FASB Update

Nick CappielloSupervising Project Manager, FASB

August 15, 2016

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Expressions of individual

views by members of the

FASB and staff are

encouraged. The views

expressed in this presentation

are those of the presenter.

Official positions of the FASB

on accounting matters are

reached only after extensive

due process and deliberation.

FASB Staff Disclaimer

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• Accounting for Financial Instruments

o Hedging

• Business Combinations

o Accounting for Identifiable Intangible

Assets

• Goodwill

• Improving the Presentation of Net

Periodic Pension Cost and Net

Periodic Postretirement Benefit

Cost

• Disclosure Framework

• Conceptual Framework

Topic Summary

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• Government Assistance

• Simplifying the Balance Sheet

Classification of Debt

• Accounting for Income Taxes

• EITF Issue 16-A: Restricted Cash

• PCC Agenda Decision No. 15-02:

“Applying Variable Interest Entity

Guidance to Entities under Common

Control”

• Consolidations

• Nonemployee Share-Based Payments

Accounting for Financial Instruments (AFI): Hedging

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Fair Value and Cash Flow Hedges

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Hedge of

Nonfinancial Item

Hedge of

Financial Instrument

Fair

Value

Hedge

Cash

Flow

Hedge

Hedge of

inventory

Hedge of

forecasted

purchase or sale

of inventory

Swap fixed

rate debt to

floating

Swap

floating rate

debt to fixed

Updates

Entire G/L in same income statement

line as hedged item

Eliminate concept of separately

recording “ineffectiveness:

Component Hedging

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Hedge of

Financial Instrument

What is an entity allowed to designate as the hedged item?

Interest

Rate Risk

Credit

Risk

Foreign

Exchange

Risk

Variability in

total cash

flows (CF

Hedges)

or

Overall

changes in

fair value

(FV Hedges)

Component Hedging

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Hedge of

Nonfinancial Item

What is an entity allowed to designate as the hedged item?

NEW:

Contractually

Specified

Component

Variability in

total cash

flows (CF

Hedges)

or

Overall

changes in

fair value

(FV Hedges)Foreign

Exchange

Risk

Financial Instrument Hedges

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What rates can be hedged?

Variable rate hedges

Fixed rate hedges

AnyContractually Specified Rate

Overnight Index Swap Rate (OIS)

SIFMA

U.S. Treasury

Rate

LIBOR Swap Rate

Fair Value Hedges of Financial Instruments

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• May choose to measure the hedged item at the benchmark interest rate component at inception

Total Coupon Issue

• Revised methodology makes partial term hedges more achievable

Partial Term Hedging

• Only consider how interest rate changes affect exercise of prepayment option

Hedging Callable Debt

Other Simplifications

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Qualitative Testing

Hedge Documentation

Shortcut Method

Accounting for Identifiable Intangible Assets in a Business Combination

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Intangibles – Alternatives

View A – No intangibles

View B – No intangibles except those capable of being sold or licensed

View C – No change to GAAP

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Goodwill and Intangibles for Public Business Entities and Not-for-Profit Entities

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Project Approach

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Phase 1 • Simplify the impairment test

Phase 2• Work concurrently with IASB to

address any additional concerns

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

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Overview

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Present service cost with other compensation

costs

Service cost eligible for

capitalization

Other components

outside of income from operations

Disclosure Framework

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Improving the effectiveness of notes requires both:

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Disclosure Framework: Two Components

Appropriate exercise of discretion

by reporting entities when

assessing disclosure requirements

Phase II:

Entity’s Decision Process

Consistent considerations by the

Board in each standard-setting

activity

Phase I:

Board’s Decision Process

Purpose of notes

General limitations

• Relevance

• Costs

• Some information oriented toward the future

Information that could be appropriate for inclusion in notes

Considerations for interim reporting

Board’s Decision Process

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Issues Addressed in EDComment period ended July 14, 2014

Copyright 2015 by Financial Accounting Foundation, Norwalk, CT. For non-commercial, educational/academic purposes only.

Effectiveness of notes after applying two discretion criteria

Materiality

Entity-specific Relevance

Effectiveness of different criteria in removing disclosure that are not decision useful

Constraints of reporting system on entity’s ability to exercise discretion

• Audit

• Regulatory

• Legal

Entity’s Decision Process

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Field Study Provided Insights on

Copyright 2015 by Financial Accounting Foundation, Norwalk, CT. For non-commercial, educational/academic purposes only.

