Audit & Accounting Update: April 28, 2016

At Insero, we make it our business to stay abreast of the latest trends and technical updates in accounting, tax, and audit and we understand how important timely updates are to our clients. As a member of the McGladrey Alliance, we also have the benefit of access to the resources and subject matter experts of RSM US LLP (formerly known as McGladrey LLP). This includes regular updates on the latest financial reporting insights. We hope that you find these informative and useful, and invite you to reach out to us if you have any questions.

Improvements to employee share-based payment accounting
ASU 2016-09 reduces the complexity of certain aspects of the accounting for employee share-based payment transactions.

Update: Consolidation of a for-profit limited partnership by a not-for-profit entity
The FASB recently reached tentative decisions regarding the consolidation of a for-profit limited partnership by a not-for-profit entity.

Accounting for irrevocable split-interest agreements
Statement 81 provides recognition and measurement guidance for governments that benefit from irrevocable split-interest agreements.

Source: RSM US LLP
Used with permission as a member of the McGladrey Alliance
http://rsmus.com/our-insights/newsletters/financial-reporting-insights.html

As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please contact us directly.

Audit & Accounting Update: April 14, 2016

At Insero, we make it our business to stay abreast of the latest trends and technical updates in accounting, tax, and audit and we understand how important timely updates are to our clients. As a member of the McGladrey Alliance, we also have the benefit of access to the resources and subject matter experts of RSM US LLP (formerly known as McGladrey LLP). This includes regular updates on the latest financial reporting insights. We hope that you find these informative and useful, and invite you to reach out to us if you have any questions.

Revenue recognition: FASB revises new principal vs. agent guidance
Our summary provides an overview of the revised principal vs. agent guidance in FASB ASC Topic 606.

Accounting for contingent put and call options in debt instruments
ASU 2016-06 addresses the accounting for contingent put and call options that can accelerate the payment of principal on debt instruments.

Simplification for transition to the equity method of accounting
ASU 2016-07 eliminates the requirement to retroactively adopt the equity method of accounting.

Source: RSM US LLP
Used with permission as a member of the McGladrey Alliance
http://rsmus.com/our-insights/newsletters/financial-reporting-insights.html

As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please contact us directly.

Audit & Accounting Update: March 24, 2016

At Insero, we make it our business to stay abreast of the latest trends and technical updates in accounting, tax, and audit and we understand how important timely updates are to our clients. As a member of the McGladrey Alliance, we also have the benefit of access to the resources and subject matter experts of RSM US LLP (formerly known as McGladrey LLP). This includes regular updates on the latest financial reporting insights. We hope that you find these informative and useful, and invite you to reach out to us if you have any questions.

Initial election of private company accounting alternatives
ASU 2016-03 addresses matters related to the initial election of the private company accounting alternatives within its scope.

Recognition of breakage for certain prepaid stored-value products
ASU 2016-04 addresses the recognition of the portion of the dollar value of prepaid stored-value products that ultimately is unredeemed.

Source: RSM US LLP
Used with permission as a member of the McGladrey Alliance
http://rsmus.com/our-insights/newsletters/financial-reporting-insights.html

As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please contact us directly.

Audit & Accounting Update: New Lease Accounting Rules Issued

On February 25, 2016, the Financial Accounting Standards Board (FASB) issued its long-awaited new lease accounting guidance. While this revised guidance will affect both lessees and lessors, its provisions will have the most impact on how lessees account for their leases.

Organizations will need to ensure they have a complete and accurate inventory of all lease arrangements.

Under the new guidance, lessees will be required to recognize right-of-use assets (representing the lessee’s right to use a specified asset over the term of the lease), and a lease liability (for the obligation to make payments under the lease agreement) for substantially all leases. The new guidance provides an exception for short-term leases with a lease term of 12 months or less. Lease payments under these short-term leases are generally expensed on a straight-line basis over the term of the lease.

For many entities, this could significantly affect financial ratios used for external reporting and debt covenant compliance.

Lessor accounting is largely unchanged from the previous guidance.  However, the new guidance prospectively eliminates the specialized accounting for leveraged leases.

Public business entities should apply the new guidance for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Nonpublic business entities should apply the guidance for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020.  Early application is permitted.

As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact us directly.

