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Liabilities and Equity, LIBOR, Companies’ Implementation Efforts top FASB’S for First Half of 2020

Thomson Reuters Tax & Accounting  

· 6 minute read

Thomson Reuters Tax & Accounting  

· 6 minute read

By Denise Lugo

FASB Chairman Russell Golden said the board plans to wrap up work on most major standard-setting projects by the time he leaves the post in June, including on distinguishing liabilities from equity and rate reform, two thorny topics that can generate confusion.

Golden also pointed to the board’s current work to help companies implement accounting rules on revenue recognition, leases, and credit losses on loans as among its main priorities for the first half of next year.

“Let me state here that our implementation support is never over,” he told the AICPA’s Conference on Current SEC and PCAOB Developments in Washington, on December 10, 2019. “This is especially true of the current expected credit losses standard, or CECL. We’ll closely monitor implementation progress when CECL takes effect for large public SEC filers next month,” he said.

Golden said the board got bad advice prior to its issuance of Leases, about the level of systems changes it would require. “We were explicitly told companies would not need to implement new systems, and that is obviously not correct, and companies have told us that they gave us bad advice on that,” he said.

Related to potential new guidance on goodwill accounting, segment disclosures and performance reporting, three other significant FASB projects, Golden said that work will likely fall under the purview of the forthcoming chairman.

He said the FASB will likely slow its pace on taking up major projects, having completed most of the larger accounting topics during his tenure as chair, which wraps up in seven months.

“When I started there were a lot more major projects than minor projects and today there’s a lot fewer major projects. That’s by design,” said Golden. “I hope before I leave that there’ll just be one major project left and that’s determining the amortization of goodwill – whether or not we’re going to do that,” he said.

The FASB’s current study on whether or not to improve accounting for goodwill and identifiable intangible assets received a level of interest that is striking, said Golden. The board will need to consider whether to require companies to amortize goodwill, an intangible asset that comes on balance sheets through mergers and acquisitions that can impact profits if it declines in value.

Asked whether the FASB will wait for the IASB to make a determination on an approach for those rules so that there is convergence, Golden said FASB members would be asked to decide that in the near term.

“Not only what they think the appropriate technical decision is, but when should we make the decision and should we be waiting to see what is the input that the internal community gets – that’s something that will be a board decision that will occur at some point before I leave,” he said.

Liabilities and Equity, Libor Rules Coming Before June

Related to current projects, the FASB plans to issue targeted improvements to rules for distinguishing liabilities from equity before June next year. In July 2018, FASB proposed Accounting Standards Update (ASU) No. 2019-730, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The proposal is aimed at reducing the number of accounting models for convertible debt instruments and convertible preferred stock. It would also revise the derivatives scope exception guidance and improve and amend the related disclosure and earnings-per-share guidance. The topics are areas accountants find overly complex, internally inconsistent and the source of frequent financial restatements.

The board plans to start redeliberations on the proposal December 11.

On rate reform matters, the global regulatory move away from the London Interbank Offered Rate (LIBOR) to other rates, the board plans to issue a final standard by the beginning of March. Last month, the FASB voted to finalize proposed (ASU) No. 2019-770, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide temporary, optional guidance to ease the potential accounting burden of the shift away from LIBOR to other rates.

The rules will enable companies to preserve their hedge accounting when reference rate reform takes effect. The guidance will apply only to contracts or hedge accounting relationships that reference extinct rates.

“Among other things, we’ve made it easier to report interest rate changes for contracts that meet certain criteria,” said Golden. “For eligible contracts, a change in reference interest rate can be accounted for as a continuation of that contract—eliminating the need to create a new contract. This provision applies to loans, debt, leases, and other arrangements,” he said.

Segment Reporting, Performance Reporting after June

FASB’s work on performance reporting and segment disclosures are likely to continue beyond June next year, Golden said.

“Published academic research and investor input helped us decide to add a project on financial performance reporting. They helped us identify why disaggregating performance information and defining operating income could improve financial reporting,” he said.

Our project is focused on the disaggregation of performance information—either through presentation in the statement of income or disclosure in the notes. This is an area we thought we could address more successfully with the information and resources at hand.

In a related project, FASB staff accountants recently concluded their second study on potential improvements to segment disclosure requirements. The study focused on the information that is disclosed by each reportable segment. The first study, undertaken in 2018, focused on improving the aggregation criteria and the process for determining the reportable segments. “These studies will help inform the Board about the costs and benefits of the different ideas,” said Golden.

A summary of the findings will be presented to the FASB on December 11.


This article originally appeared in the December 11, 2019 edition of Accounting & Compliance Alert, available on Checkpoint.

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