accounting standards updates (asu) effective in 2016 or later years
TRANSCRIPT
ACCOUNTING
STANDARDS UPDATE
(ASU)
Effec
tive i
n 2016 or
later
years
*
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*list of accounting standards updates presented is not all inclusive. For a complete list of ASU’s, refer to the FASB website
PRADEEP BUDHIRAJA, CPAAUDIT AND ACCOUNTING PRINCIPAL, GUMBINER SAVETT
• Has helped startup companies in various industries successfully navigate through the process of IPO
• Provides audit and financial reporting for SEC registered and privately held entities and business consulting. Clients include companies in the technology, manufacturing and distribution, retail and telecommunications industries
• Has worked at PwC India as a manager in assurance and business advisory services
• Has also worked with GE India in their international accounting services division
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ASU 2014-09REVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606)• What has changed?
• Eliminates transaction- and industry-specific revenue recognition guidance under current GAAP
• Replaces it with a principle based approach for determining revenue recognition
• Will require that companies recognize revenue based on the value of transferred good or services as they occur in the contract
• Requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract
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ASU 2014-09REVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606)• When is this effective?
• For reporting periods beginning after December 15, 2017 for public entities• Early adoption permitted only as of annual reporting periods
beginning after December 15, 2016 (including interim reporting periods within that reporting period)
• Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption
• Nonpublic entities will have an additional year to adopt the new standard
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ASU 2014-15PRESENTATION OF FINANCIAL STATEMENTS – GOING CONCERN (SUBTOPIC 205-10)• What has changed?• Provides guidance as to management’s responsibility to evaluate whether
there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures
• Entity’s management should evaluate whether there are condition or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued)
• Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or available to be issued)
• Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or are available to be issued)
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ASU 2014-15PRESENTATION OF FINANCIAL STATEMENTS – GOING CONCERN (SUBTOPIC 205-10)• When is this effective?• For the annual period ending after December 15, 2016, and for
annual periods and interim periods thereafter• Early application is permitted
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ASU 2015-01INCOME STATEMENT – EXTRAORDINARY AND UNUSUAL ITEMS (SUBTOPIC 225-20)• What has changed?• Eliminates from GAAP the concept of extraordinary items. • Subtopic 225-20, Income Statement – Extraordinary and Unusual Items, required that an
entity separately classify, present, and disclose extraordinary events and transactions.• Presently, an event or transaction is presumed to be an ordinary and usual activity of the
reporting entity unless evidence clearly supports its classification as an extraordinary item. • Paragraph 225-20-45-2 contains the following criteria that must both be met for extraordinary
classification: • Unusual nature: The underlying event or transaction should possess a high degree of
abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity, taking into account the environment in which the entity operates,
• Infrequency of occurrence: The underlying event or transaction should be of a type that would not reasonably be expected to recur in the foreseeable future, taking into account the environment in which the entity operates. • If an event or transaction meets the criteria for extraordinary classification, an entity is
required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations.
• Entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item.
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ASU 2015-01INCOME STATEMENT – EXTRAORDINARY AND UNUSUAL ITEMS (SUBTOPIC 225-20)• When is it effective?• For fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015 • A reporting entity may apply the guidance prospectively• Also may apply the guidance retrospectively to all prior periods
presented in the financial statements. • Early adoption is permitted provided that the guidance is applied
from the beginning of the fiscal year of adoption
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ASU 2015-02CONSOLIDATION (TOPIC 810)• What has changed?• Changes the guidance with respect to the analysis that a reporting entity
must perform to determine whether it should consolidate certain types of legal entities
• All legal entities are subject to reevaluation under the revised consolidation mode
• Affects the following areas: • limited partnerships and similar legal entities• evaluating fees paid to a decision maker or a service provider as a
variable interest• the effect of fee arrangements on the primary beneficiary
determination • the effect of related parties on the primary beneficiary determination• certain investment funds.
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ASU 2015-02CONSOLIDATION (TOPIC 810)• When is this effective?• Effective for public business entities for fiscal years, and for interim
periods within those fiscal years, beginning after December 15, 2015. • Early adoption is permitted, including adoption in an interim period. • If an entity early adopts the guidance in an interim period, any
adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
• A reporting entity may apply the amendments in this guidance using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption.
