Third Quarter — 2018

Summary: On August 29, 2018, the FASB issued ASU 2018-154 to provide guidance on implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. The ASU, which was released in response to a consensus reached by the EITF at its June 2018 meeting, aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in such a CCA.

Next Steps: For the ASU’s effective date and transition provisions, see Appendix A.

Other Resources: Deloitte’s September 11, 2018, Heads Up and June 2018 EITF Snapshot. Also see the press release on the FASB’s Web site.

Summary: On July 17, 2018, the FASB issued ASU 2018-09,5 which contains amendments to “clarify, correct errors in, or make minor improvements to the Codification.” Specifically, the ASU makes improvements to the following ASC topics:

• ASC 220-10, Income Statement — Reporting Comprehensive Income: Overall.
• ASC 470-50, Debt: Modifications and Extinguishments.
• ASC 480-10, Distinguishing Liabilities From Equity: Overall.
• ASC 718-740,Compensation — Stock Compensation: Income Taxes.
• ASC 805-740, Business Combinations: Income Taxes.
• ASC 815-10, Derivatives and Hedging: Overall.
• ASC 820-10, Fair Value Measurement: Overall.
• ASC 940-405, Financial Services — Brokers and Dealers: Liabilities.
• ASC 962-325, Plan Accounting — Defined Contribution Pension Plans: Investments — Other.

Summary: On August 28, 2018, the FASB issued two ASUs and two changes to its conceptual framework that are intended to improve the effectiveness of disclosures in notes to financial statements. Specifically, the FASB released the following:

• ASU 2018-136 — Removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820.
• ASU 2018-147— Modifies ASC 715-20 to improve disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.
• Chapter 8, “Notes to Financial Statements,” of the conceptual framework — “[E]xplains what information the Board should consider including in notes to financial statements by describing the purpose of notes, the nature of appropriate content, and general limitations. It also addresses the Board’s considerations specific to interim reporting disclosure requirements.”
• Amendments to Chapter 3, “Qualitative Characteristics of Useful Financial Information,” of the conceptual framework — Updates the FASB’s definition of materiality to be consistent with the definition used by the SEC, PCAOB, AICPA, and U.S. judicial system.

Next Steps: ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, for public companies and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted for both ASUs.

Other Resources: Deloitte’s August 29, 2018, and August 31, 2018, Heads Up newsletters. For more information, see the press release and FASB in Focus newsletter on the FASB’s Web site.

Summary: On August 15, 2018, the FASB issued ASU 2018-12,8 which amends the accounting and disclosure model for certain long-duration insurance contracts under U.S. GAAP. The goal of the ASU’s amendments is to improve the following aspects of financial reporting related to long-duration insurance contracts:

• Measurement of the liability for future policy benefits related to nonparticipating traditional and limited-payment contracts.
• Measurement and presentation of market risk benefits.
• Amortization of deferred acquisition costs.
• Presentation and disclosures.

Next Steps: For public business entities, the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application is permitted.

Other Resources: Deloitte’s August 21, 2018, Insurance Spotlight. Also see the press release, FASB in Focus newsletter, and cost-benefit analysis on the FASB’s Web site.

Summary: On July 30, 2018, the FASB issued ASU 2018-119 to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU 2016-0210 (codified as ASC 842). Specifically, under the amendments in ASU 2018-11:

• Entities may elect not to recast the comparative periods presented when transitioning to ASC 842.
• Lessors may elect not to separate lease and nonlease components when certain conditions are met.

In addition, on July 19, 2018, the FASB issued ASU 2018-10,11 which made 16 separate narrowscope amendments to ASC 842.

Next Steps: For the effective date and transition provisions of ASUs 2018-10 and 2018-11, see Appendix A.

Other Resources: Deloitte’s August 7, 2018, Heads Up. Also see the press release on the FASB’s Web site.

Summary: On August 20, 2018, the FASB issued a proposed ASU12 that would make narrow-scope amendments to its guidance on credit losses. Specifically, the proposed amendments would (1) align the implementation date for annual financial statements with the implementation date for interim financial statements and (2) clarify that operating lease receivables are not within the scope of ASC 326-20 and should instead be accounted for under the new leasing standard, ASC 842.

Comments on the proposed ASU were due by September 19, 2018.

Other Resources: Deloitte’s August 31, 2018, journal entry. Also see the press release on the FASB’s Web site.

Summary: On August 13, 2018, the FASB issued a proposed ASU13 that would provide lessors with additional narrow-scope improvements under ASC 842. Specifically, the proposal would affect the following issues:

• Sales taxes and other similar taxes collected from lessees.
• Certain lessor costs paid directly by lessees.
• Recognition of variable payments for contracts with lease and nonlease components.

Comments on the proposed ASU were due by September 12, 2018.

Other Resources: Deloitte’s August 16, 2018, journal entry.

Summary: In August 2018, the Office of the Comptroller of the Currency (OCC) updated its Bank Accounting Advisory Series (BAAS), which “expresses the [OCC’s] views on accounting topics relevant to national banks and federal savings associations.” Changes to the BAAS include revisions as a result of ASUs issued by the FASB on hedging and credit losses.

