11/02/09 -- FASB and IASB Commit to Monthly Meetings to Meet Convergence
Goal
As discussed in the article entitled “Boards Commit to Monthly Meetings
to Meet Convergence Goal” in the October 30, 2009, issue of Accounting
& Compliance Alert, the FASB and IASB adopted an ambitious schedule
of monthly meetings to complete the projects on their joint agenda in
time for a June 2011 deadline.
The schedule is a radical departure from the twice-yearly schedule that
the boards have had for years, and it underscores the urgency with which
the standard-setting bodies view the convergence effort.
FASB Chairman Robert Herz said the schedule was prompted in part by
the positive outcome of the just-concluded three-day meeting between the
two boards at the FASB's Norwalk, CT, offices. The meeting was preceded
by months of controversy driven by political pressures on both bodies
to amend their rules and doubts that continuing along the path of convergence
was feasible. But the mood appears to have improved markedly.
The meetings proved “we make the most progress when we meet together,”
Herz said. “We’re going to meet just about every month.’’
The sessions will include six face-to-face sessions every year, and six
videoconferences during the alternate months.
The announcement came during an October 29 conference in New York sponsored
by the AICPA and the International Accounting Standards Committee Foundation
(IASCF), the body that oversees the IASB.
11/02/09 -- FASB and IASB Commit to Monthly Meetings to Meet Convergence
Goal
As discussed in the article entitled "Boards Commit to Monthly Meetings
to Meet Convergence Goal" in the October 30, 2009, issue of Accounting
& Compliance Alert, the FASB and IASB adopted an ambitious schedule
of monthly meetings to complete the projects on their joint agenda in
time for a June 2011 deadline.
The schedule is a radical departure from the twice-yearly schedule that the boards have had for years, and it underscores the urgency with which the standard-setting bodies view the convergence effort.
FASB Chairman Robert Herz said the schedule was prompted in part by the positive outcome of the just-concluded three-day meeting between the two boards at the FASB's Norwalk, CT, offices. The meeting was preceded by months of controversy driven by political pressures on both bodies to amend their rules and doubts that continuing along the path of convergence was feasible. But the mood appears to have improved markedly.
The meetings proved "we make the most progress when we meet together," Herz said. "We're going to meet just about every month." The sessions will include six face-to-face sessions every year, and six videoconferences during the alternate months.
The announcement came during an October 29 conference in New York sponsored by the AICPA and the International Accounting Standards Committee Foundation (IASCF), the body that oversees the IASB.
10/27/09 -- Banks, Insurers Fear That Convergence Is Collapsing
As discussed in the article entitled “Banks, Insurers Fear That
Convergence Is Collapsing” in the October 26, 2009, issue of Accounting
& Compliance Alert, banks, insurers, and real estate companies warned
the FASB and IASB that any further detours or delays in the effort to
converge U.S. and international accounting standards could “cause
confusion in the marketplace, restrict domestic and global capital formation,
and cause negative ripples to wave across the domestic and global economies.”
The business groups told the standard-setters about their concern that
the two boards “may not act on a joint basis. The inevitable conflicts
that will follow if that happens will have deeply adverse consequences
and create unforeseen difficulties within the fragile financial and economic
environment.”
The warning came in an October 22, 2009, letter signed by the American
Council of Life Insurers, Commercial Mortgage Securities Association,
Council of Federal Home Loan Banks, Group of North American Insurance
Enterprises, Mortgage Bankers Association, Property Casualty Insurance
Association of America, Financial Services Roundtable, Real Estate Roundtable,
and U.S. Chamber of Commerce.
Collectively, the groups call themselves the Financial Instruments Reporting
and Convergence Alliance.
10/26/09 -- FASB Releases Agenda for Three-Day Meeting With IASB
As discussed in the article entitled “Agenda Is Released for Three-Day
Meeting With IASB” in the October 23, 2009, issue of Accounting & Compliance
Alert, the FASB released its schedule for the board’s joint meeting
with the IASB that will be held at the FASB’s Norwalk, CT, headquarters.
The two boards plan to discuss:
- The presentation and disclosures of financial instruments that are not measured at fair value through profit or loss;
- The approach to classifying financial instruments as liabilities or equity. The boards want to discuss whether to modify their developed classification approach to classify as equity some instruments that are settled with the issuer's own shares;
- Converging the proposals in the IASB's Exposure Draft Fair Value Measurement, with the existing U.S. GAAP literature in FASB ASC 820, Fair Value Measurementsformerly SFAS No. 157;
- How much work needs to be done to complete the projects in the Memorandum of Understanding by the June 2011 deadline; and
- The basic right-of-use accounting model for lessees; possible lessor accounting models--including additional analysis on the derecognition approach and the performance obligation approach; the treatment of in substance purchases and sales; and the timing of initial recognition of assets and liabilities in a lease contract.
