accounting standards update...statement of cash flows (230) asu 2016-18 • restricted cash •...

Accounting Standards Update

George Pickard, CPA, MSACiuni & Panichi, Inc.

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FASB Codification• Source of authoritative GAAP recognized by FASB to be

applied to nongovernmental entities• Broken out into Topics/Sections

– 100s General Principles– 200s Presentation– 300s Assets– 400s Liabilities– 500s Equity– 600s Revenue– 700s Expense– 800s Broad Transactions– 900s Industry

• Updated with ASUs

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Income Statement-Reporting Comprehensive Income (220)ASU 2018-02

• Reclassification of certain tax effects from accumulated other comprehensive income

• Effective for 2019 year ends– Earlier application was permitted during 2017– Applied in the period of adoption

• Allow a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act

• The underlying guidance that requires the effect of a change in tax laws or rates to be included in income from continuing operations is not affected

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Statement of Cash Flows (230)ASU 2016-15

• Classification of certain cash receipts and cash payments• Effective for 2019 year ends

– Effective 2018 for public entities– Earlier application is permitted– Applied through a retrospective transition approach (certain provisions are applied

prospectively)• Contains a listing of various cash flow issues and how they should be

presented– Debt prepayment costs– Proceeds from the settlement of insurance claims– Proceeds from the settlement of corporate-owned life insurance policies

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Statement of Cash Flows (230)ASU 2016-18

• Restricted cash• Effective for 2019 year ends

– Effective 2018 for public entities– Earlier application is permitted– Applied through a retrospective transition approach

(certain provisions are applied prospectively)• Requires restricted cash to be included in the beginning

and ending cash and cash equivalent amounts when reconciling between the two on the statement of cash flows

Financial Instruments-Credit Losses (326)ASU 2016-13

• Measurement of credit losses on financial instruments• Effective for 2021 year ends

– Effective 2020 for public entities– Earlier application is permitted during the 2019 year end– Applied using a modified-retrospective approach

• Prior guidance required the “probable” threshold to be met prior to recognizing credit losses (consider past and current conditions only)

• Updated guidance removes the “probable” threshold and allows the use of forecasted information in developing expected credit losses

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Intangibles-Goodwill and Other (350)ASU 2018-15

• Customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract

• Effective for 2021 year ends – Effective 2020 for public entities– Early adoption is permitted– Apply either retrospectively or prospectively

• Align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software

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Intangibles-Goodwill and Other (350)ASU 2017-04

• Simplifying the test for goodwill impairment• Effective for 2022 year ends

– Effective 2020 for public entities (SEC filers) and 2021 (non-SEC filers)

– Earlier application was permitted during 2017– Applied prospectively

• Eliminates step #2 in the goodwill impairment analysis– Calculate the fair value of all assets and liabilities of a reporting

unit that can be identified to come to the fair value of the goodwill• Now perform annual goodwill impairment test by comparing the fair

value of a reporting unit with its carrying amount

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Revenue from Contracts with Customers (606)ASU 2014-09

• Effective for 2019 year ends – Effective 2018 for public entities– Earlier application is permitted– Applied retrospectively

• Core principle: An entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services

• Objectives for the new standard:– A comprehensive framework for revenue recognition to replace 200

pieces for guidance in current US GAAP– Uniform financial statements and disclosures– Comparability across the world and across industries

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• Establishes a five step process for revenue recognition– Identify the contract with a customer– Identify the separate performance obligations in the contract– Determine the transaction price– Allocate the transaction price to the separate performance obligations in

the contract– Recognize revenue when (or as) the entity satisfies a performance

obligation• Situations where this standard does not apply:

– Lease contracts– Insurance contracts– Financial instruments– Guarantees– Nonmonetary exchanges between entities in the same line of business

to facilitate sales to customers or potential customers

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• Numerous subsequent ASUs have improved this already– ASU 2015-14 (deferral of effective date)– ASU 2016-08 (principal vs agent considerations)– ASU 2016-10 (identifying performance obligations)– ASU 2016-12 (narrow scope improvements and practical

expedients)– ASU 2016-20 (technical corrections and improvements)

• FinREC (AICPA Financial Reporting Executive Committee) has issued four industry-specific guidance pieces for implementing the revenue recognition standard

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Compensation-Retirement Benefits (715)ASU 2017-07

• Improving the presentation of net periodic pension cost and net periodic postretirement benefit cost

• Effective for 2019 year ends– Effective 2018 for public entities– Earlier application is permitted– Applied retrospectively