• A reporting entity also may apply the amendments retrospectively. • Nonpublic entities will have additional one year to adopt the new
standard.
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ASU 2015-03INTEREST- IMPUTATION OF INTEREST (SUBTOPIC 835-30)• What has changed?• Simplifies the presentation of debt issuance costs and requires that debt
issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.
• The recognition and measurement guidance for debt issuance costs are not affected by the new guidance.
• An entity is required to apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance
• Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. • These disclosures include the nature of and reason for the change in
accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (i.e., debt issuance cost asset and the debt liability).
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ASU 2015-03INTEREST- IMPUTATION OF INTEREST (SUBTOPIC 835-30)• When is this effective?• Effective for financial statements of public entities issued for fiscal
years beginning after December 15, 2015, and interim periods within that fiscal year.
• Early adoption is permitted for financial statements that have not been previously issued.
• For nonpublic entities, the amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.
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ASU 2015-17INCOME TAXES (TOPIC 740): BALANCE SHEET CLASSIFICATION OF DEFERRED TAXES• What has changed?• To simplify the presentation of deferred income taxes, the
amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position
• The amendments in this update apply to all entities that present a classified statement of financial position
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ASU 2015-17INCOME TAXES (TOPIC 740): BALANCE SHEET CLASSIFICATION OF DEFERRED TAXES• When is this effective?• Effective for financial statements issued for annual periods
beginning after December 15, 2016, and interim periods within those annual periods
• Earlier application is permitted as of the beginning of an interim or annual reporting period
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ASU 2015-05INTANGIBLES-GOODWILL AND OTHER- INTERNAL-USE SOFTWARE (SUBTOPIC 250-40): CUSTOMER’S ACCOUNTING GEES PAID IN A CLOUD COMPUTING ARRANGEMENT• What has changed?• The amendments in this Update 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 guidance will not change GAAP for a customer’s accounting for service contracts
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ASU 2015-05INTANGIBLES-GOODWILL AND OTHER- INTERNAL-USE SOFTWARE (SUBTOPIC 250-40): CUSTOMER’S ACCOUNTING GEES PAID IN A CLOUD COMPUTING ARRANGEMENT• When is this effective?• 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: • prospectively to all arrangements entered into or materially
modified after the effective date • retrospectively
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ASU 2016-02LEASES (TOPIC 842)• What has changed?• requires lessee recognition on the balance sheet of a right-of-use
asset and a lease liability, initially measured at the present value of the lease payments
• requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis
• requires classification of all cash payments within operating activities in the statement of cash flows
• When is this effective?• For fiscal years commencing after December 15, 2018• Early adoption is permitted• Nonpublic entities will have additional one year to adopt the new
standard
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ASU 2015-05INTANGIBLES-GOODWILL AND OTHER (TOPIC 350); BUSINESS COMBINATIONS (TOPIC 805); CONSOLIDATION (TOPIC 810); DERIVATIVES AND HEDGING TOPIC (TOPIC 815)• What has changed?• Removes the effective dates for all of the Private Company Council
(PCC) accounting alternatives, making them effective immediately and indefinitely
• Also provides an unconditional one-time option to forgo a preferability assessment the first time a PCC accounting alternative is elected
• When is this effective?• Immediately
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ASU 2016-07INVESTMENTS-—EQUITY METHOD AND JOINT VENTURES (TOPIC 323)• What has changed?• Simplifies the Transition to the Equity Method of Accounting, which
is part of the FASB Simplification Initiative to identify specific areas of U.S. GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided
• Eliminates the current requirement for retroactive adjustment• Previously, when an investment qualified for use of the equity
method as a result of an increase in the level of ownership interest or degree of influence, retroactive adjustment was required on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held
• This change was in response to constituents' views that retroactive adjustment, which can be costly and complex, does not provide a clear benefit to users of financial statements
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ASU 2016-07INVESTMENTS-—EQUITY METHOD AND JOINT VENTURES (TOPIC 323)• When is this effective?• Effective for all entities for fiscal years, and for interim periods
within those fiscal years, beginning after December 15, 2016 (i.e., calendar-year 2017)
• Early adoption is allowed• Amended guidance should be applied prospectively to increases in
the level of ownership interest or degree of influence that result in the adoption of the equity method
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