ACCTFAX Bulletin Board

By Phil Miller, NSAC Assistant Education Director

GENERAL EDITOR Philip W. Miller, CPA Assistant Education Director NSAC 18 Tow Path Lane South Richmond, VA 23221 (804) 339-9577 pwm01@comcast.net

ASSISTANT EDITORS Greg Taylor, CPA, CVA, MBA Shareholder Williams & Company (806) 785-5982 gregt@dwilliams.net

Bill Erlenbush, CPA NSAC Education Director (309) 530-7500 nsacdired@gmail.com

EDITOR’S NOTE: Covid-19 is impacting all aspects of our lives. Accounting standards setting did not get a pass! In this issue of ACCTFAX, I will highlight (IN RED) communications from the major standard-setting bodies related to their responses to the pandemic.

FASB ISSUES ASU OFFERING LIMITED EFFECTIVE DATE DELAYS ON REVENUE RECOGNITION AND LEASES STANDARDS One-Year Delays Extended to Certain Companies and Organizations

On June 3, 2020, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that grants a one-year effective date delay for certain companies and organizations applying the revenue recognition and leases guidance. Early application continues to be permitted.

“The FASB issued the ASU to allow certain companies and organizations who have not yet applied the revenue recognition and leases guidance to delay their implementation by one year,” stated FASB Chairman Russell G. Golden. “We believe the deferral will provide these stakeholders a measure of relief during this unprecedented time.”

The ASU permits private companies and not-for-profit organizations that have not yet applied the revenue recognition standard to do so for annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020.

For leases, the ASU provides an effective date deferral to private companies, private not-forprofit organizations, and public not-for-profit organizations that have not yet issued (or made available) their financial statements reflecting the adoption of the guidance. It is intended to provide near-term relief for certain entities for whom the leases adoption is imminent.

Under the ASU, private companies and private not-for-profit organizations may apply the new leases standard for fiscal years beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022. Public not-for-profit organizations that have not yet issued (or made available to issue) financial statements reflecting the adoption of the leases guidance may apply the standard for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The ASU is available at www.fasb.org.

FASB APPROVES NEW STANDARDS AND A PROPOSED EFFECTIVE DATE DELAY AT FINAL MEETING OF CHAIRMAN RUSSELL G. GOLDEN Approves Standards to Improve Convertible Instruments and Contracts in an Entity’s Own Equity, Gifts-in-Kind; Delays Standard on LongDuration Insurance Contracts by One Year

On June 10, 2020, The Financial Accounting Standards Board (FASB) approved the issuance of two upcoming Accounting Standards Updates (ASUs): one that improves financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity, and one that improves how not-for-profit organizations present and disclose contributed nonfinancial assets, also known as gifts-in-kind.

The FASB also voted to issue a proposed ASU that would delay the effective date for its standard that improves financial reporting for insurance companies that issue long-duration contracts, such as life insurance, disability income, long-term care, and annuities.

FASB to Issue ASU to Improve Convertible Instruments and Contracts in an Entity’s Own Equity

Under the upcoming ASU, the accounting for convertible instruments will be simplified by removing major separation models required under current Generally Accepted Accounting Principles (GAAP). Accordingly, more convertible instruments will be reported as a single liability or equity with no separate accounting for embedded conversion features. Certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception will be removed and, as a result, more equity contracts will qualify for the scope exception. The upcoming ASU also will simplify the diluted earnings-per-share (EPS) calculation in certain areas.

In its original July 2019 Exposure Draft, the FASB also proposed simplifying the accounting for equity contracts by reducing form-oversubstance-based accounting conclusions that are driven by remote contingent events in the assessment of the derivatives scope exception. However, based on mixed feedback from stakeholders during the public comment period, the FASB decided not to include those proposed changes in the upcoming ASU. Consequently, the FASB plans to continue to explore improvements on this aspect of the guidance in a separate Phase 2 project. “The upcoming ASU will address areas of liabilities and equity guidance that stakeholders identified as overly complex, internally inconsistent, and the source of frequent financial statement restatements,” stated FASB Chairman Russell G. Golden. “We expect it to result in improved comparability of information for financial statement users and reduced cost and complexity for preparers and auditors.”

