On the Radar

This publication briefly summarizes key issues and developments related to this topic, including determining whether an acquisition should be accounted for as a business combination or an asset acquisition and applying the acquisition method of accounting.

Carve-out financial statements may be required when an entity pursues a sale, spin-off, IPO, or SPAC transaction that involves a portion of the parent entity. This publication briefly summarizes key management considerations and common pitfalls associated with preparing such financial statements.

Although U.S. GAAP and IFRS® Accounting Standards are built on largely similar concepts and often lead to similar accounting outcomes, there are many differences in the specific accounting requirements. Therefore, it can be difficult to directly compare financial statements that have been prepared under these different standards. Accordingly, professionals need to be mindful of the differences between U.S. GAAP and IFRS Standards when preparing, aggregating, consolidating, comparing, or interpreting financial information that involves both sets of accounting standards.

This publication briefly summarizes key issues and developments related to navigating the often complex consolidation accounting models.

Although the guidance in ASC 450 on accounting for contingencies has not changed significantly for decades, it is often challenging to apply because of the need for an entity to use significant judgment in doing so (e.g., when developing legal interpretations). Similarly, the guidance in ASC 460 on accounting for guarantee liabilities, which has existed for two decades, is often difficult to apply because the determination of whether an arrangement constitutes a guarantee is complex.

This publication briefly summarizes key issues and developments related to applying the guidance in ASC 815-40.

Entities raising capital by issuing a convertible debt instrument must apply complex financial reporting requirements in U.S. GAAP. To reach the proper accounting conclusion, entities must consider key questions regarding the appropriate unit of account and accounting model, subsequent recognition and measurement, the accounting for modifications and settlements of the instrument, and the required financial statements disclosures.

The approach used to recognize impairment losses on financial assets has long been identified as a major weakness in current U.S. GAAP, resulting in delayed recognition of such losses and leading to increased scrutiny. Accordingly, the FASB issued FASB Accounting Standards Update (ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments, to amend its guidance on the impairment of financial instruments. The ASU adds to U.S. GAAP an impairment model known as the current expected credit loss model, which is based on expected losses rather than incurred losses.

This publication briefly summarizes key issues and developments related to applying the guidance on the issuer’s accounting for debt arrangements (including convertible debt).

This publication briefly summarizes key issues and developments related to derivative accounting, including the identification, recognition, and measurement of derivatives instruments, including embedded derivatives.

This publication briefly summarizes key issues and developments related to applying the guidance in ASC 480.

Earnings per share (EPS) is one of the most prominent financial ratios analyzed by financial statement users. The objective of EPS is to measure the performance of an entity over a financial reporting period. EPS must be presented by entities that (1) have common stock that trades in a public market or (2) file with a regulatory agency for the sale of common stock in a public market. ASC 260 addresses the calculation, presentation, and disclosure of EPS.

Environmental obligations can arise from (1) the improper operation, retirement, or closing of a facility and (2) the current or former ownership of a facility at or near a contaminated site. An asset retirement obligation (ARO) is a legal or contractual obligation associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, development, and normal operation of that long-lived asset. The FASB has established specific guidance on accounting for environmental obligations and AROs in ASC 410-30 and ASC 410-20, respectively.

An investor must consider the substance of a transaction as well as the form of an investee when determining the appropriate accounting for its ownership interest in the investee. If the investor does not control the investee and is not required to consolidate it, the investor must evaluate whether to use the equity method to account for its interest. This evaluation frequently requires the use of significant judgment.

The fair value measurement guidance was originally issued in September 2006. Although it has been amended since its original issuance, the general framework has not changed and significant future changes are not expected. Most entities have amounts that are recognized at fair value in their financial statements. ASC 820 defines fair value, sets out a framework for measuring it, and establishes fair value disclosure requirements. However, ASC 820 does not specify when an entity is required or permitted to measure assets, liabilities, equity instruments, or transactions at fair value; this requirement is addressed in other U.S. GAAP.

Many entities operate in multiple countries. When an entity’s financial statements include foreign operations, the entity must consolidate those foreign entities and present them as though they were the financial statements of a single reporting entity. This process of translating the accounts of foreign entities is addressed in ASC 830, which has existed for decades without recent substantial changes, and is known as the “functional-currency approach.”

ASC 350-20 addresses the accounting for goodwill after its initial recognition. While entities have been required to test goodwill for impairment for many years, the current goodwill accounting model has evolved significantly from the model that the FASB originally introduced in 2001. The FASB has issued numerous Accounting Standards Updates on this topic, which were generally intended to simplify or reduce the cost and complexity of performing goodwill impairment testing. As a result of those updates, ASC 350-20 now provides two accounting models used in the subsequent accounting for goodwill; the “general goodwill” model and the “goodwill accounting alternatives.”

