Accounting Alert
April 8, 2011
Accounting Alert offers accounting news you can use from Crowe Horwath LLP’s audit and assurance experts. In each issue of this electronic newsletter, you will find abstracts of recent accounting issues and regulatory developments.
From the Financial Accounting Standards Board (FASB)
ASU on Troubled Debt Restructurings
The FASB has issued Accounting Standards Update (ASU) No. 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” This ASU is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether there has been a troubled debt restructuring, the creditor must conclude that both of the following conditions exist: the restructuring constitutes a concession, and the debtor is experiencing financial difficulties. Implementation guidance and illustrations are provided in the ASU.
For public entities, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and should be applied retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. For nonpublic entities, the ASU is effective for annual periods ending on or after Dec. 15, 2012, including interim periods within that annual period. Earlier adoption is permitted. The ASU can be viewed here on the FASB’s website (acceptance of terms required).
Update on Progress of MOU Projects
On March 16, 2011, the FASB made available on its website a podcast updating progress made on the Memorandum of Understanding (MOU) priority projects that are currently being redeliberated by the FASB and the International Accounting Standards Board (IASB). The podcast presents excerpted remarks made by FASB Chairman Leslie Seidman at a recent U.S. Chamber of Commerce event, “The Future of Financial Reporting: Convergence or Not?” Chairman Seidman reported that final accounting standards updates (ASUs) are expected to be issued early in the second quarter on the Fair Value Measurement project and the Statement of Comprehensive Income project. She also reported that excellent progress is being made on the remaining priority projects on revenue recognition, leases, insurance contracts, and accounting for financial instruments.
The seven-minute podcast can be accessed here on the FASB’s website. The FASB’s current technical plan and updates on each of the projects can be viewed here on the FASB’s website.
Roundtable Meeting on Proposed Standard on Offsetting
The FASB announced that it will host a public roundtable meeting on the proposed ASU, “Balance Sheet (Topic 210): Offsetting,” at the FASB offices on May 9, 2011. The roundtable meeting, sponsored jointly with the IASB, is designed to provide interested stakeholders the opportunity to engage in a constructive dialogue about the proposed standard. Additional roundtable meetings will be held in London and Singapore. Preregistration is required for those wishing to participate. More information about the event is available here on the FASB’s website.
The FASB’s proposed ASU sets forth criteria for determining circumstances when offsetting (or “netting”) can and should be used. The boards are proposing that offsetting should apply only when the right of setoff is enforceable at all times, including in default and bankruptcy, and the ability to exercise the right is unconditional. The entities involved must intend to settle the amounts due with a single payment or simultaneously. When all of these conditions are met, offsetting would be required. The exposure draft can be viewed on the FASB’s website (acceptance of terms required). Comments on the proposal are due April 28, 2011.
From the Financial Accounting Foundation (FAF)
Plans to Address Standard-Setting for Nonpublic EntitiesOn March 4, 2011, the board of trustees of the FAF announced the formation of a trustee working group to address accounting standard-setting for nonpublic entities. The FAF, along with the American Institute of Certified Public Accountants and the National Association of State Boards of Accountancy, jointly sponsored the Blue-Ribbon Panel on Standard Setting for Private Companies. The panel concluded its work and issued its report in January 2011. That report recommended, among other things, that the FAF create a standard-setting board separate from the FASB to create accounting standards for private companies.
The establishment of the working group is the next phase of the FAF’s review of the adequacy and effectiveness of the FASB’s efforts in setting standards for private companies and not-for-profit entities. The working group will conduct outreach activities to obtain input on the scope of the issues and concerns to be addressed. In addition, it will seek input on suggested improvements, including the solutions recommended by the blue-ribbon panel. The working group is expected to issue a report late in 2011 on whether or how to establish accounting rules that differ from those that apply to public companies.
The FAF’s news release announcing the formation of the trustee working group can be viewed here.
From the American Institute of Certified Public Accountants (AICPA)
Working Draft of “Cheap Stock” Practice Aid
A working draft of the revised AICPA practice aid, “Valuation of Privately Held Company Equity Securities Issued as Compensation” – also known as the “cheap stock” practice aid – was released March 28, 2011, by the AICPA’s Financial Reporting Executive Committee. This revised version of the practice aid, which was originally issued in 2004, provides nonauthoritative guidance and illustrations regarding valuation and disclosures related to privately held company equity securities issued as compensation. The practice aid is intended to provide best practice recommendations and an overview and understanding of the valuation process and the roles and responsibilities of the parties to the process.
The working draft of the revised practice aid is available here on the AICPA’s website. Interested parties are encouraged to review the working draft and submit their comments to the AICPA by May 31, 2011.
Proposed Ethics Revisions
The Professional Ethics Executive Committee of the AICPA has issued an exposure draft, “Omnibus Proposal: AICPA Professional Ethics Division Interpretations and Rulings.” The exposure draft includes proposed new, revised, or deleted interpretations of various sections of the AICPA Code of Professional Conduct, including topics related to the applications of independence rules to affiliates and the definition of confidential client information. The exposure draft can be viewed here on the AICPA’s website. Comments are due May 31, 2011.
