On the Horizon
The FASB is holding a public roundtable meeting on March 15, 2017, to discuss proposed changes to long-duration insurance accounting. The purpose of the meeting is to listen to the views of, and obtain information from, a wide variety of stakeholders—including users, prepares, auditors, and others.
The FASB is also planning a roundtable for March 17, 2017 to obtain feedback on whether the proposed FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, is useful in identifying relevant disclosures. The FASB is also seeking comments on whether the proposed changes on materiality to the conceptual framework and the FASB Accounting Standards Codification® need to be modified to increase the effectiveness of disclosure.
Anyone who is interested in observing these roundtables can register in advance. Interested parties can also listen to the roundtables on the FASB website.
Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent)
Stakeholders are encouraged to review and comment on the FASB’s proposal to simplify and improve the guidance on determining whether debt should be classified as a current or noncurrent liability in a classified balance sheet by May 5, 2017.
The proposed ASU would replace the existing, fact-specific guidance with an overarching, cohesive principle for debt classification that focuses on a borrower’s contractual rights and obligations that exist as of the reporting date.The proposed Accounting Standards Update (ASU) would replace the existing, fact-specific guidance with an overarching, cohesive principle for debt classification that focuses on a borrower’s contractual rights and obligations that exist as of the reporting date.
The proposed amendments would continue to require a borrower to classify its debt as noncurrent when a violation of a debt covenant has been waived, if a borrower receives a waiver before the financial statements are issued (or are available to be issued) and the waiver meets certain conditions.
The proposed amendments could result in a shift in the classification of certain debt arrangements between noncurrent liabilities and current liabilities as compared with current balance sheets in the following ways:
- Short-term debt that is refinanced on a long-term basis after the balance sheet date would no longer be classified as a noncurrent liability.
- Companies with debt that contains subjective acceleration clauses would no longer be required to assess the likelihood of acceleration of the due date when determining whether the debt is a noncurrent or current liability.
Distinguishing Liabilities from Equity
Stakeholders are encouraged to review and comment by February 6, 2017 on the FASB’s recently issued proposed ASU that addresses certain issues related to down round features and navigational concerns within the Codification.
The proposed ASU addresses the complexity of accounting for certain financial instruments with down rounds.The proposed ASU addresses the complexity of accounting for certain financial instruments with down rounds, which are features that result in the strike price of an instrument or embedded feature being reduced because of the pricing of future equity offerings.
The proposed ASU would significantly reduce organizations’ reporting burden (primarily caused by recurring fair value measurement) and income statement volatility associated with changes in value of a company’s own share price.
The proposal would require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Instead, companies would recognize the effect of the feature when triggered (that is, when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature).
The navigational concerns within the Codification addressed by the Board related to an indefinite deferral available to private companies and certain noncontrolling interests. This indefinite deferral created significant “pending content” in the Codification that raised navigational issues for readers. To address this concern, the Board decided to reclassify the indefinite deferral as a scope exception. However, this decision is only to address the short-term issues regarding navigation, and it is not intended to represent the Board’s final views on these instruments. These broader debt and equity issues have been raised by the Board in its Invitation to Comment on its future agenda.
More information can be found on the project page.
Employee Benefit Plan Master Trust Reporting
During the first quarter, the FASB plans to issue a final ASU to improve the usefulness of the information reported to users of employee benefit plan financial statements and to provide clarity to preparers and auditors.
This Update clarifies presentation requirements for a plan’s interest in a master trust and requires more detailed disclosures of the plan’s interest in the master trust.This Update relates primarily to the reporting by an employee benefit plan for its interest in a master trust. Stakeholders find the master trust disclosure requirements in current GAAP to be insufficient, particularly disclosures of the plan’s interest in the master trust. The amendments in this Update clarify presentation requirements for a plan’s interest in a master trust and require more detailed disclosures of the plan’s interest in the master trust.
This ASU requires plans to present in their financial statements the interest in each master trust in which they hold an interest and any change in each such interest. This information would be presented in separate line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits, respectively.
This ASU also requires plans to disclose:
- The dollar amount of their interest in each of the master trust’s general types of investments (supplementing the existing requirement)
- The master trust’s other asset and liability balances, and
- The dollar amounts of the plan’s interest in each of those balances, while removing the requirement for plans with divided interests to disclose their percentage interest in the master trust.
The amendments in this ASU will be effective for fiscal years beginning after December 15, 2018, and early adoption will be permitted. Organizations should apply the amendments retrospectively to each period for which financial statements are presented.
More information can be found on the project page.