US DART Landing Pages

An accounting change can be a change in an accounting principle, an accounting estimate, or the reporting entity. This Subtopic establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to a newly adopted accounting principle. This Subtopic provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable.

The correction of an error in previously issued financial statements is not an accounting change. However, the reporting of an error correction involves adjustments to previously issued financial statements similar to those generally applicable to reporting an accounting change retrospectively. Therefore, the reporting of a correction of an error by restating previously issued financial statements is also addressed by this Subtopic.

This Subtopic also:

1. Specifies the method of treating error corrections in comparative statements for two or more periods
2. Specifies the disclosures required when previously issued statements of income are restated
3. Recommends methods of presentation of historical, statistical-type financial summaries that are affected by error corrections.

The Interim Reporting Topic clarifies the application of accounting principles and reporting practices to interim financial information, including interim financial statements and summarized interim financial data of publicly traded companies issued for external reporting purposes. Interim financial information may include current data during a fiscal year on financial position, results of operations, comprehensive income, and cash flows. This information may be issued on a monthly or quarterly basis or at other intervals and may take the form of either complete financial statements or summarized financial data. Interim financial information often is provided for each interim period or on a cumulative year-to-date basis, or both, and for the corresponding periods of the preceding year.

The determination of the results of operations on a meaningful basis for intervals of less than a full year presents inherent difficulties. The revenues of some entities fluctuate widely among interim periods because of seasonal factors, while in other entities heavy fixed costs incurred in one interim period may benefit other periods. In these situations, financial information for periods of less than a full year may be of limited usefulness. In other situations costs and expenses related to a full year's activities are incurred at infrequent intervals during the year and need to be allocated to products in process or to other interim periods to avoid distortion of interim financial results. In view of the limited time available to develop complete information, many costs and expenses are estimated in interim periods. For example, it may not be practical to perform extensive reviews of individual inventory items, costs on individual long-term contracts and precise income tax calculations for each interim period. Subsequent refinement or correction of these estimates may distort the results of operations of later interim periods. Similarly, the effects of disposal of a segment of an entity and extraordinary, unusual, or infrequently occurring events and transactions on the results of operations in an interim period will often be more pronounced than they will be on the results for the annual period. Special attention must be given to disclosure of the impact of these items on financial information for interim periods.

A limited liability company generally has the following characteristics:

1. It is an unincorporated association of two or more persons.
2. Its members have limited personal liability for the obligations or debts of the entity.
3. It is classified as a partnership for federal income tax purposes.

This Subtopic addresses personal financial statements. Personal financial statements are prepared for individuals either to formally organize and plan their financial affairs in general or for specific purposes, such as obtaining of credit, income tax planning, retirement planning, gift and estate planning, or public disclosure of their financial affairs. Users of personal financial statements rely on them in determining whether to grant credit, in assessing the financial activities of individuals, in assessing the financial affairs of public officials and candidates for public office, and for similar purposes.

The primary focus of personal financial statements is a person’s assets and liabilities, and the primary users of personal financial statements normally consider estimated current value information to be more relevant for their decisions than historical cost information. This Subtopic provides guidance on how the estimated current values of assets and the estimated current amounts of liabilities are determined and applied in the preparation and presentation of personal financial statements.

The central feature of this Subtopic’s disclosure requirements is selectivity: specified criteria serve to screen the host of risks and uncertainties that affect every entity so that required disclosures are limited to matters significant to a particular entity. The disclosures focus primarily on risks and uncertainties that could significantly affect the amounts reported in the financial statements in the near term or the near-term functioning of the reporting entity. The risks and uncertainties this Subtopic addresses can stem from any of the following:

1. The nature of the entity’s operations
2. The use of estimates in the preparation of the entity’s financial statements
3. Significant concentrations in certain aspects of the entity’s operations.

This Subtopic does not prohibit disclosure of matters it does not require to be disclosed either because they do not meet the specified screening criteria or because they relate to risks and uncertainties that are outside the scope of this Subtopic.

This Subtopic provides guidance to public business entities (referred to as public entities throughout this Subtopic) on how to report certain information about operating segments in complete sets of financial statements of the public entity and in condensed financial statements of interim periods issued to shareholders. It also requires that public entities report certain information about their products and services, the geographic areas in which they operate, and their major customers.

A public entity could provide complete sets of financial statements that are disaggregated in several different ways, for example, by products and services, by geography, by legal entity, or by type of customer. However, it is not feasible to provide all of that information in every set of financial statements. The guidance in this Subtopic requires that general-purpose financial statements include selected information reported on a single basis of segmentation. The method for determining what information to report is referred to as the management approach. The management approach is based on the way that management organizes the segments within the public entity for making operating decisions and assessing performance. Consequently, the segments are evident from the structure of the public entity's internal organization, and financial statement preparers should be able to provide the required information in a cost-effective and timely manner.

The management approach facilitates consistent descriptions of a public entity in its annual report and various other published information. It focuses on financial information that a public entity's decision makers use to make decisions about the public entity's operating matters. The components that management establishes for that purpose are called operating segments.

