Companies should be aware that a number of the proposals the Financial Accounting Standards Board issued earlier this year are expected to be finalized in 2017, including changes to hedge accounting and life insurance and annuities contracts, FASB Chairman Russell Golden told Bloomberg BNA.
Targeted revisions are being made to hedge accounting to provide investors with better insights into companies' hedging strategies—and their effectiveness. Moreover, changes impacting life insurance and annuities would revise targeted aspects of accounting for long-duration insurance contracts.
Both proposals were issued in September.
Disclosures Roundtable Coming.
Golden said the board also plans to advance it work to improve disclosures in financial reporting. “Depending on the feedback we received, we will then be moving forward to complete all of those phases of the disclosure framework project in 2017 and 2018,” he said in a November question and answer interview.
The “disclosures” work includes a disclosure framework, a type of conceptual guide that determines the relevance and necessity of footnote disclosures in context of an accounting standard. Part of that work stream are proposed disclosures for fair value measurements, pensions, income taxes and a forthcoming one on inventory.
Roundtable discussions will be held March 17 and more deliberations are slated for next year.
Another disclosure-related initiative to watch for is the board’s proposal on disclosures by business entities about government assistance. That proposal was issued November 2015 to require public companies to disclose the magnitude of assistance they receive from the government.
More Narrow Rules.
Among narrowly addressed topics, look also for rules to simplify the method for accounting for equity-linked financial instruments with “down round” features, a common reference to a round of financing in which investors purchase stock from a company at a lower valuation than the valuation placed on the company’s stock by earlier investors.
Watch also for guidance about when a company changes the terms of conditions of a share-based payment award.
Moreover, the board plans to clarify rules surrounding service concession arrangements, a transaction whereby a government hires a private entity to operate a facility – such as a prison.
Projects Take Time.
Another priority for FASB will be setting the future technical agenda, Golden said. Earlier this year, FASB issued an invitation to comment, a new process to solicit public feedback on whether the board should add broad projects to improve rules related to liabilities and equity, pensions, intangible assets and financial performance reporting and cash flows.
Golden said any weighty projects the board takes on in 2017 stemming from its invitation to comment would likely take eight-to-10 years to complete. “And then the effective date is usually one to two years after completion,” he said.
The board held a roundtable discussion Dec. 16 roundtable to gather more insight on whether the standards highlighted in the invitation to comment are in need of a broad financial reporting solution, and if so, what the priorities are.
Some practitioners have balked at the potential for the board to take on more broad projects, given the volume of major new standards they will have to implement over the next few years.
A current effort that will remain on FASB’s radar is helping to troubleshoot implementation issues that arise from new rules for revenue, leases and credit losses of financial instruments.
Companies should think about resources that are necessary beyond just accounting, Golden said. They should start early, have a well-developed plan and “have a dialogue with their auditors and with others in their respective industries,” he said.
Rules on Revenue from Contracts with Customers (ASC 606), issued in May 2014, are effective in 2018, but can be applied next year. Rules for Leases (ASC 842) and Financial Instruments—Credit Losses (ASC 326) were issued earlier this year and take effect in 2019 and 2020, respectively.
The three far-reaching standards represent the most extensive overhaul in decades in U.S. financial reporting, and will have widespread impacts that vary across sectors.
“When the board set the effective dates for revenue recognition, leases and credit losses, we did specifically consider the significance of these projects,” Golden said. “We also gave companies the opportunity to stagger implementation between revenue and leases, or if they choose, to early adopt leases at the time they adopt revenue recognition.”
These options “allow management to evaluate how and when they want to make some of these major changes,” he said.
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