The Greenhouse Gas (GHG) Protocol provides a framework for companies and other types of organizations preparing a GHG emission inventory. Specifically, it addresses the accounting for and reporting of seven GHGs: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen trifluoride.

This publication briefly summarizes key financial reporting considerations related to the accounting for hedges, including the type of hedge and the qualifications for applying hedging accounting.

The convergence of various macroeconomic and geopolitical factors has created a volatile and uncertain environment in which a business’s ability to forecast results and make decisions can be difficult. Factors that have contributed to such challenges include interest rate changes, inflation, and a tight labor market, which together have contributed to bank failures or downgrades, businesses’ struggles to raise capital, companies’ announcements of layoffs, broader restructuring plans, and changes in customer behavior. Further, the ways in which people are living and working in the post-pandemic environment have significantly affected real estate demands and preferences.

This publication briefly summarizes key issues and developments related to navigating the often-complex income tax accounting guidance in ASC 740.

After a record-breaking year for initial public offerings (IPOs) and special-purpose acquisition companies (SPACs) in 2021, the market has remained slow for several years amid various challenges, including volatile markets; geopolitical conflicts; interest rate increases; inflation; and supply chain issues. However, interest rates and inflation have been moderating, and private companies are continuing to evaluate the methods used to go public. Such methods include (1) “traditional” IPOs, in which private companies sell their equity in a public underwritten offering, and (2) nontraditional IPOs, which have become more popular over the past several years. Nontraditional IPOs include those in which private operating companies choose to merge with SPACs to raise capital or use other financing alternatives, such as direct listings. Companies can also go public by registering debt securities, distributing shares in a spin-off transaction, or registering securities issued by real estate investment trusts (REITs).

The current macroeconomic environment has created ongoing challenges and uncertainty in various areas of accounting, including the accounting for leases. Many commercial real estate entities have encountered increased costs of capital and tightening lending standards while also dealing with higher levels of maturing debt; reductions in the volume of real estate transactions; and evolving real estate demands and preferences related to the way people work, live, and shop. The actual impact of the current macroeconomic environment on commercial real estate assets will differ on the basis of various factors, including geographic location, tenant-specific operations, and in-place lease terms. Commercial real estate entities, including real estate owners, operators, and developers, should continually monitor, evaluate, and update their lease-related accounting and reporting.

The objective of accounting for noncontrolling interests is to present users of the consolidated financial statements with a clear depiction of the portion of a less than wholly owned subsidiary’s net assets, net income, and comprehensive income that is attributable to equity holders other than the parent. In practice, the combination of complex capital structures, multiple sources of authoritative guidance on accounting for noncontrolling interests, and multiple policy elections available to reporting entities can make this objective difficult to achieve.

This publication briefly summarizes key areas of SEC focus related to non-GAAP reporting, particularly those associated with whether non-GAAP measures are unduly prominent or potentially misleading.

This publication briefly summarizes key issues related to the accounting for revenue from contracts with customers under ASC 606, including the identification of performance obligations, principal-versus-agent considerations, variable consideration, consideration payable to a customer, licensing, and financial statement disclosures. It also discusses recent developments related to (1) the FASB’s postimplementation review of ASC 606 and (2) several of the Board’s standard-setting projects.

This publication briefly summarizes SEC comment letter trends, as well as some of the SEC’s priorities, that registrants should consider to ensure their compliance with the Commission’s financial reporting requirements.

This publication briefly summarizes key financial reporting requirements for SEC registrants planning the acquisition of a business.

This publication briefly summarizes key issues related to determining a company’s SEC reporting obligations for significant equity method investees.

This publication briefly summarizes key considerations related to applying the disclosure requirements for certain registered securities under SEC Regulation S-X, Rules 3-10, 3-16, 13-01, and 13-02.

This publication briefly summarizes key issues and developments related to segment reporting, including the FASB’s issuance of ASU 2023-07.

This publication briefly summarizes some of the more challenging aspects of applying the accounting guidance in ASC 718 on share-based payment awards.

Because ASC 230 is largely principles-based, financial statement preparers must exercise significant judgment when classifying certain cash receipts and payments in their statement of cash flows. Given the lack of prescriptive rules, cash flow presentation continues to challenge financial statement preparers, as noted in recent statements made by regulators.

Determining whether a transfer of financial assets or servicing rights qualifies as a sale for financial reporting purposes can be time-consuming and complex. An entity must consider both the form and substance of the transfer. As part of such an analysis, the entity would evaluate relevant legal and accounting rules and interpretations and generally must consult legal experts. The outcome of this analysis could significantly affect the classification, measurement, and earnings impact of the transaction as well as the related financial statement ratios. This guidance has not significantly changed for more than a decade, and no changes are expected in the near term.