From the Securities and Exchange Commission (SEC)
Proposal on Credit Risk Retention
The SEC – together with several other agencies, including the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation – has issued a proposed rule, “Credit Risk Retention.” The proposed rule implements the credit risk retention requirements of section 15G of the Securities Exchange Act of 1934, as added by Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal generally requires the securitizer of asset-backed securities to retain not less than five percent of the credit risk of the assets collateralizing the asset-backed securities. A variety of exemptions from the requirements are provided, including an exemption for asset-backed securities that are collateralized exclusively by residential mortgages that are “qualified residential mortgages,” as defined.
The proposed rule can be viewed here on the SEC’s website. Comments are due June 10, 2011.
SAB 114
On March 7, 2011, the SEC published Staff Accounting Bulletin (SAB) No. 114. The principal changes in this new release involve revisions or removal of accounting guidance references and other conforming changes to the interpretive guidance included in the codification of the SAB Series. The changes are intended to make the relevant interpretive guidance consistent with the FASB Accounting Standards Codification. All of the changes are technical in nature and are not intended to change the guidance provided in the SAB Series.
SAB 114 became effective March 28, 2011, upon its publication in the Federal Register and can be viewed here on the SEC’s website.
From the Public Company Accounting Oversight Board (PCAOB)
Research Note on Chinese Reverse Mergers
On March 15, 2011, the PCAOB issued its first-ever research note, “Activity Summary and Audit Implications for Reverse Mergers Involving Companies from the China Region: January 1, 2007 through March 31, 2010.” The research note provides further context to the issues discussed in Staff Audit Practice Alert No. 6 (issued in July 2010 and available here) and is intended to give investors and other users of financial statements more information about the audit environment for companies from the China region that access U.S. markets through reverse mortgage transactions. The research note can be viewed here on the PCAOB’s website.
From the International Accounting Standards Board (IASB)
IFRIC Update
The IFRS Interpretations Committee has published the March 2011 “IFRIC Update” (available here). The update provides a summary of the committee’s meeting held March 10 – 11, 2011, in London. Current agenda topics discussed at the meeting included:
- IAS 16, “Property, Plant and Equipment” – accounting for stripping costs in the production phase of a surface mine.
- IAS 16, “Property, Plant and Equipment,” and IAS 38, “Intangible Assets” – contingent pricing of property, plant, and equipment and intangible assets.
- IAS 32, “Financial Instruments: Presentation” – put options written over noncontrolling interests.
The committee’s responsibility is to review widespread accounting issues that have arisen within the context of current International Financial Reporting Standards and to provide authoritative guidance on those issues. After the committee has reached a consensus on an issue, the interpretation is subject to ratification by the IASB before being issued.
From the Governmental Accounting Standards Board (GASB)
Plain-Language Guidance
On March 14, 2011, the GASB published several articles intended to communicate to constituents, in plain language, the objectives and requirements of some recent pronouncements. The following plain-language articles were released:
- “GASB Statement Provides Guidance on Partnerships Between Governments and Public or Private Entities” – This article provides guidance on GASB Statement No. 60, “Accounting and Financial Reporting for Service Concession Arrangements,” which explains how to account for and report on service concession arrangements – a popular type of public-private or public-public partnership. The article can be viewed here on the GASB’s website. GASB 60 is effective for financial statements for periods beginning after Dec. 15, 2011.
- “GASB Statement Concludes Review of Standards Defining the Financial Reporting Entity” – This article discusses GASB Statement No. 61, “The Financial Reporting Entity: Omnibus.” GASB 61 amended the accounting and financial reporting standards for including, presenting, and disclosing information about governmental component units, including equity interests. The article can be viewed here on the GASB’s website. GASB 61 is effective for financial statements for periods beginning after June 15, 2012.
- “GASB Statement Codifies FASB and AICPA Pronouncements Applicable to State and Local Governments” – This article discusses GASB Statement No. 62, “Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements.” GASB 62 is intended to enhance the usefulness of the Codification of Governmental Accounting and Financial Reporting Standards by incorporating guidance that previously could be found only in certain Financial Accounting Standards Board and American Institute of Certified Public Accountants pronouncements. The article can be viewed here on the GASB’s website. GASB 62 is effective for financial statements for periods beginning after Dec. 15, 2011.
Research Brief on Timeliness of Financial Reporting
The GASB has issued a research brief, “The Timeliness of Financial Reporting by State and Local Governments Compared With the Needs of Users.” The document summarizes the GASB’s research to answer two questions:
- How long after the end of the fiscal year does it take governments to issue financial reports prepared in conformity with generally accepted accounting principles?
- How does the passage of time between fiscal year-end and issuance of the financial report affect the usefulness of financial report information for decision making?
This research project was undertaken because the GASB reported that the timeliness of financial reporting is perhaps the most frequent and common concern expressed by users of state and local government financial reports. The research brief can be viewed here on the GASB’s website.
Contact Information
For more information, please contact Ed Grossman at 863.603.4814 or ed.grossman@crowehorwath.com.
Under U.S. Treasury rules issued in 2005, we must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer.