Accounting & Auditing Update

Public companies reported the lowest levels of goodwill impairment last year since the financial crisis touched off a downward spiral in corporate values beginning in 2008. According to Duff & Phelps’ annual study, public companies recorded writedowns totaling $21 billion in 2013, down nearly 60 percent from the $51 billion reported in 2012. More inside.

The Financial Accounting Standards Board has finished its hedge accounting guidance meant to eliminate the use of different accounting methods when companies raise capital by offering shares that include embedded derivative features. The new guidance will help sort out whether the host contract of a hybrid instrument issued as a share should be treated like debt or equity. More inside.

Kroeker

FASB plans to consider in early 2015 whether to give companies more time to adopt the new revenue recognition standard. Although the board has received numerous requests for more time, at a recent meeting FASB Vice Chairman Jim Kroeker indicated little sympathy for delayed action. “To those who haven’t begun a process of adopting and you’re asking, get started so we can actually have data to understand what the application challenges are,” Kroeker said.

Golden

Companies will not have a final new accounting standard on consolidation by the end of 2014, despite earlier indications from the Financial Accounting Standards Board that the standard would be completed by year’s end. According to FASB, numerous issues remain to be analyzed, a handful of which could require more discussion on technical issues. FASB member Russ Golden said there’s no scenario given the review outcome for the board to finish the standard in 2014. “In the end, we want a quality product that can be consistently applied,” he said.

FASB has issued a new Accounting Standards Update to provide an option for the application of “pushdown accounting,” which occurs when an acquired business adopts the new parent company’s basis of accounting to prepare its financial statements. The update gives acquired companies some choices on the timing and extent of adopting the basis of accounting of the purchasing company. Details inside.

PwC and the Financial Executives Research Foundation are offering fresh evidence that companies are behind on FASB’s new revenue recognition standard. In their joint survey of 174 companies, 54 percent said they are familiar with the standard, but only 29 percent said they would be prepared to adopt it under the full retrospective method by the effective date of 2017. FASB Vice Chairman James Kroeker said the board has begun to assess if a delay is warranted. More study details inside.

To answer early political pressure over the new accounting standard on revenue recognition, the Financial Accounting Standards Board is pledging its readiness to work through implementation issues as they are identified and brought to the board for action.

A new Center for Audit Quality alert highlights issues that auditors will need to pay special attention to in the year-end review, such as revenue recognition, related-party transactions, and more. “This alert summarizes potential areas of risk and can be a useful resource for our auditing firm members as they head into the 2014 audit cycle,” CAQ Executive Director Cindy Fornelli said.

Financial Accounting Standards Board Chairman Russ Golden has authorized FASB staff to conduct research on (1) how to apply the new revenue recognition standard to licensing agreements; (2) when revenue should be recognized on a gross versus net basis; and (3) how to determine performance obligations. The research should help determine whether the standard should be revised or delayed. More inside.

The Securities and Exchange Commission is looking closely at who consolidates a variable interest entity, noticing variations in how companies apply existing guidance. Professional Accounting Fellow Christopher Rogers said at a recent conference that staff is looking into issues surrounding the application of shared power, determining when a decision maker is acting in an agency capacity, and more.

Rogers

At a recent national accounting conference on regulatory issues, staff members at the Securities and Exchange Commission, including professional accounting fellow Chris Rogers (left), offered lots of advice on how companies can better explain to investors the intricacies of joint ventures, spinoffs, pushdown accounting, and segment reporting in financial statements.

FASB is taking a fresh look at a method to account for intangible assets it just permitted for private companies, to see whether the rule should be granted to public companies as well. The new method allows private companies to bypass the current GAAP requirement to recognize separately from goodwill any customer-related intangible assets that cannot be sold or licensed independently from other assets or non-competition agreements. 

In its quest to simplify accounting standards, the Financial Accounting Standards Board has adopted a new provision in Generally Accepted Accounting Principles that spares companies the requirement to display extraordinary and unusual items in financial statements. FASB said stakeholders had expressed concerns that companies often faced uncertainty over when to consider an item unusual.

Up to one-third of companies may not be implementing the new COSO framework for their 2014 financial reporting, and one-fourth don’t know when they will implement the framework.

FASB wants public comment on one final aspect of its standard for financial instrument classification and measurement, focused on how entities should disclose hybrid financial instruments containing embedded derivatives that are separately recognized. FASB plans to get a proposal out soon so the comment period can be wrapped up by April 20.

The Financial Accounting Standards Board has issued two proposed accounting standard updates to simplify the accounting for income taxes. One would simplify accounting for the tax effects of intra-entity asset transfers, while the other focuses on the classification of deferred tax assets and liabilities that are carried on the balance sheet. FASB says the updates would align U.S. Generally Accepted Accounting Principles with International Financial Reporting Standards. More inside.

The Financial Accounting Standards Board is considering both a deferral of its sweeping new revenue recognition rule and early adoption for companies ready to proceed, a FASB spokesman said Monday. FASB will decide later this spring on those ideas, after hearing more input from companies preparing for the current 2017 implementation date.

SEC chief accountant James Schnurr is distancing himself from an idea he floated last year that the Commission might allow U.S. companies an option to report under International Financial Reporting Standards. Schnurr says staff outreach revealed “little support” for that idea, essentially leaving convergence to standard setters. Details inside.