To provide some comparability between public entities, this Subtopic requires that an entity report certain information about the revenues that it derives from each of its products and services (or groups of similar products and services) and about the countries in which it earns revenues and holds assets, regardless of how the entity is organized. As a consequence, some entities are likely to be required to provide limited information that may not be used for making operating decisions and assessing performance.

An inventory has financial significance because revenues may be obtained from its sale, or from the sale of the goods or services in the production of which it is used. Normally such revenues arise in a continuous repetitive process or cycle of operations in which goods are acquired, created, and sold, and further goods are acquired for additional sales.

Thus, the inventory at any given date is the balance of costs applicable to goods on hand remaining after the matching of absorbed costs with concurrent revenues. This balance is appropriately carried to future periods provided it does not exceed an amount properly chargeable against the revenues expected to be obtained from ultimate disposition of the goods carried forward. In practice, this balance is determined by the process of pricing the articles included in the inventory.

This Subtopic establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity.

Governments provide different forms of assistance to entities, and the forms of assistance have varying structures, complexities, and terms. Government assistance can include tax credits, cash grants, grants of other assets, and project grants. Often, government assistance is provided to an entity for a particular purpose, and the entity promises to take specific actions. Generally accepted accounting principles (GAAP) do not provide comprehensive recognition and measurement guidance for many forms of government assistance received by business entities.

This Topic provides guidance on disclosures for transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.

Most business transactions involve exchanges of cash or other monetary assets or liabilities for goods or services. The amount of monetary assets or liabilities exchanged generally provides an objective basis for measuring the cost of nonmonetary assets or services received by an entity as well as for measuring gain or loss on nonmonetary assets transferred from an entity. Some transactions, however, involve either of the following:

1. An exchange with another entity (reciprocal transfer) that involves principally nonmonetary assets or liabilities
2. A transfer of nonmonetary assets for which no assets are received or relinquished in exchange (nonreciprocal transfer).

Both exchanges and nonreciprocal transfers that involve little or no monetary assets or liabilities are referred to as nonmonetary transactions.

The Related Party Disclosures Topic provides disclosure requirements for related party transactions and certain common control relationships. Accounting and reporting issues concerning certain related party transactions and relationships are addressed in other Topics.

Information about transactions with related parties is useful in comparing an entity’s results of operations and financial position with those of prior periods and with those of other entities. It helps users of financial statements to detect and explain possible differences.

Examples of related party transactions include those between:

1. A parent entity and its subsidiaries
2. Subsidiaries of a common parent
3. An entity and trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of the entity’s management
4. An entity and its principal owners, management, or members of their immediate families
5. Affiliates.

Transactions between related parties commonly occur in the normal course of business. Examples of common transactions with related parties are:

1. Sales, purchases, and transfers of real and personal property
2. Services received or furnished, such as accounting, management, engineering, and legal services
3. Use of property and equipment by lease or otherwise
4. Borrowings, lendings, and guarantees
5. Maintenance of compensating bank balances for the benefit of a related party
6. Intra-entity billings based on allocations of common costs
7. Filings of consolidated tax returns.

Transactions between related parties are considered to be related party transactions even though they may not be given accounting recognition. For example, an entity may receive services from a related party without charge and not record receipt of the services. While not providing accounting or measurement guidance for such transactions, this Topic requires their disclosure nonetheless.

A service concession arrangement is an arrangement between a grantor and an operating entity for which the terms provide that the operating entity will operate the grantor’s infrastructure (for example, airports, roads, bridges, tunnels, prisons, and hospitals) for a specified period of time. The operating entity may also maintain the infrastructure. The infrastructure already may exist or may be constructed by the operating entity during the period of the service concession arrangement. If the infrastructure already exists, the operating entity may be required to provide significant upgrades as part of the arrangement. Service concession arrangements can take many different forms.

In a typical service concession arrangement, an operating entity operates and maintains for a period of time the infrastructure of the grantor that will be used to provide a public service. In exchange, the operating entity may receive payments from the grantor to perform those services. Those payments may be paid as the services are performed or over an extended period of time. Additionally, the operating entity may be given a right to charge the public (the third-party users) to use the infrastructure. The arrangement also may contain an unconditional guarantee from the grantor under which the grantor provides a guaranteed minimum payment if the fees collected from the third-party users do not reach a specified minimum threshold. This Topic provides guidance for reporting entities when they enter into a service concession arrangement with a public sector grantor who controls or has the ability to modify or approve the services that the operating entity must provide with the infrastructure, to whom it must provide them, and at what price (which could be set within a specified range). The grantor also controls, through ownership, beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.

Entities in the airline industry primarily provide carrier services for passengers and cargo, frequently as joint operations. Other services, such as maintenance or food service for other carriers, may also be provided.

