The first quarter of 2014 saw a number of activities by the governing regulatory bodies in the accounting profession. Several significant final standards were released that may impact financial reporting for private companies. We presented a summary of this information in our CBIZ & Mayer Hoffman McCann Executive Education Series webinar. This article provides a brief recap of the first quarter activities. For more detailed information, please see the respective publications issued on each topic.
There was significant activity related to the Private Company Council's (PCC) proposed accounting alternatives for qualifying private companies during the first quarter of 2014. These activities included the issuance of three final accounting standards and the removal of a project from their agenda as described below.
Amortization of Goodwill
ASU 2014-02 Intangibles – Goodwill and Other: Accounting for Goodwill was issued and permits qualifying entities to amortize goodwill over a 10 year period, or less if it can be justified. See our recent blog post on this topic by Shareholder Patrick Quinn and our recent publication, Substance of the Standard 2014-01, for more information.
The Financial Accounting Standards Board (FASB) issued the final standard (ASU 2014-03) permitting private companies with receive-variable, pay-fixed interest rate swaps meeting certain criteria to adopt a simplified-hedge accounting method that reduces the documentation requirements to qualify for hedging, permits documentation to occur up until the financial statements are made available for issuance and permits the use of settlement value. Our recent blog post by Principal Joyce Troy and Substance of the Standard 2014-02 discuss this standard in more detail.
Certain Common Control Leasing Arrangements
As discussed in our recent article and Substance of the Standard 2014-03, the FASB endorsed and issued PCC Issue 13-02 Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements as ASU 2014-07. This standard permits qualifying private companies to elect to not apply the variable interest entity guidance to certain commonly controlled lessor entities that the private company has a qualifying lease arrangement with.
Combined Instruments Approach
The PCC was working on a project to permit certain swap arrangements to be combined with the related variable interest rate debt obligation as if the combined financial instruments were a fixed rate debt obligation. This project has been removed from the PCC's agenda and no further work on this projected is expected.
Emerging Issues Task Force (EITF)
The FASB ratified three consensuses reached by the EITF:
- ASU 2014-01 Accounting for Investments in Qualified Affordable Housing Projects
- ASU 2014-04 Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure
- ASU 2014-05 Service Concession Arrangements
In addition, the FASB issued an exposure draft on EITF Issue 13-F Classification of Certain Government – Guaranteed Residential Mortgage Loans Upon Foreclosure with comments that were due April 30, 2014.
Each EITF issue is narrow in scope, impacting a limited number of entities with applicable transactions. Please contact your professional service advisor for more information.
Other FASB Activities
Development Stage Entities
As discussed in our recent article, the FASB voted to remove the guidance on development stage entities from U.S. GAAP. In addition to impacting the presentation and disclosure for entities that previously qualified as development stage, the removal impacts any reporting entity that evaluates a development stage entity for potential consolidation or disclosure under the variable interest entity model.
As a result of the FASB's ongoing disclosure project they issued an exposure draft on the conceptual framework for disclosures of financial statements. Comments are due July 14, 2014. An overview of this project is provided in the following recent article.
The FASB decided to limit the scope of its insurance contracts project to insurance entities as applied in existing U.S. GAAP. As noted in the following recent article, the FASB may decide to add additional contracts in the future.
The IASB and FASB held several meetings discussing their leasing project and continue to research and discuss the issue. The boards appear to be moving away from having a fully converged standard as discussed in the following article, however we will continue to monitor for further developments.
Several decisions were reached on the FASB's financial instruments projects that may result in differences between the IASB and FASB's accounting models when the convergence project is completed.
The FASB recently issued a new set of standards governing revenue recognition that aim to make the rules more principles-based. The FASB issued the standards along with the IASB in an effort to converge their standards and increase comparability across industries. The new standards take effect in 2016. To read our recent blog post on the final standard click here.
Public Company Accounting Oversight Board
The PCAOB continues its projects to improve various aspects of auditing and attestation. During the first quarter the following standards were issued:
- Attestation Standard No. 1: Examination Engagements Regarding Compliance Reports of Brokers and Dealers
- Attestation Standard No. 2: Review Engagements Regarding Exemption Reports of Brokers and Dealers
- Auditing Standard No. 17: Auditing Supplemental Information Accompanying Audited Financial Statements
In addition, the comment period on the PCAOB's transparency project exposure draft, which if adopted would require disclosure of the engagement partner with the audit report and the names of participants in the audit that are not employees of the audit firm, were due on March 17, 2014.
The PCAOB also removed from its agenda its project on mandatory auditor rotation.
For those that were unable to attend our broadcast, a recording is available on our website.
You can also join us for our Second Quarter Accounting and Financial Issues Update webinar on June 26 or July 24. For email notices of this course, please sign up to receive the CBIZ & MHM Weekly Digest.
If you have any questions regarding the latest standards that have been released and their impact on your company, please contact your CBIZ Tofias & Mayer Hoffman McCann advisor, or you may contact us here.