The upcoming ASU will be effective for public business entities that meet the definition of a U.S. Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption will be permitted. The FASB expects to issue the upcoming ASU during the 3rd quarter of 2020.

FASB to Issue ASU on Accounting for Contributed Nonfinancial Assets by Not-forProfit Organizations

The upcoming ASU will require a not-for-profit organization to present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash or other financial assets.

It also will require a not-for-profit to disclose the amount of contributed nonfinancial assets received, disaggregated by category, that depicts the type of contributed nonfinancial assets, and for each category of contributed nonfinancial assets received (as identified in (1.)): ● Qualitative information about whether the contributed nonfinancial assets were either monetized or utilized during the reporting period. If utilized, a description of the programs or other activities in which those assets were or are intended to be used. ● The not-for-profit’s policy (if any) about monetizing rather than utilizing the contributed nonfinancial assets. ● A description of any donor restrictions associated with the contributed nonfinancial assets. ● A description of the valuation techniques and inputs used to arrive at a fair value measure in accordance with Topic 820, Fair Value

Measurement, at initial recognition. ● The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient not-forprofit is prohibited by donor restrictions from selling or using the contributed nonfinancial assets.

The upcoming ASU will be effective for annual reporting periods beginning after June 15, 2021. It is expected to be issued during the 3rd quarter of 2020. Additionally, the FASB also directed the staff to determine if educational efforts are necessary for valuing contributed nonfinancial assets and to monitor how the ASU improves transparency by providing better information to users.

FASB to Issue Proposed ASU That Would Delay Standard for Insurance Companies That Issue Long-Duration Contracts

Finally, FASB voted to issue a proposed ASU that would grant insurance companies that issue long-duration contracts, such as life insurance and annuities, an additional year to implement Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. Stakeholders will have 45 days to review and provide comment on the proposed ASU, which the FASB expects to issue in the coming weeks.

FASB ISSUES PROPOSAL TO DELAY LONGDURATION INSURANCE STANDARD AND EASE EARLY ADOPTION PROVISIONS

On July 9, 2020, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) that would help insurance companies adversely affected by the COVID-19 pandemic by giving them an additional year to implement Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for LongDuration Contracts (LDTI). However, for insurers that may not need the extra time, the proposal would make it easier and cost-effective to maintain their current timelines and early adopt LDTI. Stakeholders are asked to review and provide comment on the proposed ASU by August 24, 2020.

To facilitate early application and encourage accelerated delivery of better information to investors, the proposed ASU would allow insurance companies to restate only one previous period, rather than two, if they choose to early adopt LDTI.

The proposed ASU would permit insurance companies to delay implementation by one year as follows: ● For SEC filers, excluding smaller reporting companies as defined by the SEC, LDTI would be effective for fiscal years beginning after

December 15, 2022, and interim periods within those fiscal years. ● For all other entities, LDTI would be effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025.

The proposed ASU, including information on how to submit comments, is available at www. fasb.org.

FASB PROPOSES CONCEPTS FOR DEFINING ELEMENTS IN A FINANCIAL STATEMENT

On July 16, 2020, the Financial Accounting Standards Board (FASB) issued for public comment a proposed new chapter of its Conceptual Framework that defines 10 elements of financial statements. Stakeholders are encouraged to review and comment on the proposal by November 13, 2020.

The proposed chapter, Concepts Statement No. 8, Conceptual Framework for Financial Reporting – Chapter 4, Elements of Financial Statements, defines 10 elements of financial statements to be applied in developing standards for public and private companies and not-forprofit organizations. They are assets, liabilities, equity (net assets), revenues, expenses, gains, losses, investments by owners, distributions to owners, and comprehensive income.

The proposed new chapter would replace Concepts Statement No. 6, Elements of Financial Statements, clarifying and improving upon its elements. Specifically, the new chapter would: ● Clearly identify the right or obligation that gives rise to an asset or a liability ● Eliminate terminology that makes the definitions of assets and liabilities difficult to understand and apply ● Clarify the distinction between liabilities and equity and between revenues and gains and expenses and losses and ● Modify the distinctions in equity for not-forprofit entities.