New Standards Update Simplifies Benefit Plan Disclosures

As part of its Simplification Initiative, the Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) No. 2015-12 to reduce complexity in employee benefit plan accounting. We view this as a welcome change, as it eliminates certain disclosure elements not viewed as useful and reduces the cost and complexity of financial reporting. Here is a brief overview of some of the most significant changes:

  • Fully benefit-responsive investment contracts should now be reported at contract value and no adjustment from fair value to contract value is necessary. Previously, these investments were required to be reported at fair value with an adjustment from fair value to contract value. In addition, certain disclosures (such as those related to average yield) are no longer required.
  • Plans are no longer required to disclose investments that represent 5% or more of total net assets.
  • Plans are no longer required to disclose the net appreciation or depreciation in the investments of the plan by type of investment. The net appreciation or depreciation in investments still is required to be presented in the aggregate on the Statement of Changes in Net Assets Available for Benefits.
  • Plans are not required to break out Level 1 and Level 2 investments by strategy or asset allocation (i.e. large cap, international, fixed income, etc.). Plans are now only required to show these in total at the asset type-level (i.e. mutual funds, common collective trusts, pooled separate accounts).
  • Self-directed brokerage accounts should now be reported as a single line item in the fair value hierarchy table instead of the underlying investments being disaggregated by general type.

This update is effective for all employee benefit plans with fiscal years beginning after December 15, 2015. Earlier application is permitted.

For additional information on the specifics of this ASU, contact your client service partner here at Insero & Co., or contact us at (585) 454-6996 or info@inserocpa.com.

Audit & Accounting Update: FASB Approves Deferral of the Effective Date of the Revenue Recognition Standard

In April 2015, the FASB issued for public comment a proposed Accounting Standards Update (ASU), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which would defer the effective date of its new revenue recognition standard by one year. The FASB recently voted to approve this deferral.

The final ASU would permit public organizations to apply the new revenue standard to annual reporting periods beginning after December 15, 2017. Nonpublic organizations would be permitted to apply the new revenue standard to annual reporting periods beginning after December 15, 2018. (more…)

Audit & Accounting Update: Cloud Computing, Compensation, Revenue Recognition, Debt Issue Costs, and Derivatives and Hedging

Cloud Computing Arrangements — FASB Clarifies a Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement

The FASB has issued ASU No. 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. Existing GAAP does not include explicit guidance about a customer’s accounting for fees paid in a cloud computing arrangement. Examples of cloud computing arrangements include: (a) software as a service; (b) platform as a service; (c) infrastructure as a service; and (d) other similar hosting arrangements.

The amendments add guidance to Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software, which will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The guidance already exists in the FASB Accounting Standards Codification™ in paragraphs 985-605-55-121 through 55-123, but it is included in a Subtopic applied by cloud service providers to determine whether an arrangement includes the sale or license of software.

The amendments provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments do not change the accounting for a customer’s accounting for service contracts. As a result of the amendments, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets.

For public business entities, the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. For all other entities, the amendments will be effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning after December 15, 2016. Early adoption is permitted for all entities.

An entity can elect to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. For prospective transition, the only disclosure requirements at transition are the nature of and reason for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change. For retrospective transition, the disclosure requirements at transition include the requirements for prospective transition and quantitative information about the effects of the accounting change. (more…)

Audit & Accounting Update: Consolidation, Income Taxes, Extraordinary Reporting, and Business Combinations

Consolidation — FASB Issues ASU to Improve Consolidation Guidance for Legal Entities

The FASB has issued an Accounting Standards Update (ASU) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions).

The ASU focuses on the consolidation evaluation for reporting organizations (public and private companies and not-for-profit organizations) that are required to evaluate whether they should consolidate certain legal entities.

In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification™ (Codification) and improves current GAAP by:

  • Placing more emphasis on risk of loss when determining a controlling financial interest. A reporting organization may no longer have to consolidate a legal entity in certain circumstances based solely on its fee arrangement, when certain criteria are met.
  • Reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE).
  • Changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.

The ASU will be effective for periods beginning after December 15, 2015, for public companies. For private companies and not-for-profit organizations, the ASU will be effective for annual periods beginning after December 15, 2016; and for interim periods, beginning after December 15, 2017.

Early adoption is permitted, including adoption in an interim period. (more…)