• Now must report the service cost component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period

• Other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations

• If not using a separate line item after income from operations, need to disclose what line item

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• Disclosure framework-changes to the disclosure requirements for defined benefit plans

• Effective for 2021 year ends – Effective 2020 for public entities– Early adoption is permitted– Apply retrospectively

• Disclosures removed– Amounts in AOCI expected to be recognized as components of net periodic

benefit cost over the next fiscal year– Amounts and timing of plan assets expected to be returned to the employer– For nonpublic entities, the reconciliation of Level 3 assets (disclosure required of

ins and outs)– For public entities, the effect of 1% change in assumed health care cost trend

rates

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• Disclosures added– Weighted-average interest crediting rates for cash balance plans

and other plans with promised interest crediting rates– An explanation of the reasons for significant gains/losses related

to changes in the benefit obligation for the period• Disclosures clarified as needed

– Projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets

– Accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets

Compensation-Stock Compensation (718)ASU 2016-09

• Improvements to employee share-based payment accounting• Effective for 2018 year ends

– Effective 2017 for public entities– Earlier application is permitted– Applied retrospectively

• Updates income tax consequences• Updates classification of awards as either equity or liabilities• Updates classification on the statement of cash flows• Some areas of the update apply only to nonpublic entities

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Compensation-Stock Compensation (718)ASU 2018-07

• Improvements to nonemployee share-based payment accounting• Effective for 2020 year ends

– Effective 2019 for public entities– Earlier adoption is permitted after adopting Topic 606 (revenue

recognition)• Measurement date was different for employee vs nonemployee

payments– Fundamental difference between the relationship that employees

and nonemployees have with the entity granting the award• Determined that there is no fundamental difference, so both should be

handled the same way• Nonemployee share-based payments now follow Topic 718

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Income Taxes (740)ASU 2015-17

• Balance sheet classification of deferred taxes• Effective for 2018 year ends

– Effective 2017 for public entities– Earlier application is permitted– Applied retrospectively or prospectively (with disclosures)

• All deferred income tax assets and liabilities are to be shown as non-current on the balance sheet

• Deferred income tax assets and liabilities will continue to be netted

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Income Taxes (740)ASU 2016-16

• Intra-entity transfers of assets other than inventory• Effective for 2019 year ends

– Effective 2018 for public entities– Earlier application is permitted– Applied on a modified-retrospective approach

• Currently GAAP prohibits recognition of current and deferred income taxes for intra-entity asset transfers until it is sold to a third-party

• Guidance now states to recognize income taxes when the transfer occurs

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Consolidations (810)ASU 2018-17

• Targeted improvements to related party guidance for variable interest entities• Effective for 2021 year ends

– Effective 2020 for entities other than private companies– Early adoption is permitted– Apply retrospectively with a cumulative-effect adjustment to retained

earnings• If both the parent and the legal entity being evaluated for consolidation are

not public business entities, an election may be made to not apply VIE guidance to legal entities under common control (including common control leasing arrangements)

• Indirect interests held through related parties in common control arrangements should be considered on a proportionate basis for determining whether fees paid to decision makers and service providers are variable interests

Derivatives and Hedging (815)ASU 2016-05

• Effect of derivative contract novations on existing hedge accounting relationships

• Effective for 2018 year ends – Effective 2017 for public entities– Earlier application is permitted– Applied either prospectively or on a modified-

retrospective approach• Guidance indicates that a de-designation of a hedge is not

required when this occurs

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• Targeted improvements to accounting for hedging activities• Effective for 2020 year ends

– Effective 2019 for public entities– Earlier application is permitted – Effect of adoption reflected as of the beginning of the fiscal year

of adoption• Expands component hedging to nonfinancial risks• Eliminates the separate measurement and presentation of hedge

ineffectiveness• Allows more qualitative assessments to monitor the effectiveness of a

hedging relationship• Allows more time for the preparation of hedge documentation for

preparers that elect hedge accounting


• Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a benchmark interest rate for hedge accounting purposes

• Can be adopted only after ASU 2017-12 has been adopted– Public business entities that have adopted ASU 2017-12, effective

for 2019 year ends– All other entities that have adopted ASU 2017-12, effective for 2020

year ends– Early adoption is permitted after ASU 2017-12 is adopted

• Permits the use of the OIS rate on SOFR as a US benchmark interest rate for hedge accounting purposes in addition to the UST, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the SIFMA Municipal Swap Rate

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Fair Value Measurement (820)ASU 2018-13