The proposal is part of the FASB’s ongoing conceptual framework project, which also includes current projects that address measurement and disclosure concepts. More information on the Exposure Draft, including a FASB In Focus, is available on the FASB website at www.fasb.org.

FASB IMPROVES CONVERTIBLE INSTRUMENTS AND CONTRACTS IN AN ENTITY’S OWN EQUITY

On August 5, 2020, the Financial Accounting Standards Board (FASB) issued a new Accounting Standards Update (ASU) expected to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity.

The ASU simplifies accounting for convertible instruments by removing major separation models required under current Generally Accepted Accounting Principles (GAAP). Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas.

The ASU is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption will be permitted.

In its original July 2019 Exposure Draft, the FASB also proposed simplifying the accounting for equity contracts by reducing form-oversubstance-based accounting conclusions that are driven by remote contingent events in the assessment of the derivatives scope exception. However, based on mixed feedback from stakeholders during the public comment period, the FASB decided not to include those proposed changes in the ASU. Consequently, the FASB plans to continue to explore improvements on this aspect of the guidance in a separate Phase 2 project.

The ASU, a FASB in Focus overview, and a video about the standard are available at www. fasb.org.

PRIVATE COMPANY COUNCIL JUNE 25, 2020 MEETING RECAP

The Private Company Council (PCC) met on Thursday, June 25, 2020. Below is a brief summary of issues addressed by the PCC at the meeting:

PCC Issue No. 2018-01, “Practical Expedient to Measure Grant-Date Fair Value of EquityClassified Share-Based Awards”: PCC and Board members discussed the potential practical expedient that would allow a nonpublic entity to determine the current price input of equityclassified share-option awards using a valuation method performed in accordance with the presumption of reasonableness requirements of Section 409A of the U.S. Internal Revenue Code. PCC members decided that the Exposure Draft should be issued for public comment in August 2020. The issuance was previously delayed because of resource constraints faced by many private company stakeholders, which might have affected their ability to provide feedback.

FASB Accounting Standards Update No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities: FASB staff updated the PCC on the recent release of ASU 2020-05 which amends the effective date of Topic 606, Revenue from Contracts with Customers, and Topic 842, Leases, for certain entities, and provided details about the new effective dates. PCC members expressed broad support for the recent ASU and the relief it provides to private companies.

Distinguishing Liabilities from Equity: FASB staff provided the PCC with an overview and update on this FASB project. The final Update is expected to be issued in the third quarter of 2020. PCC and Board members discussed how to create awareness among private companies of the Update’s issuance and how the FASB can assist private companies with the implementation process.

Current Issues in Financial Reporting: PCC and Board members discussed practice issues arising from the current business environment under the COVID-19 pandemic. Topics discussed included borrowers’ accounting for debt modifications and troubled debt restructurings, interim impairment testing of nonfinancial

assets, government assistance disclosures, and going concern assessments. FASB resources related to the COVID-19 pandemic can be found here. Furthermore, the Board emphasized that it continues to monitor conditions and stands ready to support private companies encountering technical accounting issues. Board members encouraged PCC members and other stakeholders to continue providing feedback.

Profits Interests and Their Interrelationship with Partnership Accounting: PCC and Board members engaged in preliminary discussions on private company issues in accounting for awards of profits interests and their interrelationship with partnership accounting. PCC members discussed specific areas such as scope, definition, measurement, and recognition of awards of profits interests. PCC members requested the FASB staff to conduct further research and outreach on those areas for discussion at a future PCC meeting.

FINANCIAL REGULATORS MODIFY VOLKER RULE

On June 25, 2020, five federal regulatory agencies finalized a rule modifying the Volcker rule’s prohibition on banking entities investing in or sponsoring hedge funds or private equity funds—known as covered funds. The Volcker rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.

The finalized rule modifies three areas of the Volker rule by:

Streamlining the covered funds portion of rule.

Addressing the extraterritorial treatment of certain foreign funds; and

Permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker rule was intended to address.