The most unusual characteristic of the airline industry is its revenue cycle. Sales may be made at numerous locations by either the carrier or third parties (travel agents or other carriers); for some carriers, third parties handle a substantial portion of the ticket transactions. Paper tickets and electronic tickets usually are sold in advance of the transportation date, and the ticket sales date usually does not coincide with the revenue recognition date (the date that service is provided). Tickets sold are not necessarily used, in whole or in part, on the carrier making the sale, and some tickets are refundable if not used by the customer for up to one year after the sales date. Other tickets are nonrefundable but exchangeable with payment of a fee, and other tickets are nonrefundable and nonexchangeable. The determination of revenue earned may be complex.

A major portion of an airline's fixed assets comprises aircraft and other flight equipment. Because such assets are constantly changing locations, the responsibility for physical custody and control of aircraft is substantially different from that of nonmobile fixed assets.

Maintenance requirements are dictated by the highly sophisticated nature of the industry's equipment. The timing and extent of maintenance procedures are determined by individual carriers using studies based on actual experience that demonstrate airworthiness to the Federal Aviation Administration.

Maintenance may be provided in-house, which requires maintenance facilities outfitted with specifically designed equipment. Compensation of flight personnel usually represents a significant portion of an airline's operating expenses.

The amount of compensation is generally dependent on a number of variables, including, among others, flying status, type of equipment flown, hours flown, whether flights are made during the day or at night, and employee seniority.

ASC 908 contains the following intersecting Subtopics that provide some background on each area noted in ASC 908-10 and guidance specific to entities in the airline industry:

The Contractors — Construction Topic provides incremental industry-specific guidance on the application of generally accepted accounting principles (GAAP) in accounting for the performance of contracts for which specifications are provided by the customer for the construction of facilities or the production of goods or for the provision of related services.

Entities electing to do business with the federal government will find a customer who behaves, in some significant ways, very differently from commercial customers. This unique behavior results from the customer being a sovereign power that conducts its procurement activities under specific laws and implementing regulations. These procurement statutes and regulations govern the process the federal government must follow in its business dealings with private industry. They cover such critical matters as how the federal government selects, monitors, and pays its contractors.

While most industries include entities that are government contractors, certain industries are more heavily involved in providing goods and services to the government. These industries include manufacturing, architect-engineering, professional services, construction, aerospace, shipbuilding, and technology.

Entities engaged in government contracting are subject to the risks associated with their respective industries, as well as additional risks that generally are not encountered by other business entities in the commercial sector. These additional risks are caused principally by the highly regulated environment in which government contractors operate. Such risks include, but are not necessarily limited to, all of the following:

1. Contractors are subject to extensive and complex cost accounting and other regulations, and in some circumstances, significant penalties even for violations of relatively immaterial dollar amounts (such as penalties under the False Claims Act).
2. Business and accounting practices are subject to frequent scrutiny by the government.
3. The government has unilateral rights not found in commercial relationships.
4. If contracts or contract changes are negotiated based on cost, cost accounting considerations play a vital role in pricing and administering government contracts and, consequently, determining the contractor's reported financial position and results of operations.

The Entertainment — Casinos Topic presents the accounting and reporting standards that are unique to entities in the gaming industry. Specific guidance is provided on accounting for all of the following:

1. Gaming chips
2. Promotional allowances
3. Base jackpots
4. Slot machines
5. Income taxes.

Guidance also is provided for the disclosure of geographic segments, if any.

The Entertainment — Music Topic addresses the accounting and reporting by entities in the music industry. Such entities often enter into contractual agreements to license music copyrights or record masters. This Topic provides accounting guidance for such license agreements, as well as for artist compensation costs, for compensation paid to recording artists in the form of royalties, and for the costs of producing record masters. It also addresses the accounting by licensees for various fees and for any minimum guarantees stipulated in a license agreement.

ASC 928 contains intersecting Subtopics that provide industry-specific guidance related to the following Codification Topics:

This Subtopic provides overall guidance for extractive activities in the mining industry, including the identification of entities that fall within the scope of this Topic and definitions of industry terms.

This Topic provides guidance specific to oil- and gas-producing activities. It contains several Subtopics that interact with other Topics in the Codification. Guidance in these Subtopics rather than the more general guidance in the other Topics shall be applied to the specific issues addressed.

The Financial Services — Depository and Lending Topic provides industry-specific accounting and reporting guidance for depository and lending financial institutions. This Topic includes the following Subtopics:

1. Overall
2. Balance Sheet
3. Income Statement
4. Statement of Cash Flows
5. Notes to Financial Statements
6. Financial Instruments
7. Cash and Cash Equivalents
8. Receivables
9. Investments — Debt and Equity Securities
10. Investments — Other
11. Property, Plant, and Equipment
12. Liabilities
13. Debt
14. Equity
15. Subparagraph superseded by Accounting Standards Update No. 2014-09
16. Other Expenses
17. Income Taxes
18. Business Combinations
19. Consolidation.

This Subtopic specifies standards of financial accounting and reporting for the costs of computer software to be sold, leased, or otherwise marketed as a separate product or as part of a product or process, whether internally developed and produced or purchased.

This Subtopic identifies the costs incurred in the process of creating a software product that are research and development costs and those that are production costs to be capitalized, and it specifies amortization, disclosure, and other requirements.