interim report if there is a substantial likelihood that the updated information would be viewed by a reasonable investor as significantly altering the ’total mix’ of information available to the investor.”

Disclosure framework: disclosure review — inventory

The purpose of this project is to improve the effectiveness of inventory disclosures.

On January 10, 2017, the FASB issued a proposed ASU that would modify or eliminate certain disclosure requirements related to inventory and establish new requirements. Comments on the proposed ASU were due by March 13, 2017. For more information, see Deloitte’s January 12, 2017, Heads Up.

Disclosures by business entities about government assistance

The purpose of this project is to “develop disclosure requirements about government assistance that improves the content, quality and comparability of financial information and financial statements and that is responsive to the emerging issues in the changing financial and economic environment in which reporting entities operate.“

On November 12, 2015, the FASB issued a proposed ASU that would increase financial reporting transparency by requiring specific disclosures about government assistance received by businesses. The objective of the proposed disclosure requirements is to enable financial statement users to better assess (1) the nature of the government assistance, (2) the accounting policies for the government assistance, (3) the impact of the government assistance on the financial statements, and (4) the significant terms and conditions of the government assistance arrangements. Comments on the proposed ASU were due by February 10, 2016.

At its June 8, 2016, meeting, the FASB made tentative decisions about the project’s scope, whether to require disclosures about government assistance received but not recognized directly in the financial statements, and omission of information when restrictions preclude an entity from disclosing the information required.

For more information, see Deloitte’s November 20, 2015, Heads Up and June 14, 2016, journal entry.

Simplifying the balance sheet classification of debt

The purpose of this project is to “reduce cost and complexity by replacing the fact-pattern specific guidance in GAAP with a principle to classify debt as current or noncurrent based on the contractual terms of a debt arrangement and an entity’s current compliance with debt covenants.“

On January 10, 2017, the FASB issued a proposed ASU on determining whether debt should be classified as current or noncurrent in a classified balance sheet. In place of the current, fact-specific guidance in ASC 470-10, the proposed ASU would introduce a classification principle under which a debt arrangement would be classified as noncurrent if either (1) the “liability is contractually due to be settled more than one year (or operating cycle, if longer) after the balance sheet date” or (2) the “entity has a contractual right to defer settlement of the liability for at least one year (or operating cycle, if longer) after the balance sheet date.” Under an exception to the classification principle, an entity would not classify debt as current solely because of the occurrence of a debt covenant violation that gives the lender the right to demand repayment of the debt, as long as the lender waives its right before the financial statements are issued (or are available to be issued). Comments on the proposal were due by May 5, 2017. For more information, see Deloitte’s January 12, 2017, Heads Up.