10/23/09 -- FASB's Impairment Model Will Include Estimates of Cash
Flows Not Collected
As discussed in the article entitled "Board's Impairment Model Will Include Estimates of Cash Flows Not Collected" in the October 22, 2009, issue of Accounting & Compliance Alert, the FASB discussed how to account for credit losses related to financial assets in the fair value through other comprehensive income (OCI) category for its financial instruments project during its October 21, 2009, weekly meeting at its Norwalk, CT, headquarters.
The board discussed six credit impairment models that would identify a credit loss amount to be recognized in the income statement. After deliberations, the board decided that it favored a credit loss impairment model where, at the end of each period, an impairment loss would be measured as the present value of management's current estimate of cash flows that are not expected to be collected.
According to a FASB meeting summary, in estimating the amount of future cash flows, management would consider all available information relating to past events and existing conditions that are relevant to the ability to collect the financial assets, such as the remaining payment terms, the financial condition of the issuer, expected defaults, and collateral values, as well as existing environmental factors such as industry, geographical, economic, and political data that indicate that some contractual cash flows are not expected to be collected.
At the meeting, the board also generally agreed that an entity would not consider possible future scenarios, because management would not likely be able to anticipate all the factors or the ripple effect of the factors.
10/19/09 -- FASB Plans to Discuss Accounting for Financial Instruments
at Upcoming Meeting
As discussed in the article entitled "Board Plans to Discuss Accounting for Financial Instruments at Upcoming Meeting" in the October 16, 2009, issue of Accounting & Compliance Alert, the FASB said it will consider issues related to accounting for financial instruments during its October 21 weekly meeting.
The board wants to discuss how credit impairment will be measured for purposes of identifying the credit loss adjustment that will be recognized in net income for instruments in the fair value--other comprehensive income category. The objective of this project is to improve the information investors receive about financial instruments. The topic is the only one on the agenda for the official part of the weekly meeting.
When the FASB last discussed the issue on September 23, it agreed to a remeasurement approach that:
- Includes a present value of the average core deposit liability amount discounted by the difference between the alternative funds rate and the all-in-cost-to-service rate over the implied maturity; and
- Subjects the core deposit liability amount to a remeasurement determined as an average amount over the implied maturity time period. The amount would be used result in the consideration of future deposits.
The discussion is part of the effort to replace the FASB's and IASB's respective standards for the accounting for financial instruments. The boards want to issue a converged standard that addresses recognition and measurement and the issues related to impairment of financial instruments and hedge accounting.
10/15/09 -- FASB's Proposed ASU Would Narrow Embedded Derivative Scope Exception
in Subtopic 815-15
As discussed in the article entitled "Proposed ASU Would Narrow Embedded Derivative Scope Exception in Subtopic 815-15" in the October 14, 2009, issue of Accounting & Compliance Alert, the FASB recently issued Proposed Accounting Standards Update (ASU), Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.
If approved, the proposal would amend the scope exception in FASB ASC 815-15-15-9 as it pertains to the transfer of credit risk from one financial instrument to another.
The Proposed ASU is out for comment until November 12, and if it is approved, it will be effective for the first day of the first reporting period that begins after December 15.
The FASB said accounting practitioners have been unclear about how to apply FASB ASC 815-15-15-9, which says, "The concentration of credit risk in the form of subordination of one financial instrument to another shall not be considered an embedded derivative under" Subtopic FASB ASC 815-15, Embedded Derivatives.
The FASB is proposing to narrow the scope exception by eliminating embedded credit derivatives in which a holder of a tranche of securitized assets could have to make payments, not just receive them. Derivatives held by an investor in a single-tranche securitization vehicle would also not be covered by the scope exception.
10/14/09 -- In FASB's ASU No. 2009-14, Vendors Get Clearance to Speed
Up Recognition of Revenues
As discussed in the article entitled "In ASU No. 2009-14, Vendors Get Clearance to Speed Up Recognition of Revenues" in the October 12, 2009, issue of Accounting & Compliance Alert, the FASB recently issued Accounting Standards Update (ASU) No. 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements--a consensus of the FASB Emerging Issues Task Force.
The revisions exclude from the scope of FASB ASC 985-605, Software: Revenue Recognition, all tangible products containing both software and non-software components that operate together to deliver the product's functions.
Accounting practitioners were concerned about the requirements in U.S. GAAP that called for vendors to use vendor-specific objective evidence of a selling price to separate the multiple deliverables in a multiple-element arrangement. Vendors have to sell the element separately in order to separate the accounting for revenue for the delivered and undelivered portions of the arrangement. But many practitioners feel that this requirement did not accurately depict the economics of the arrangement.
