On the Horizon

Leases


In the first quarter of 2016, the FASB plans to publish a major new accounting standard that will require companies and other organizations to include lease obligations on their balance sheets. The Board voted to move forward with the Leases Accounting Standards Update (ASU) at its meeting on November 11.

The final leases standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for the following organizations:
  • Public business entities
  • A not-for-profit that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an-over-the-counter market, and
  • An employee benefit plan that files or furnishes statements with or to the SEC.
For all other organizations, the final leases standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption will be permitted for all companies and organizations upon issuance of the standard.

The new leases standard is intended to significantly improve financial reporting and will represent a change for many companies and organizations. The key to a successful transition will be engaging early. This could include developing proactive transition plans, including employee education (across many departments in an organization), and opening discussions with auditors.

Accounting for Financial Instruments: Recognition & Measurement


The FASB also expects to issue a final ASU on the recognition and measurement of financial instruments in the coming weeks. The Board voted to move forward with the ASU at its meeting on November 11.
The FASB also expects to issue a final ASU on the recognition and measurement of financial instruments in the coming weeks.

Under current GAAP, companies can elect to fair value financial liabilities and recognize changes in fair value related to those financial liabilities in earnings. In other words, if the debt decreases in price on the market, the liability associated with the debt would decrease (because an organization could buy back the debt at a lower price). That decrease currently would be reported as a gain in the income statement.

Financial statement users have told the FASB they find this result confusing and counter-intuitive. Under the new standard, fair value changes resulting from own credit for financial liabilities measured under the fair value option in current GAAP will be recognized through other comprehensive income (OCI) instead of net income. “Own credit” refers to the accounting effect of changes in the fair value of a financial liability due to changes in an organization’s credit risk.

The ASU on recognition and measurement will take effect for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other organizations, the standard becomes effective for fiscal years beginning after December 15, 2018, and for interim periods within fiscal years beginning after December 15, 2019.

Early adoption related to the own credit decision discussed above and the elimination of fair value disclosures of financial assets reported at cost by organizations that are not public business entities is permitted upon issuance of the final standard.

Accounting for Financial Instruments: Credit Losses

In early 2016, the FASB will issue a final ASU on measuring credit losses.

In early 2016, the FASB will issue a final ASU on measuring credit losses. The new credit losses standard will require a forward-looking “expected loss” approach instead of the “incurred loss” approach in effect today.

The Board voted to set the effective date on November 11.

Public business entities that meet the definition of an SEC filer will be required to apply the guidance for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Other public business entities will be required to apply the guidance for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

All other entities will be required to apply the guidance for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.

Early application of the guidance will be permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Upcoming Comment Deadlines

The deadline is fast approaching to submit comments on two proposals related to the FASB’s Disclosure Framework project.

The deadline is fast approaching to submit comments on two proposals related to the FASB’s Disclosure Framework project. Comments on both proposals are due by December 8.

Stakeholders are asked to review and provide comment on:
  • The Exposure Draft containing amendments to FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting, is intended to ensure that the concept of materiality discussed is consistent with the legal concept of materiality. Specifically, these amendments would be made to Chapter 3, Qualitative Characteristics of Useful Financial Information.
  • The proposed ASU, Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material, is intended to promote the appropriate use of discretion by organizations when deciding which disclosures to make in their notes. . The amendments to Topic 235 would apply to all types of organizations—public and private companies, not-for-profit organizations, and employee benefit plans.
Stakeholders are encouraged to comment on the government assistance proposal by February 10, 2016.
Additionally, the FASB recently issued a proposed ASU on November 12 that is intended to create greater transparency around financial reporting of most legally enforceable government assistance arrangements that businesses enter into with governments. Stakeholders are encouraged to provide comments on the government assistance proposal by February 10, 2016.