• Disclosure framework-changes to the disclosure requirements for fair value measurement

• Effective for 2020 year ends – Early adoption is permitted– Apply retrospectively (except for certain parts would be applied

prospectively)• Disclosures removed

– Amount and reasons for transfers between Levels 1 and 2– Policy for timing of transfers between levels– Valuation processes for Level 3 measurements– For nonpublic entities, the changes in unrealized gains/losses for

the period included in earnings for recurring Level 3 measurements held at year end

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Fair Value Measurement (820)ASU 2018-13

• Disclosures modified– Nonpublic entities required to disclose transfers into and out of Level 3

measurements in lieu of a rollforward– Disclose the timing of liquidation for investments reporting at NAV and

date when restrictions from redemption might lapse, but only if the investee has communicated the timing to the entity or announced the timing publicly

– Measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date

• Disclosures added– Changes in unrealized gains/losses for the period included in other

comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period

– Range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements

Financial Instruments (825)ASU 2016-01

• Recognition and measurement of financial assets and financial liabilities

• Effective for 2019 year ends– Effective 2018 for public entities– Earlier application is permitted– Applied on a modified-retrospective approach

• Debt and equity securities are now being treated differently• Equity securities are no longer classified between trading,

available for sale, or held to maturity• Equity securities are now reported at fair value with changes

running through the income statement (not OCI)

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Leases (842)ASU 2016-02

• Updates the accounting for leases– ASU 2018-01 (Land Easement Practical Expedient)– ASU 2018-10 (Codification Improvements to Topic 842)– ASU 2018-11 (Targeted Improvements to Topic 842)

• Effective for 2020 year ends– Effective 2019 for public entities– Earlier application is permitted– Applied on a modified-retrospective approach

• A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration

• Mainly effects lessee accounting by requiring recognition of assets and liabilities for all leases

– Leases with terms less than 12 months may have an accounting policy election made not to recognize an asset or liability

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Leases (842)ASU 2016-02

• Lessor accounting left relatively unchanged• Retains distinction between finance lease and operating lease

– Difference is in how amounts are recorded in the income statement• Financing lease (treated similar to today’s capital lease)

– Asset is amortized to amortization expense– Lease payment reduces liability and records interest expense– Cash flows are financing for repayments of liability

• Operating lease (treated similar to today’s operating lease)– Asset is amortized to rent expense– Lease payment reduces liability and records rent expense– Cash flows are operating for repayments of liability

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Financial Services-Insurance (944)ASU 2018-12

• Targeted improvements to the accounting for long-duration contracts by an insurance company

• Effective for 2022 year ends – Effective 2021 for public entities– Early adoption is permitted

• Improve timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows

• Simplify and improve the accounting for certain market-based options or guarantees associated with deposit contracts

• Simplify the amortization of deferred acquisition costs• Improve the effectiveness of the required disclosures

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Not-for-Profit Entities (958)ASU 2016-14

• Presentation of financial statements of not-for-profit entities• Effective for 2018 year ends

– Earlier application is permitted– Applied retrospectively

• Three classes of net assets are being replaced by two– Net assets with donor restrictions– Net assets without donor restrictions

• No longer requires the presentation of the indirect method (a reconciliation from net income) if using the direct method of cash flows on operating

• Enhanced disclosures

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Not-for-Profit Entities (958)ASU 2018-08

• Clarifying the scope and accounting guidance for contributions received and contributions made

• Resource recipient– Effective for annual reporting periods beginning after 6/15/18 for

public entities and NFP acting as a conduit bond obligor• Resource provider

– Effective for 2019 year ends• Early adoption is permitted• Assists entities in evaluating whether transactions should be

accounted for as contributions under Topic 958 or as an exchange transaction subject to other guidance

• Assists entities in determining whether a contribution is conditional

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Plan Accounting:Defined Benefit Pension Plans (960)

Defined Contribution Pension Plans (962)Health and Welfare Benefit Plans (965)

ASU 2017-06• Employee benefit plan master trust reporting• Effective for 2019 year ends

– Earlier application is permitted– Applied retrospectively

• Requires disclosure of the Plan’s dollar amount of interest in each general type of investment being disclosed as held in the MT

• Require disclosure of MT’s other assets/liabilities and the Plan’s dollar amount of interest in each

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Any questions, please contact:

George P. Pickard, CPA, [email protected]

216-765-6948

accounting standards update...statement of cash flows (230) asu 2016-18 • restricted cash •...

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