Summary: The SEC’s Office of the Chief Accountant has addressed questions regarding how to apply the guidance in ASU 2016-1514 on beneficial interests in securitization transactions, particularly for entities that have sold trade receivables to a multiseller commercial paper conduit structure.

Other Resources: Deloitte’s August 3, 2018, Financial Reporting Alert.

Summary: On August 10, 2018, the AICPA’s Financial Reporting Executive Committee released for public comment two working drafts on accounting issues associated with the implementation of ASU 2016-13,15 which “provides a new current expected credit loss (‘CECL’) model to measure impairment for financial assets (and instruments) measured at amortized cost.” The working drafts are part of a new accounting and auditing guide related to credit losses that is focusing on lending institutions and insurance companies. The following two issues are addressed in the working drafts:

• Zero expected credit losses.
• Reversion method: estimation versus accounting policy.

Next Steps: Comments on the working drafts are due by October 10, 2018.

Other Resources: For more information, see the CECL issues page on the AICPA’s Web site.

Summary: Cryptocurrency is a new type of value and payment method that is distinctly different from fiat currency (e.g., U.S. dollars and foreign currencies). Instead of possessing a physical form, cryptocurrency exists as immutable distributed ledgers maintained on public blockchains. Cryptocurrencies are not financial assets because they are not cash, an ownership interest in an entity, or a contract establishing a right or obligation to deliver or receive cash or another financial instrument. Since they lack physical substance, they are generally considered intangible assets.

Other Resources: Deloitte’s July 9, 2018, Financial Reporting Alert.

Summary: Recent developments have occurred that suggest Argentina should be accounted for as a highly inflationary economy under ASC 830 beginning no later than July 1, 2018. Argentina has continued to experience negative economic trends, as demonstrated by (1) multiple periods of increasing inflation rates, (2) devaluation of the peso, and (3) increasing borrowing rates.

Other Resources: Deloitte’s July 3, 2018, Financial Reporting Alert and July 9, 2018, IFRS in Focus.

Summary: For entities that choose to early adopt ASU 2018-0716 in an interim period, questions have arisen about how to determine the adoption date for the calculation of the transition adjustments. On the basis of discussions with the FASB staff, we believe that it is acceptable to determine the adoption date as of either (1) the beginning of the fiscal year in which the entity adopts the ASU or (2) the beginning of the interim period in which the entity adopts the ASU. In addition, because the guidance may not be clear, other approaches may be acceptable. However, under any approach, any transition adjustments should be reflected as of the beginning of the fiscal year of adoption.

Other Resources: Deloitte’s August 1, 2018, Financial Reporting Alert.

Summary: On June 28, 2018, the International Accounting Standards Board (IASB) issued a discussion paper (DP)17 that proposes new principles for classifying financial instruments as financial liabilities and equity and assesses how the presentation and disclosure requirements for those financial instruments could be improved. The objective of the DP is to help investors understand the features of those instruments and implications related to the entity’s prospects for future cash flows.

Next Steps: Comments on the DP are due by January 7, 2019.

Other Resources: Deloitte’s August 15, 2018, IFRS in Focus. Also see the press release on the IASB’s Web site.

Summary: On July 24, 2018, the CAQ released a publication18 on critical audit matters (CAMs). The publication provides information on:

• Understanding CAMs.
• CAM reporting in the auditor’s report.
• Auditor reporting occurring outside the United States.
• Differences between PCAOB and IAASB auditor reporting standards.

Other Resources: For more information, see the press release on the CAQ’s Web site.

Summary: The PCAOB has updated its December 2017 staff guidance19 on the auditor’s report. The staff guidance is intended to help firms as they implement the first phase of changes to the auditor’s report. The August 2018 update amends the following sections:

• Annotated sample auditor’s report.
• Auditor tenure.
• Auditor reporting regarding internal control over financial reporting.
• Explanatory and emphasis paragraphs.
• Voluntary disclosure about certain audit participants.
• Other reporting situations.

Summary: The SEC has issued a proposed rule,20 which would amend the exemption provisions in the broker-dealer annual reporting rule under the Securities Exchange Act of 1934. Specifically, the rule would “provide that a broker-dealer is not required to engage an independent public accountant to certify the broker-dealer’s annual reports if, among other things, the securities business of the broker-dealer has been limited to acting as broker (agent) for a single issuer in soliciting subscriptions for securities of that issuer.”

Next Steps: Comments on the proposed rule are due 30 days after the date of its publication in the Federal Register.

Summary: On September 17, 2018, the CAQ released the highlights of the July 12, 2018, CAQ SEC Regulations Committee joint meeting with the SEC staff. Topics discussed at the meeting included:

• Disclosures required by ASC 606.
• Letters about serious deficiencies.
• Smaller reporting companies.
• SEC Regulation S-X, Rule 3-10.21
• Audit requirements for transactions involving special-purpose acquisition companies.
• Transition from emerging growth company status.
• CAMs.
• Non-GAAP measures.