The five federal agencies issuing the Volker modifications are:

Federal Reserve Board (FRB)

Commodity Futures Trading Commission (CFTC)

Federal Deposit Insurance Corporation (FDIC) Office of the Comptroller of the Currency (OCC) Securities and Exchange Commission (SEC) The rule will be effective on October 1.

IASB ISSUES AMENDMENT TO IFRS 16 REGARDING COVID-19

On May 28, 2020 the International Accounting Standards Board (IASB) published “Covid-19Related Rent Concessions (Amendment to IFRS 16)” amending the standard to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification.

Background

The COVID-19 pandemic has led to some lessors providing relief to lessees by deferring or relieving them of amounts that would otherwise be payable. In some cases, this is through negotiation between the parties, but can be as a consequence of a government encouraging or requiring that the relief be provided. Such relief is taking place in many jurisdictions in which entities that apply IFRSs operate.

When there is a change in lease payments, the accounting consequences will depend on whether that change meets the definition of a lease modification, which IFRS 16 Leases defines as “a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease (for example, adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term).

Changes

The changes in Covid-19-Related Rent Concessions (Amendment to IFRS 16) amend IFRS 16 to: ● Provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification; ● Require lessees that apply the exemption to account for COVID-19-related rent concessions as if they were not lease modifications; ● Require lessees that apply the exemption to disclose that fact; and ● Require lessees to apply the exemption retrospectively in accordance with IAS 8, but not require them to restate prior period figures.

The IASB considered but decided not to provide any additional relief for lessors as the current situation is not as equally challenging for them and the required accounting is not as complicated.

Effective date

The amendment is effective for annual reporting periods beginning on or after June 1, 2020. Earlier application is permitted, including in financial statements not yet authorized for issue at 28 May 2020. The amendment is also available for interim reports.

IASB FINALIZES NARROW-SCOPE AMENDMENTS TO IFRS 17 AND IFRS 4

The International Accounting Standards Board (IASB) has issued “Amendments to IFRS 17” to address concerns and implementation challenges that were identified after IFRS 17 ‘Insurance Contracts’ was published in 2017. The amendments are effective for annual periods beginning on or after January 1, 2023 with earlier application permitted. The IASB has also published “Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4)” to defer the fixed expiry date of the amendment also to annual periods beginning on or after January 1, 2023.

Background

Since IFRS 17 Insurance Contracts was issued in May 2017, the Board has been monitoring the implementation and has learned about concerns and implementation challenges. The Board had previously indicated that it would consider whether additional action is needed to address matters arising during implementation. At the October 2018 meeting of the Board a list of 25 potential amendments to the standard was identified and the criteria against which any possible amendment would be considered were agreed. An exposure draft of proposed amendments was published on 26 June 2019 with comments requested by September 25, 2019.

Changes

The main changes resulting from Amendments to IFRS 17 and Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4) are: Deferral of the date of initial application of

IFRS 17 by two years,

Additional scope exclusion for credit card contracts,

Recognition of insurance acquisition cash flows relating to expected contract renewals, ● Clarification of the application of IFRS 17 in interim financial statements allowing an accounting policy choice at a reporting entity level, ● Clarification of the application of contractual service margin (CSM) attributable to investment return service, ● Amendments to require an entity that at initial recognition recognizes losses on onerous insurance contracts issued to also recognize a gain on reinsurance contracts held, ● Simplified presentation of insurance contracts in the statement of financial position, ● Additional transition relief for business combinations, ● Several small amendments regarding minor application issues.

The amendments to IFRS 17 are effective for annual periods beginning on or after January 1, 2023.

IASB DEFERS EFFECTIVE DATE OF IAS AMENDMENTS

The International Accounting Standards Board (IASB) has published “Classification of Liabilities as Current or Noncurrent — Deferral of Effective Date (Amendment to IAS 1)” deferring the effective date of the January 2020 amendments to IAS 1 by one year.

Background

On 23 January 2020, the IASB issued Classification of Liabilities as Current or Noncurrent (Amendments to IAS 1) providing a more general approach to the classification of liabilities under IAS 1 Presentation of Financial Statements based on the contractual arrangements in place at the reporting date. The amendments had an effective date of January 1, 2022.

The finalized amendment defers the effective date of the January 2020 amendments by one year.