Changes to the Codification

“Provide to the extent material”

Eliminate language that limits discretion

Add guidance on applying materiality

Promote Discretion

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Guidance on Applying Materiality

Promoting Discretion (cont’d)

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US Supreme Court’s description

Omission not an accounting error

Applied individually and in the aggregate

Quantitative and qualitative

Applied individually and in the aggregate

Legal concept

Quantitative and qualitative

Omission not an accounting error

Promote Discretion (cont’d)

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Guidance on Applying Materiality

Fair Value Measurement

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Disclosures provide information about:

• Ways an entity arrives at fair value

• The effects on financial statements

• Uncertainty in measurement

• Measurement change period to

period

Objectives based on proposed framework

Fair Value Measurement - Disclosure Updates

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“Sensitivity” Information

Possible Changes Forward-looking

Information

Process and Policies

Gains and LossesRollforwards

Defined Benefit Plans – Disclosure review

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Redeliberations

General characteristics

Interest crediting rate of

cash plansNAV disclosures

Reasons for significant

gains/losses

Private entities: health care cost

trend rate

Defined Benefit Plans – Disclosure review

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General characteristics

Interest crediting rate of

cash plansNAV disclosures

Reasons for significant

gains/losses

Private entities: health care cost

trend rate

Redeliberations

Defined Benefit Plans – Disclosure review (cont’d)

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Amount in AOCI expected to be

recognized

Plan assets expected to be

returned

L3 plan asset rollforward

(nonpublic only)ABO

Redeliberations

• Disagreed with disclosure removals, agreed with disclosure additions

Users

• Agreed with disclosure removals, mixed feedback on disclosure additions

Preparers

• Agreed with disclosure removals, mixed feedback on disclosure additions

Auditors

• Agreed with most proposed disclosures

State Societies / Accounting

Associations

DBP: Comment Letter Feedback

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Income Taxes – Disclosure Review –Undistributed Foreign Earnings

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Proposed Changes to

Undistributed Foreign

Earnings

Changes in Assertion of Indefinitely

Reinvested Earnings

Aggregate of Cash, Cash Equivalents and Marketable

Securities held by Foreign Subsidiaries

Income Taxes – Disclosure Review –Unrecognized Tax Benefits

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Changes in next twelve

months

Proposed Removal Proposed Additions

Settlements using existing

DTAs and those in cash

Line items where the UTBs are presented on the Balance Sheet. If

not presented, those UTBs should be disclosed separately.

Income Taxes – Disclosure Review – Other Income Tax Disclosures

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Change in Tax Law

Proposed Changes to

General Income Tax

Disclosures

Disaggregation of Income Taxes

Paid

Disaggregation of Income Tax

Expense (Benefit)

Disaggregation of Pretax Income

(Loss)

Income Taxes – Disclosure Review – Other Income Tax Disclosures, Cont.

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Expanded Carryforward disclosures

Proposed Changes to

General Income Tax

Disclosures

Valuation Allowance

Government Assistance

Rate Reconciliation

Inventory Disclosures

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Scope and objectives

• Use decision questions from proposed framework to determine potential disclosures

• Evaluate alternatives for private companies based on PCDMF

Possible changes

• Incorporate SEC / AICPA guidance into GAAP

• Additional cost/measurement basis disclosures

• Disclosures of certain rights and obligations

• Disclosures around changes in value/quality/utility

Next steps

• Small group meetings with FASB

• Outreach with PCC members

• User and preparer outreach

Defined Benefit Plans

Fair Value Measurement

Income Taxes

Inventory

Next Steps

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Exposure Drafts

- Inventory

Redeliberate Proposed Concepts

in the Disclosure Framework

Redeliberate Entity’s Decision

Process

Roundtable in 2nd half of 2016

Conceptual Framework

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Not a new conceptual framework

- Try to address deficiencies

- Try to clarify and improve understanding

- Make amendments that experience in application have

suggested are necessary

Structure of the joint project was the same as the structure

of the FASB and IASB Frameworks

Project Objective

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Joint financial statement presentation

Address deficiencies in Concept Statement 5 related to

presentation

- How should individual items be included in line items?

- How should line items be grouped?

Research project on performance reporting added in July

2014

Overview of Past and Current Presentation Efforts

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Concept 1: Information should be combined into reasonably

homogeneous groups

Concept 2: The association between different items that

changed should be made apparent

Presentation Concepts

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Measurement – What does it mean?

Does measurement apply to revenues, expenses, gains,

losses, or to cash flows?

For assets and liabilities:

- Is systematic allocation measurement?

- Is accrual of interest measurement?

- Is adjusting to a market price measurement?

- Is adjusting to a (discounted or undiscounted) amount of

estimated cash flows measurement?

Measurement

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What is a value?

- Value to whom?

- Is there an inherent worth that is (a) unchanging except for

consumption or deterioration and (b) independent of market

changes?

What is a price? How is it different from value?

What is a cost? How is it different from a price or a value?

Value, cost, and price

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Government Assistance Disclosures

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92

Enable user to access:

Nature of assistance and related accounting

policies

Significant terms/conditions of the agreement

Effect on organization’s financial statements

Objectives

Annual Disclosures

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Nature of the assistance and the related accounting policies

Reflect a description of how the policies relate to nature of

the agreements

Should include:

- Nature of the assistance

- Accounting policy

- Presentation location

Annual Disclosures

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Significant terms and conditions of the agreement, including:

- The duration/period of the contract, interest rate

- Commitments made by both the reporting entity and the government

- Provisions, if any, for recapturing government assistance, including the

conditions under which recapture is allowed

- Other contingencies

Simplifying the Balance Sheet Classification of Debt

Simplification Initiative Project

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Simplifying the Balance Sheet Classification of Debt

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Make determination based on facts & circumstances that exist as of

reporting date (balance sheet date)

Determine when debt should be classified as noncurrent

Accounting for Income Taxes

Simplification Initiative Project

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Balance Sheet Classification of Deferred Taxes

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Current GAAP requirement:

Presented in balance sheet as:

- Current deferred tax asset and liability

- Noncurrent deferred tax asset and liability

Classification:

- Based on related asset or liability

- Generally not based on when temporary differences will reverse

Proposed GAAP:

Classify all deferred tax asset and liability as noncurrent

Intra-Entity Asset Transfers

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Current GAAP requirement:

Defer the recognition until the assets have been sold to an outside

third party

Exception for comprehensive recognition of income taxes

Proposed GAAP:

Eliminate the exception

Require recognition when the transfer occurs

EITF Issue 16-A, “Restricted Cash”

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Overview

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• Significant diversity in practice exists

with respect to the classification of

certain cash receipts and payments

• This diversity may exist because of a

lack of specific accounting guidance

Proposed Update

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Changes to the Cash

Flow Statement

Include Restricted Cash and Restricted

Cash Equivalents

Supplemental Disclosures

PCC Agenda Decision No. 15-02: “Applying

Variable Interest Entity Guidance to Entities

under Common Control”

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Overview

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Diversity in practice exists in application of the VIE consolidation guidance to entities under common control

Consolidations

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Interests Held Through Related Parties That Are

Under Common Control

Proposed Update

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Address stakeholders’ concerns about certain amendments in Consolidation: Amendments to the Consolidation Analysis

Treat indirect interest held through related parties on a proportionate basis

Example

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No common control

Related Party (RP)

VIE

Decision Maker (DM)

50%

20%

Example

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RP and DM under common control

Related Party (RP)

VIE

Decision Maker

(DM)

50%

20%

Parent100% 100%

Nonemployee Share-Based Payments

Simplification Initiative Project

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Simplification effort focused on making improvements

- PIR Report (response to 123R)

- The Private Company Council’s (PCC)

- Ideas submitted by FASB staff members as part of the

Simplification Initiative

Deliberations

- Improvements could require substantive changes

- Board designated nonemployee share-based payment as its

own research project

Adding NESBP to the FASB Agenda

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Model Comparisons

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Nonemployee Model Employee Model

Awards are remeasured

Awards are not remeasured

Compensation same but payment methods different

=

Unduly burdensome

Include all share-based payment transactions for acquiring goods and services

Align the post-vesting classification

Anti-abuse provision

Use expected term as an input

Nonpublic option

- Substitute calculated value in place of expected volatility

- Measure all liability awards at fair value or intrinsic value.

Board Decisions to Date

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