Other Resources: Deloitte’s September 18, 2018, journal entry.

Summary: On August 17, 2018, the SEC issued a final rule22 that amends certain of its disclosure requirements “that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other Commission disclosure requirements, [U.S. GAAP], or changes in the information environment.” The objective of the final rule is to “facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors.” The final rule was issued as part of the SEC Division of Corporation Finance’s overall effort to improve the effectiveness of the SEC’s financial reporting requirements and to implement certain elements of the Fixing America’s Surface Transportation Act.

A few noteworthy changes in the final rule, which eliminate certain disclosure requirements but add or modify a few others, include amendments related to the following:

• Ratio of earnings to fixed charges — The final rule removes the requirement to disclose the historical and pro forma ratio of earnings to fixed charges and the related exhibit.
• Changes in stockholders’ equity for interim periods — The final rule extends to interim periods the annual disclosure requirement in SEC Regulation S-X, Rule 3-04,23 of presenting (1) changes in stockholders’ equity and (2) the amount of dividends per share for each class of shares. An analysis of changes in stockholders’ equity will now be required for the current and comparative year-to-date interim periods.
• Market price information — The final rule replaces the requirement to disclose the high and low trading prices of an entity’s common stock for specified quarterly periods with a requirement to disclose the ticker symbol of the entity’s common equity or include other disclosures if that information is not available.

Next Steps: The final rule will become effective 30 days after the date of its publication in the Federal Register.

Other Resources: Deloitte’s August 28, 2018, Heads Up and September 11, 2018, Financial Reporting Alert.

Summary: Summary: On July 24, 2018, the SEC issued a proposed rule24 that would amend certain disclosure requirements related to registered debt securities in Regulation S-X, Rules 3-10 and 3-16.25 With respect to the disclosure requirements related to issuers and guarantors of guaranteed debt securities or affiliates whose securities collateralize debt, the proposed rule would:

• Replace the requirement under Rule 3-10 to provide condensed consolidating financial information with a requirement to provide summarized financial information and other narrative disclosures when certain conditions are met.
• Simplify the requirements under Rule 3-10 to qualify for exceptions to provide alternative disclosure rather than full audited financial statements (e.g., by replacing the requirement that a subsidiary issuer or guarantor be 100 percent owned with a requirement that it be consolidated in the parent company’s financial statements).
• Remove the requirement under Rule 3-10(g) to provide preacquisition financial statements for recently acquired subsidiary issuers and guarantors.
• Replace the requirement to provide separate financial statements for an affiliate that collateralizes a substantial portion of a security with a requirement to provide summarized financial information and other narrative disclosures.
• Reduce the periods for which summarized financial information is required to only the most recent annual and interim periods.

Next Steps: Comments on the proposed rule are due 60 days after the date of its publication in the Federal Register.

Other Resources: Deloitte’s July 31, 2018, Heads Up. Also see the press release on the SEC’s Web site.

Summary: On August 20, 2018, the SEC issued a final rule26 to enhance the transparency of disclosures in the municipal securities market. Specifically, the final rule increases “the amount of information that is publicly disclosed about material financial obligations incurred by issuers and obligated persons.”

Next Steps: The final rule will become effective on October 30, 2018.

Other Resources: For more information, see the press release on the SEC’s Web site.

Summary: On July 18, 2018, the SEC issued a final rule27 that enhances “transparency and oversight of alternative trading systems (ATSs) that trade stocks listed on a national securities exchange (NMS Stock ATSs).” Specifically, the final rule will “require NMS Stock ATSs to publicly disclose detailed information about their operations and the ATS-related activities of their broker-dealer operators.”

Next Steps: The final rule will become effective on October 9, 2018.

Other Resources: For more information, see the press release on the SEC’s Web site.

Summary: On July 18, 2018, the SEC issued a final rule28 on compensatory arrangements that increases “from $5 million to $10 million the aggregate sales price or amount of securities sold during any consecutive 12-month period in excess of which the issuer is required to deliver additional disclosures to investors.” The final rule became effective on July 23, 2018.

In addition, the SEC has issued a concept release29 to solicit feedback on ways to modernize existing rules related to compensatory arrangements. Comments on the concept release were due by September 24, 2018.

Other Resources:For more information, see the press release on the SEC’s Web site.

Summary:On August 20, 2018, the staff in the SEC’s Division of Corporation Finance announced that starting on October 1, 2018, it will begin releasing, through EDGAR, orders “granting or denying regulatory relief on behalf of the Commission.” The release is part of the SEC’s “efforts to enhance transparency in subsequent phases by releasing additional types of documents, including those memorializing actions or positions taken by the Division staff, such as interpretive guidance and no-action relief.”

Summary: On July 31, 2018, the staff in the SEC’s Division of Corporation Finance added two questions to its Compliance and Disclosure Interpretations (C&DIs) related to proxy rules and Schedules 14A/14C. Specifically, the SEC added Questions 126.06 and 126.07, which clarify the submission of a Notice of Exempt Solicitation.