Accounting Alert

February 6, 2012

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)

Proposed Guidance on Testing Indefinite-Lived Intangible Assets
On Jan. 25, 2012, the FASB published an exposure draft intended to simplify how an entity is required to test indefinite-lived intangible assets other than goodwill for impairment. The proposed Accounting Standards Update (ASU), “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment,” would allow an entity to assess qualitative factors to determine whether performing a quantitative impairment test is necessary. Examples of intangible assets subject to the proposed guidance include indefinite-lived trademarks, licenses, and distribution rights.

Current guidance requires indefinite-lived intangible assets to be tested for impairment, at least annually, by comparing the fair value of the asset with its carrying amount. If the carrying amount exceeds the fair value, an impairment loss is recognized in an amount equal to the difference. Under the proposed amendments, an entity electing to perform a qualitative assessment would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on its qualitative assessment, that it is more likely than not that the fair value of the asset is less than its carrying amount. The qualitative assessment would take into account events and circumstances that could have affected the significant inputs used in determining the fair value of the indefinite-lived intangible asset. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment would be consistent with the FASB’s recent goodwill impairment testing guidance in ASU 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment.”

If approved, the amendments in the proposed update would be effective for annual and interim impairment tests performed for fiscal years beginning after June 15, 2012. Early adoption would be permitted. Comments on the exposure draft are due April 24, 2012. The FASB expects that the final ASU will be issued in June 2012. A short recap and a podcast discussing the proposal have been posted on the FASB’s website.

The FASB and IASB Seek to More Closely Align Financial Instrument Models
The FASB and the International Accounting Standards Board (IASB) announced on Jan. 27, 2012, an agreement to jointly address the differences in their respective classification and measurement models for financial instruments. The discussions will be a part of the FASB’s ongoing redeliberation of its proposed ASU titled “Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities – Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815),” originally issued in May 2010. The IASB will consider the discussions as part of its project to make limited changes to International Financial Reporting Standard (IFRS) 9, “Financial Instruments,” which was issued in November 2009.

2012 GAAP Financial Reporting Taxonomy
The FASB announced on Jan. 18, 2012, the availability of the 2012 U.S. GAAP Financial Reporting Taxonomy pending final acceptance by the U.S. Securities and Exchange Commission (SEC). The U.S. GAAP Financial Reporting Taxonomy is a list of computer-readable tags in eXtensible Business Reporting Language (XBRL) that allows companies to tag financial data included in financial statements and related footnote disclosures. The FASB is responsible for developing and maintaining the taxonomy applicable to public issuers registered with the SEC. Information about using the taxonomy for creating and submitting XBRL-tagged interactive data files in compliance with SEC rules is available on the SEC’s portal on XBRL.

From the Financial Accounting Foundation (FAF)

Post-Implementation Review Report on Tax Uncertainties
The FAF has published its first post-issuance review of an accounting standard. The post-issuance review process is being implemented by the FAF as part of its oversight responsibilities. The objectives of the review are to determine whether an accounting standard is accomplishing its stated purpose; evaluate the standard’s implementation, continuing compliance costs, and related benefits; and provide recommendations to improve the standard-setting process. The report, “Post-Implementation Review Report on FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes,” observes that income tax uncertainties under FASB Interpretation No. 48 (FIN 48, now codified in ASC Topic 740, “Income Taxes”) are being recognized and measured more consistently than they were under prior guidance; however, comparability among reporting entities may not be increased because of the extent of management’s judgments required and the complexity of the tax code. On balance, the report concludes, the benefits of FIN 48’s improved consistency and reporting of income tax uncertainty information outweigh the costs. Although the report does not make any recommendations for the FASB to take any standard-setting action regarding the guidance in FIN 48, it recommends several improvements in the FASB’s standard-setting process.

From the Securities and Exchange Commission (SEC)

Updated Financial Reporting Manual
The SEC Division of Corporation Finance (Corp Fin) recently posted a new version of its “Financial Reporting Manual,” reflecting changes through Sept. 30, 2011. The manual is intended as an internal reference document for SEC staff, but preparers and others might find it a useful reference source for financial reporting matters. The latest version includes updates on matters related to reporting requirements of an acquired business in a step acquisition, disclosures of subsidiary guarantee release provisions, auditor location issues, internal control over financial reporting audit report modifications due to a scope limitation, and revisions pursuant to effective dates of the final rule, “Foreign Issuer Reporting Enhancements.” 

From the Committee of Sponsoring Organizations (COSO)

Thought Paper on Enterprise Risk Management
The Committee of Sponsoring Organizations of the Treadway Commission issued a thought paper, “Enterprise Risk Management: Understanding and Communicating Risk Appetite,” on Jan. 20, 2012. Understanding its own risk appetite – the amount of risk, on a broad level, the organization is willing to accept in pursuit of various objectives to add value – is an important part of an organization’s effective enterprise risk management process. The paper is intended to help organizations better articulate, develop, and implement risk appetite. It provides examples of statements of risk appetite and explains that risk appetite should be defined clearly, communicated by management, embraced by the board, continually monitored, and integrated throughout the organization.. 

From the International Accounting Standards Board (IASB)

IFRS for SMEs Update Newsletter
On Jan. 31, 2012, the IFRS Foundation announced the publication of the January 2012 edition of “IFRS for SMEs Update.” This newsletter is a summary of news related to the International Financial Reporting Standard for Small and Medium-Sized Entities (IFRS for SMEs). Topics discussed in the January 2012 edition include a status report on Q&As about the IFRS for SMEs and information about where to obtain materials on the topic.

IFRS Taxonomy
The IFRS Foundation released an exposure draft of the IFRS Taxonomy 2012 on Jan. 18, 2012. The proposed taxonomy is a translation into XBRL of IFRS and interpretations as issued through Jan. 1, 2012. Comments are due March 17, 2012.

Contact Information
For more information, please contact Ed Grossman at 863.603.4814 or

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.

Contact Us

Ed Grossman