As a result of the changes in ASU No. 2009-14, vendors will be permitted to recognize revenue earlier than they had previously because of the changes to the accounting literature for allocation, measurement, and recognition of revenue, the FASB said.
The amended guidance will be effective for revenue arrangements that begin or are changed in fiscal years that start June 15, 2010, or later. Entities that adopt the changes before then will have to apply them to their results from the beginning of their fiscal years.
10/13/09 -- FASB's Revenue Recognition Guidance Amended by ASU No. 2009-13
As discussed in the article entitled "Revenue Recognition Guidance Amended by ASU No. 2009-13" in the October 12, 2009, issue of Accounting & Compliance Alert, the FASB recently issued Accounting Standards Update (ASU) No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements--a consensus of the FASB Emerging Issues Task Force.
The amendments to FASB ASC 605-25, Revenue Recognition: Multiple-Element Arrangements, permit vendors to account for products and services separately rather than as a combined unit.
Any vendor who enters into multiple-deliverable arrangements with customers that are covered by Subtopic 605-25 will be affected, the FASB said. As a result of the changes, multiple-deliverable arrangements will be separated in more circumstances than under existing guidance.
With the changes to Subtopic 605-25, the FASB is eliminating the residual method of allocation and instead requiring entities to allocate the arrangement consolidation at the inception of the arrangement to all deliverables using the relative selling price method. Vendors will be required to determine their best estimate of the selling price consistently with the method they use to determine the selling price when the good or service is sold separately.
The changes in ASU No. 2009-13 will be effective for revenue arrangements that begin or are changed in fiscal years that start June 15, 2010, or later. Entities that adopt the changes before then will have to apply them to their results from the beginning of their fiscal years.
10/08/09 -- FASB's Proposed ASU Would Amend Guidance for Accounting
for Stock Dividends
As discussed in the article entitled "Proposed ASU Would Amend Guidance for Accounting for Stock Dividends" in the October 02, 2009, issue of Accounting & Compliance Alert, the FASB recently issued Proposed Accounting Standards Update (ASU), Equity (Topic 505), and Earnings per Share (Topic 260): Accounting for Stock Dividends, Including Distributions to Shareholders with Components of Stock and Cash.
The proposed ASU would amend FASB ASC 505-20, Stock Dividends and Stock Splits, and FASB ASC 260-10, Earnings Per Share, to require that the stock portion of a dividend payment that is part cash and part stock be considered a stock dividend in an earnings per share calculation, and reflected in EPS on the later of the ex-dividend date or the date the number of shares to be issued is known.
According to the FASB, the amendments would eliminate diversity in practice related to:
- Accounting for the stock portion of a dividend payment that is part cash and part stock. Some entities, such as REITs, account for the stock portion as a new share issuance that is reflected in EPS, while others account for the stock portion as a stock dividend by retroactively restating shares outstanding and EPS for all periods; and
- The timing of when a stock dividend distribution in recognized in EPS. Some entities recognize a stock dividend in EPS on the date the dividend is declared, while others recognize the dividend in EPS when the trading price of the shares has been adjusted to reflect the effects of the stock dividend or when the dividend is settled.
The proposal would be effective for reporting periods ending on or after December 15, 2009, and would be applied on a retrospective basis.
Comments are due by October 26, and the FASB issued the proposal with
a relatively short comment period of less than four weeks because the
board's research staff said it needs time to consider the comments in
advance of the November 19 meeting of the FASB's Emerging Issues Task
Force.
10/07/09 -- Draft of Amendment to EITF Guidance for Insurers Is Issued
in Proposed ASU
As discussed in the article entitled "Draft of Amendment to EITF Guidance
for Insurers Is Issued in Proposed ASU" in the October 02, 2009, issue
of Accounting & Compliance Alert, the FASB recently issued a Proposed
Accounting Standards Update (ASU) Financial Services--Insurance (Topic
944): Consideration of an Insurer's Accounting for Majority-Owned Investments
When Ownership Is through a Separate Account (A Consensus of the FASB
Emerging Issues Task Force).
The proposed amendment to FASB ASC 944, Financial Services-Insurance, would permit insurers to avoid consolidated reporting of their interests in investment companies that are held in special accounts, the FASB said.
The change would not apply to interests held through the insurer's general account.
The proposal would be effective for reporting periods that start after December 15, 2010.
Comments are due by October 26, 2009, and the FASB issued the proposal with a relatively short comment period of less than four weeks because the board's research staff said it needs time to consider the comments in advance of the November 19 EITF meeting.
10/06/09 -- FASB's Proposed ASU Offers a Revision to Acquired R&D Guidance
in Topic 730
As discussed in the article entitled "Proposed ASU Offers a Revision to Acquired R&D Guidance in Topic 730" in the October 02, 2009, issue of Accounting & Compliance Alert, the FASB recently issued a Proposed Accounting Standards Update (ASU), Research and Development (Topic 730): Research and Development Assets Acquired and Contingent Consideration Issued in an Asset Acquisition (A Consensus of the FASB Emerging Issues Task Force).
If the proposal is approved, FASB ASC 730, Research and Development, would be modified to call for acquired R&D assets to be capitalized regardless of their future use. Under existing guidance, R&D assets acquired through an acquisition are expensed once they are acquired if they don't have a future use.
If approved, the proposal would be effective for fiscal years that start on or after December 15, 2009.
Comments are due by October 26, 2009, and the FASB issued the proposal with a relatively short comment period of less than four weeks because the board's research staff said it needs time to consider the comments in advance of the November 19 EITF meeting.
10/05/09 -- FASB's ASU No. 2009-12 Updates Guidance on Fair Value Estimates
for Alternative Investments
As discussed in the article entitled "ASU No. 2009-12 Updates Guidance on Fair Value Estimates for Alternative Investments" in the October 02, 2009, issue of Accounting & Compliance Alert, the FASB recently issued Accounting Standards Update (ASU) No. 2009-12, Fair Value Measurements and Disclosures: Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), (Topic 820).
ASU No. 2009-12 offers guidance on how to use a net asset value (NAV) per share to estimate the fair value of investments in hedge funds, private equity funds, real estate funds, venture capital funds, offshore fund vehicles and funds of funds.
Investors in alternative investment companies are required to measure their holdings at fair value, which can not always be readily determined. FASB ASC 820, Fair Value Measurements and Disclosures, permits investors in alternative investment companies to use the NAV per share to come up with the fair value estimate.
The NAV calculation by alternative investment companies, such as hedge funds, follows guidance provided by the AICPA.
To fall within the scope of ASU No. 2009-12, investment companies must be primarily focused on investment activities, have ownership that is represented by units of investments, have pooled funds, and be the primary reporting entity. Alternative investments with a readily determinable fair value are excluded from the scope.
10/02/09 -- FASB's ASU No. 2009-11 Corrects SEC Comment on Gas-Balancing
Arrangements
As discussed in the article entitled "ASU No. 2009-11 Corrects SEC Comment on Gas-Balancing Arrangements" in the September 22, 2009, issue of Accounting & Compliance Alert, the FASB recently issued Accounting Standards Update (ASU) No. 2009-11, Extractive Industries--Oil and Gas--Amendment to Section 932-10-S99, to reflect a correction to the SEC's staff observer comment in Emerging Issues Task Force (EITF) Issue No. 90-22, Accounting for Gas Balancing Arrangements, (FASB ASC 932-815-55).
The ASU amends FASB ASC 932-10-S99-5 because the SEC staff has not taken a position on whether the entitlements method or sales method is preferable for gas-balancing arrangements as defined in FASB ASC 932-815-55-1 and FASB ASC 932-815-55-2 that do not meet the definition of a derivative.
With the entitlements method, sales revenue is recognized to the extent of each well partner's proportionate share of gas sold regardless of which partner sold the gas.
Under the sales method, sales revenue is recognized for all gas sold by a partner even if the partner's ownership is less than 100% of the gas sold.
ASU No. 2009-11 inserted an instruction to public companies in FASB ASC 932-10-S99-5 that they must account for all significant gas imbalances consistently using one accounting method. Both the method and any significant amount of imbalances in units and value should be disclosed in regulatory filings.
10/01/09 -- FASB's ASU No. 2009-10 Corrects SEC Guidance for Energy
Contracts
As discussed in the article entitled "ASU No. 2009-10 Corrects SEC Guidance for Energy Contracts" in the September 22, 2009, issue of Accounting & Compliance Alert, the FASB recently issued Accounting Standards Update (ASU) No. 2009-10, Financial Services--Broker and Dealers: Investments--Other, Amendment to Subtopic 940-325.
The ASU codifies the observer comment in Paragraph 17 of Emerging Issues Task Force (EITF) Issue 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management," (FASB ASC 940-325-S35), which prohibits the use of mark-to-market accounting for nonderivative energy trading contracts.
ASU No. 2009-10 adds FASB ASC 940-325-S35-1 to Topic 940, Financial Services--Broker and Dealers, which details views from the SEC staff on accounting for nonderivative energy contracts by broker-dealers held for trading purposes.
The ASU also adds FASB ASC 940-325-S99-1, which includes an SEC staff comment
made at an EITF meeting with regard to The Effect of Lessee Involvement
in Asset Construction.
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