The Accounting Policy & Practice Report ® provides financial accounting policy makers, advisors, and practitioners with the latest news, expert insights, and guidance on emerging, evolving, and complex accounting issues. Expert News & Commentary.
By Denise Lugo
Feb. 17 — The Financial Accounting Standards Board's overall decisions to clarify how companies should account for partial sales of nonfinancial assets—such as real estate—will be drafted for external review, the board said.
FASB's process to have its tentative decisions externally reviewed is part of its standard process to determine whether its decisions would have unintended consequences or would be operationally difficult.
The forthcoming proposal falls under Phase 2 of the board's clarification of the definition of a business. In addition to addressing how to account for partial sales of nonfinancial assets, the proposal will clarify the scope of Subtopic 610-20, Other Income—Gains and losses from Derecognition of Nonfinancial Assets.
Discussions about whether the proposed changes would be cost effective and whether to move ahead with issuing a proposal will continue at a a future meeting, according to FASB's Feb. 17 deliberations.
Those next steps were highlighted after discussions were completed related to nuanced items such as undivided interest, a type of commonly owned asset.
FASB decided that sales of undivided interests in a wholly owned nonfinancial asset won't be addressed in a forthcoming proposal about partial sales of nonfinancial assets.
An undivided interest is a form of ownership some consider to be similar to an equity interest. It's typically found in real estate, construction and extractive industries, but these types of transactions aren't common. Because of some of its similarities to an equity interest, FASB weighed whether or not to address undivided interests in the proposal.
The board's decision not to address the topic means Subtopic 610-20 would remain silent on the sale of an undivided interest. Furthermore, Subtopic 970-323, Real Estate—General—Investments—Equity Method and Joint Ventures, would still indicate that a sale to a real estate venture, including undivided interests, would be accounted for similar to partial sale in subtopic 610-20.
FASB also discussed how entities should analyze the control model under Subtopic 610-20 in partial sales transactions. Specifically, the board discussed whether the model should focus on the seller's loss of control or the buyer's control of an asset.
FASB decided to make it clear that the buyer is the former subsidiary rather than the sellers. The seller would transfer control when the entity outside the consolidated group has control of the asset.
“I think it’s very important when we think about loss of control, not to confuse loss of control of a nonfinancial asset, with obtaining a financial asset,” said FASB member Thomas Linsmeier. “I don’t think that’s the same thing. When you lose control of a nonfinancial asset to an entity you’ve lost control of the nonfinancial asset, all you get back is a financial asset, a proportionate claim on that thing, but it’s not the same asset,” he said.
FASB also voted to allow entities the ability to apply the modified retrospective approach to subtopic 610-20 and the full retrospective approach to Topic 606, Revenue from Contracts with Customers.
Full retrospective approach would mean the company would apply the rules to each prior period presented in the financial statements; modified retrospective means only to backtrack the rules to the most current period presented in the financial statements, with the cumulative effect recognized. Additional disclosures would be required, the board agreed.
To contact the reporter on this story: Denise Lugo in Norwalk, Conn., at firstname.lastname@example.org
To contact the editor responsible for this story: Laura Tieger Salisbury at email@example.com
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)